Category Archives: Investing and fiduciary requirements

Pension funds shift to Bonds- Is it permanent?

I am a fan of the Bloomberg Chart of the day.  Last week they had a most interesting one that showed the percentage of stocks in pension plans has dropped 12% since 2007, to 46%, while Bonds have risen from 32% to 42% in the same time.  Since a major portion of the stock market is comprised of largepublic  pension plans, the authors believe this to be a fairly permanent shift, despite the low returns being paid by debt these days.

–  Reeve Conover

Aetna to Buy Coventry Health Care for $5.7 Billion

Aetna to Buy Coventry Health Care for $5.7 Billion

By MICHAEL J. DE LA MERCED

6:52 a.m. | Updated

Aetna announced on Monday that it would buy Coventry Health Care for about $5.7 billion in cash and stock, in a move by the insurer to push further into government-backed programs like Medicaid.

Under the terms of the deal, Aetna will pay about $42.08 a share, with nearly two-thirds of that amount expected to be in cash. The figure is about 20 percent above Coventry’s closing price on Friday.

Aetna, based in Hartford, said the deal would help it expand further into government-backed healthcare options, such as Medicare and Medicaid.

“Integrating Coventry into Aetna will complement our strategy to expand our core insurance business, increase our presence in the fast-growing government sector and expand our relationships with providers in local geographies,” Aetna’s chief executive, Mark T. Bertolini, said in a statement.

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Aetna’s acquisition of Coventry is the latest deal in an industry that has been spurred to consolidation in part because of the Obama administration’s sweeping expansion of health care coverage in the country.

Last month, WellPoint agreed to buy Amerigroup for about $4.9 billion, in a deal that increased the big insurer’s presence in the markets for Medicare, for elderly patients, and Medicaid, for low-income patients.

Coventry, based in Bethesda, Md., offers a variety of insurance services, including government-financed programs. It earned $543.1 million last year on revenue of $12.2 billion.

The company’s shares have risen 17.5 percent in the last 12 months.

Aetna said it expected around $400 million of annual costs savings by 2015.

Goldman Sachs, UBS Investment Bank and the law firms Davis Polk & Wardwell and Jones Day advised Aetna on the deal, while Greenhill and Co and the law firms Wachtell, Lipton, Rosen & Katz, Bass, Berry & Sims and Crowell & Moring advised Coventry.

Congratulations to the CFO of the Year

Congrats go our to Jerry Dresel of DeJana Trucking & Equipment Companies of Kings Park, N.Y.

He is being Honored as CFO of the year (private company, under $50 million) by the 2012 Long Island Business News.  We worked with Jerry at his former employer many years ago, and this award is testament to everything we learned about him in those years.  Great Job, Jerry!

Social Security not deal it once was for workers

August 7, 2012 // by Stephen Ohlemacher // Leave a comment

People retiring today are part of the first generation of workers who have paid more in Social Security taxes during their careers than they will receive in benefits after they retire. It’s a historic shift that will only get worse for future retirees, according to an analysis by The Associated Press.

Previous generations got a much better bargain, mainly because payroll taxes were very low when Social Security was enacted in the 1930s and remained so for decades. “For the early generations, it was an incredibly good deal,” said Andrew Biggs, a former deputy Social Security commissioner who is now a scholar at the American Enterprise Institute. “The government gave you free money and getting free money is popular.”

If you retired in 1960, you could expect to get back seven times more in benefits than you paid in Social Security taxes, and more if you were a low-income worker, as long you made it to age 78 for men and 81 for women. As recently as 1985, workers at every income level could retire and expect to get more in benefits than they paid in Social Security taxes, though they didn’t do quite as well as their parents and grandparents.

Not anymore.

A married couple retiring last year after both spouses earned average lifetime wages paid about $598,000 in Social Security taxes during their careers. They can expect to collect about $556,000 in benefits, if the man lives to 82 and the woman lives to 85, according to a 2011 study by the Urban Institute, a Washington think tank.

Social Security benefits are progressive, so most low-income workers retiring today still will get slightly more in benefits than they paid in taxes. Most high-income workers started getting less in benefits than they paid in taxes in the 1990s, according to data from the Social Security Administration. The shift among middle-income workers is happening just as millions of baby boomers are reaching retirement, leaving relatively fewer workers behind to pay into the system. It’s coming at a critical time for Social Security, the federal government’s largest program.

The trustees who oversee Social Security say its funds, which have been built up over the past 30 years with surplus payroll taxes, will run dry in 2033 unless Congress acts. At that point, payroll taxes would provide enough revenue each year to pay about 75 percent of benefits. To cover the shortfall, future retirees probably will have to pay higher taxes while they are working, accept lower benefits after they retire, or some combination of both. “Future generations are going to do worse because either they are going to get fewer benefits or they are going to pay higher taxes,” said Eugene Steuerle, a former Treasury official who has studied the issue as a fellow at the Urban Institute.

How can you get a better return on your Social Security taxes? Live longer. Benefit estimates are based on life expectancy. For those turning 65 this year, Social Security expects women to live 20 more years and men to live 17.8 more. But returns alone don’t fully explain the value of Social Security, which has features that aren’t available in typical private-sector retirement plans, said David Certner, legislative policy director for AARP. Spouses can get benefits even if they never earned wages. Children can get benefits if they have a working parent who dies. People who are too disabled to work can get benefits for life. Because of spousal benefits, most married couples with only one wage earner will continue to get more in benefits than they pay in taxes for the foreseeable future.

