Wednesday, December 26, 2007

Military retirement and disability: the candidates weigh in; military retirement and the DADT policy

A good question for military people has to do with the “don’t ask don’t tell” policy, largely discussed on the GLBT blog. What happens to their retirement if they are forced to leave?

Generally it appears that military people who leave “quietly” by resigning after the required number of years in service (20) have been able to collect pensions normally. Randy Shilts, in his book (“Conduct Unbecoming”) points out that in many cases officers or senior NCO’s have been encouraged to “leave quietly” for this reason. When military personnel are forced out early, because of DADT, they usually lose their pensions. In the civilian world, in most cases when people leave a company voluntarily, they can collect all of their unfrozen pension benefits if they were vested (with enough years of service) at the time of leaving. If they are forced out early (as with misconduct or some problem) they forfeit this.

The military has sometimes kept people, because of need, even after disclosures that violate DADT. SLDN has a story from Fort Bragg NC in February 2002, here. “By resigning, Donovan would forfeit his lifetime health benefits and his military retirement pay, now about three years away and estimated to be worth about $250,000, Conormon said,” the story reads. The link is here.

But a more obvious military retirement issue concerns has to do with veterans. Several of the Democratic presidential candidates for 2008 have made an issue of this, especially Joe Biden and John Edwards. The John Edwards campaign writes:

“While boasting of cutting waitlists for VA health care, the Bush administration has done so by excluding nearly 500,000 veterans from enrolling. Bush has strongly opposed granting our nation's veterans full disability and retirement pay. We will end the game of playing politics with funding for veterans health care by making it mandatory. We will end the "disabled veterans tax," under which military retirees who receive both veteran's pensions and disability compensation must surrender a dollar from their military retirement pay for every dollar they get for military compensation.”

The link for this statement is here.

The Edwards issues page is titled “I think we need a president who asks Americans to sacrifice,” and this link deals with national service and proposals to end DADT. So I could have put this on my GLBT blog or my issues blog. In order to address questions on military retirees on this blog, I put it here this time.

The issue of VA disability compensation in conjunction with military retirement seems complicated, and the web doesn't turn up a lot of good resources. Generally, it appears that federal law prohibits collecting both. Here is a typical discussion at BEDaily, which states "Federal law prohibits the award of VA disability compensation
concurrently with military retirement pay, except to the extent the retirement pay is waived." Obviously, this sounds like a good issue to attract the attention of military and veteran voters this year.

Sunday, December 23, 2007

Pension Protection Act of 2006 allows employers to make more aggressive investments of 401K funds automatically

The Washington Post, in a story on Business Page F1 today (Sunday Dec. 23, 2007) reports on a new law, part of the Pension Protection Act of 2006, allowing employers to enroll associates automatically in more aggressively managed 401K funds. The story is called “New Law to Expand Reach of 401(k)s: Way Is Cleared for Default Enrollment,” here.
The provisions at hand go into effect Christmas Eve, Monday Dec. 24.

The provision protects employers from liability for investment losses if they invest "automatically, by default" in one of three specific types of funds, which are riskier than the stable value funds commonly used. The concept is called “life cycle balancing” and allows riskier investments for younger associates to be made automatically. The theory is that over time these investments will yield much higher returns, able to support the associate in retirement, as economic variations tend to balance out over time. For example, more aggressive investments could be made in stocks, new technologies, companies in developing countries (especially China and India), or real estate – all of which tend to be risky in the short run but yield much better returns in the long run. As the associate gets older and closer to retirement age (however defined at the time, and it will increase with demographics) investments automatically become more conservative. Stable value investments may not yield enough returns to support associates for longer retirements. Investments also need to start taking into account the possibility of long term care or the need for long term care insurance. Associates must always have the ability to change automatic allocations, however.

My own experience was that I had quite a bit of choice of funds when I was working (for ING) and it was easy to get the changes made, although this was done and confirmed by mail. Employers have started to outsource this kind of work to companies that specialize in managing it (like Hewitt Associates).

Concepts like automatic allocation have long been known in financial services, especially in life insurance with products known as variable life.

Thursday, December 20, 2007

ABC News covers Medicare Advantage

ABC News, on both the Good Morning America and World News Tonight shows, warned senior consumers about private Medicare Advantage programs which some insurance agents have marketed aggressively to seniors, sometimes to seniors with dementia. The Medicare Advantage program is sold to replace Medicare (including Medicare premiums; it's a little hard to fathom the Part A since those eligible for full social security benefits don't pay Part A premiums; they do pay Part B and D (prescriptions). Chris Cuomo (himself an attorney) reported this morning in detail with a seven minute video. The video is called "Senior Citizens Battle Insurance." In some cases, insurance companies have refused to cover conditions that Medicare would have covered. While some Medicare Advantage plans give better benefits, the patients are at the mercy of the discretion of the insurance company.

