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FYI: Retirement

Monday, March 2, 2009
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Delaying Retirement, Reducing Contributions

One fallout of the current economic crisis is that many employees have scaled back contributions to their retirement accounts. In a survey of 1,089 plan sponsors by Brookfield, Wis.-based International Foundation of Employee Benefit Plans, 46 percent of respondents reported that their employees and plan participants are considering delayed retirement.

With that comes an upswing in the number of employees cutting back on their retirement contributions. Nearly 30 percent reported that defined-contribution participants have decreased their contributions.

When asked about their participants' greatest retirement concern, more than half (51 percent) of corporate sponsors cited apprehension about saving enough money for retirement. The major concern reported by multi-employer (55 percent) and public-plan (39 percent) participants was underfunded defined-benefit plans.

Boomers Plan to Claim Social Security at 62

Almost half (45 percent) of people who are currently 61 years old plan to receive Social Security when they turn 62 -- the first year of eligibility, according to a Fidelity Investments survey of 300 61-year-olds.

The Boston-based company found that more than three quarters (77 percent) are not planning to use the money for recreation or any extras in their golden years, but instead plan on spending it on basic necessities such as food, living costs and utility bills.

While they are eager to start collecting the money, they aren't sure how much they will actually get. Just 22 percent knew exactly how much their Social Security check would amount to and nearly three quarters (73 percent) are making their decision to start receiving the checks at 62 without having a formal retirement-income plan.

"Many Americans who are within one year of beginning to collect their Social Security retirement benefits may be planning to rely too much on it, considering Social Security currently only funds a little more than one-third, or 37 percent, of an average retiree's income," says Carolyn Clancy, executive vice president of Fidelity Investments personal and workplace investing.

AIG Settles with Teachers' Retirement Fund

New York-based American International Group Inc. settled a lawsuit with The Teachers Retirement System of Louisiana for $115 million.

The teachers group -- a shareholder of AIG's -- accused AIG executives of paying millions of dollars in hidden fees and commissions to C.V. Starr & Co., a privately-held financial-services firm that was an AIG affiliate.

Former AIG CEO Maurice Greenberg is also chairman and CEO of C.V. Starr & Co., and the suit claimed that AIG could have done the work that C.V. Starr & Co. was paid to do. Instead, the suit claims, the executives conducted an extended series of transactions designed to siphon money away from the company and into private affiliates they controlled.

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The case ended in a settlement calling for $29.5 million coming directly from four former AIG executives, including Greenberg, as well as the company's former CFO, CIO and vice chairman of insurance. The remaining money will be paid by insurance.

Since this is a derivative lawsuit, all the money goes back to the corporation.

Pension Funds in Serious Decline

Pension plans sponsored by the largest U.S. companies have seen a decline in funded status -- the ratio of assets to liabilities -- from 104 percent at the end 2007 to 75 percent as of December 31, 2008, according to New York-based consultancy Mercer. This equates to losses of an estimated $469 billion over 2008, causing an aggregate surplus of $60 billion at the end of 2007 to be replaced by an estimated aggregate deficit of $409 billion at the end of 2008.

The study also shows that pension expense is likely to increase from $10 billion in 2008 to an estimated $70 billion in 2009.

"What is clear from the last 12 months, and particularly so in the last quarter, is that markets have not only created a significant change in pension plans' funded status, but . . . have been more volatile and the funded status of plans has been more difficult to project," says Adrian Hartshorn, a member of Mercer's Financial Strategy Group. "Similar levels of volatility have not been observed since 2000?2002."

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