“You are buying this lifetime inflation-protected benefit that you can never run out of and that will always be there for you,” Certner said. “It protects your spouse, protects your family and protects you from disability.” Certner noted that private pensions, retirement savings and home values took a big hit when the economy collapsed, putting a dent in the retirement plans of many Americans. “When you have that combination of factors, Social Security becomes more and more important,” Certner said. Social Security is financed by a 12.4 percent tax on wages. Workers pay half and their employers pay the other half. Self-employed workers pay the full 12.4 percent. The tax is applied to the first $110,100 of a worker’s wages, a level that increases each year with inflation. For 2011 and 2012, the tax rate for employees was reduced to 4.2 percent, but is scheduled to return to 6.2 percent in January.

The payroll tax rate was only 2 percent in 1937, the first year Social Security taxes were levied. It did not surpass 6 percent until 1962. Even with low tax rates, Social Security could afford to pay benefits in the early years because there were more workers paying the tax for each person receiving benefits than there are today. In 1960, there were 4.9 workers paying Social Security taxes for each person getting benefits. Today, there are about 2.8 workers for each beneficiary, a ratio that will drop to 1.9 workers by 2035, according to projections by the Congressional Budget Office.

About 56 million people now collect Social Security benefits, and that number is projected to grow to 91 million in 2035. Monthly benefits average $1,235 for retired workers and $1,111 for disabled workers. Social Security provides most older Americans a majority of their income. About one-quarter of married couples and just under half of single retirees rely on Social Security for 90 percent or more of their income, according to the Social Security Administration.

“Social Security is what’s carrying me,” said Neta Homier, a 79-year-old retired hospital worker from Toledo, Ohio. “There’s no way I would have made it without it. The kids, they’re on their own, now, and I’m not going to be a burden for them. That’s what it would have been if I hadn’t had Social Security.” Homier said she started receiving Social Security when she was 63 and now gets about $800 a month, after her Medicare premiums are deducted. She said her father died at 51, so he never received Social Security, and her mother died at 71 and collected benefits for only a few years. “It’s definitely worth it,” she said.

At 52, Anthony Riley of Columbus, Ohio, has a different perspective. Riley said he has a private retirement account because he worries that Social Security won’t provide adequate benefits throughout his retirement. “I use to think that it was worth paying for your Social Security, but now I don’t think so,” Riley said.

At 22, Mackenzie Millan of Los Angeles has even greater doubts about whether Social Security will be a good deal for her. “The money that I put aside now, it’s not like that money is going to be waiting for me. That money is going toward someone else,” the recent college graduate said. “If I wanted Social Security 50 years from now, when I wanted to retire, I would have to hope that someone else is still working and putting money aside in their paychecks to pay for my Social Security at that point.”
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Associated Press writer Andres Gonzalez contributed to this report.
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Online:
Urban Institute study: http://tinyurl.com/4svpdqy
Social Security Administration: http://tinyurl.com/cf82s6a
Calculate your own benefits: http://tinyurl.com/cpsk5qt

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Premium hikes don’t bother employees

Benefitspro By  July 26, 2012

Despite rising premiums and out-of-pocket costs, employees are generally satisfied with their health plan.

“I thought that was a pleasant surprise,” said Helen Darling (right), president and CEO of the National Business Group on Health, referring to the number of respondents (35 percent) who are more satisfied with their coverage compared to three years ago, even though two-thirds of employees have seen their health care costs go up.

Darling spoke Thursday at The National Press Club in Washington, D.C., to reveal findings from a new employee benefits survey done by the NBGH.

More than 1,500 employees at large companies (2,000 or more employees) participated in the survey entitled, “Perceptions of Health Benefits in a Recovering Economy: A Survey of Employees.”

Overall, nearly two in three workers (63 percent) are very satisfied with their current health coverage provided by their employer or union, according to the survey. What’s more, 87 percent rated health benefits as very important when making a decision about accepting a new job or remaining with their employer, while 78 percent rated retirement benefits as very important, which is up sharply from 63 percent in 2007.

“It’s clear employers have believed for a long time that health benefits are important for recruitment and retention of employees, and this certainly confirms that,” Darling said.

While many employees seem to be happy with the coverage their getting, most – 62 percent – don’t know how much their employers pay for health benefits. Darling estimates employee guesses are off by about $3,000.

This, Darling said, makes it difficult to communicate the perceived value of the benefits that employers try to provide their employees. “Employers need to help employees understand how rich the benefit is that they’re providing. We would strongly recommend a ‘total rewards statement’ so every employee knows what is being paid on their behalf for a health benefits package.”

The Patient Protection and Affordable Care Act is compounding this misunderstanding by making employees believe their employers have not been providing the level of protection and coverage that the law mandates.

“The No. 1 [importance for employees] is very good coverage for serious illness. Most large employers have very comprehensive coverage at the back end.” Darling said. She noted that many employers were already in sync with PPACA requirements – such as the no lifetime limit provision.

“Employers really need to help employees and family members understand [that] they’ve got the protection for serious illness.”

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Reeve Conover is a Registered Representative. Securities offered through Cambridge Investment Research, Inc., a Broker/dealer member FINRA/SPIC. Cambridge and Conover Consulting are not affiliated. Licensed in SC, NC, NY, CT, NJ, and CA.
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