To find the video, go to and search for "Medicare".

The video did relate a story where United Healthcare paid over $1 million in benefits for quadruple bypass surgery, but the patient was asked to lobby for Medicare advantage.

I did vet for the possibility of becoming an insurance agent in the spring of 2005. Medicare was not mentioned, but I suppose it could have been. Insurance agents always have to walk a fine line on ethics and can feel pressured to meet quotas.

Medicare's explanation for the plans is here.

Update: 12/21

I checked with my own ex-employer from whom I get pension and retiree health insurance. I asked what happens when I turn 65 in July. Since I am "not grandfathered" it would automatically convert to the Prescription Drug Only Plan once I am eligible for Medicare. But the premium for the quasi Part D is more than the premium I have now. I don't understand why this would be. If anyone understands how the age 65 conversion works (or what grandfathering means) I'd love to see a comment.

Update: Dec. 29: "No Premium Medicare supplements"

Another topic is supplemental Medicare coverage, which may include drug plans. Humana is advertising its Humana Gold HMO, and PPO plans that appear to be inexpensive. I have no idea how good the coverage is in practice, given these reports. The link is here.
I don't see how the premiums and benefits really match up and make sense. Comments are welcome.

Monday, December 10, 2007

SSA mailes out COLA notices, states earnings limits

It appears that Social Security recipients get a 2.33% COLA raise in 2008, starting with the January check, based on the mailing that I got last week.

The earnings limit for 2007 for someone under full retirement age for the entire year of 2007 is $12,960. If you reached full retirement age in 2007, which slides upward, the limit is $34,400. The corresponding amounts in 2008 will be $13560 and $36120. As covered before, this normally comprises only pay for work (wages, tips, most royalties), not investments, 401K withdrawals or pensions. (An important justification reference is this.

The SSA, on its mailed notification of the COLA increase, writes “We paid you benefits in 2007 based on the amount of money you estimated you would make. When your employer(s) reports your actual earnings for 2007 to us, we will adjust your benefits, if necessary. The earnings your employer reports are the amount that will be on the W-2(s) you will receive. If the earnings on your W-2(s) for 2007 include money you earned in another year, you should contact is before April 15 (2008) to let us know. We will also ask you to estimate your earnings in 2008, so we can pay you correctly.”

It does not appear that one needs to volunteer an earnings estimate unless one will go over. I covered this on March 27 on this blog. The SSA does not insist on doing federal withholding, but up to 85% if the payment can be taxable, depending on the total when other income is added.

I still wonder why bureaucratic waste over the earnings limit is necessary. If you paid into the system, why shouldn’t you be able to chose when to take it out, with just a lower amount based on actuarial life expectancy?

Monday, December 03, 2007

Seniors with high assets and low incomes renting

As we know, corporations for many years pressured associates to retire early, and to become more self-sufficient, as they gradually froze pensions and replaced these with matching 401K’s and sometimes job buyouts. Sometimes people retire early and have significant cash but rather poor income flow from that point on, unless they generate some new opportunity. The trend may change somewhat as labor shortages appear in some areas and as demographics force society to accept later retirement ages (that’s a big part of the social security debate). Nevertheless, it is a problem now.

One issue may be housing. Someone may want to move into an apartment and have the cash to pay rent for several years worth of leases, and may not want to risk the real estate market (right now it’s a double-edged sword with falling prices and the subprime mess). They may not have the net income to qualify for the residence (with pension, often frozen or reduced by social security offset), and social security, but they may in fact be able to pay the rent. It would be possible to set aside a special bank account with an auto-debit to guarantee that the rent is paid electronically at midnight the first of every month.

I have wondered how property managers feel about this situation. In 2003, while still in Minneapolis, I checked seven properties in Northern Virginia, and five of them said the use of assets would be OK (as did the property that I left in Minneapolis); two said that it would not. The two that would not tended to be lower end older “garden” properties than generally rent to working class immigrants. That’s interesting. As it happened, I did not need to do this. Rental agenting companies have not said much, indicating that it varies from property to property, and that often a co-signer is required. I found (on the web) one property in Virginia Beach that mentioned this issue but that insists that a senior have close to a half million in assets.

I’ve also checked "over age 55" property listings (senioroutlook), and noted that 30 or 40 miles outside of the largest cities, the prices tend to become reasonable for seniors who do not need to use any special services (just want a reasonably priced secure apartment with usual residential amenities). They appear to be priced lower than some general population properties. I would hope that they would be amendable to working with people in this situation, since obviously assisted living facilities and nursing homes by definition must, and this “active” population of senior rental customers has fewer needs. I don’t know how this plays out in states with larger senior populations (like Florida).

Some people might rent individually owned houses or condos and fund themselves subject to sudden eviction if the owners default and get foreclosed on.

Anyone who knows more about how this issue plays out in practice is encouraged to comment.