Connecticut and Maryland Offer State Tax Amnesty Programs

From Law.com

Connecticut and Maryland are offering state tax amnesty programs in the wake of a six-month Internal Revenue Service amnesty program for taxpayers with unpaid offshore account income.

Read more at Law.com

President Obama Signs the Credit Card Accountability, Responsibility and Disclosure Act (CARD) of 2009

From the Whitehouse:

WASHINGTON – Today, President Obama signs the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, marking a turning point for American consumers and ending the days of unfair rate hikes and hidden fees.

Read the Whitehouse News Brief for a summary of the CARD Act’s key provisions.

Full text of the bill at Govtrack.us

WSJ, “Are There Loopholes in the Credit Card Act?”

CRS Report on The Federal Retirement Reform Act of 2009

HR 1804, The Federal Retirement Reform Act of 2009
Congressional Research Service
Patrick Purcell
May 20, 2009

SUMMARY

On April 1, 2009, the House of Representatives passed  H.R. 1804, the Federal Retirement Reform Act of 2009, under suspension of the rules. As passed by the House, H.R. 1804 would:

• provide for newly hired federal employees to be enrolled automatically in the Thrift Savings Plan (TSP) at a default contribution rate of 3% of pay;
• require the Federal Retirement Thrift Investment Board to establish within the TSP a qualified Roth contribution program that provides for after-tax contributions and tax-free distributions;
• *give the Federal Retirement Thrift Investment Board authority to include self-directed investment options in the TSP;
• require the Thrift Board to submit to Congress an annual report that includes demographic information about TSP participants and fund managers;
• require the computation of an annuity under the Federal Employees’ Retirement System to include an employee’s unused sick leave in his or her length of service;
• allow certain redeposits to the Civil Service Retirement System for periods of service between October 1990 and February 1991 to exclude interest payments;
• require CSRS annuities for employees whose careers include part-time service to be computed under the same rules that apply to part-time annuities under FERS;
• require the Secretary of Defense to report to Congress the estimated cost of an agency match on contributions to the TSP by members of the uniformed services;
• allow former employees who withdrew contributions to the FERS at the time of separation from federal service to redeposit those contributions, plus interest, to the FERS in the event that they are re-employed by the federal government;
• allow certain service performed as an employee of the District of Columbia to be credited as federal service for purposes of determining retirement benefits; and
• increase the monthly indemnity allowance for surviving spouses of deceased members of the armed forces who are affected by certain benefit offsets.

In the News: The VIX Index

Lately there has been a lot of discussion about the VIX in the financial media (see Barron’s).

The financial crisis has morphed VIX into Wall Street's one-stop indicator that everyone references to see if investors are bullish or bearish toward stocks. When VIX rises, it's interpreted as a sign that investors are afraid to own stocks. When VIX declines, it means they're confident about stocks.

The VIX is the ticker symbol for the Chicago Board Options Volatility Index. It is an estimate of the  volatility in the S&P 500 index options and, accordingly, is sometimes called the fear index. The index is positively related to volatility under the assumption that it is more costly to insure against risk with options when the market is volatile. It is not correlated with the market, because a market can be highly volatile in both the upward and downward direction.

Data on the VIX and the chart below can be found at Yahoo Finance. As can be seen, there was a dramatic run up in the VIX at the end of last year. Since then it has been returning to previous levels. The VIX is calculated in real time, representing the expected volatility of puts and calls over the next 30 days. A value of 28 indicates that the expected annualized change in the S&P 500 over the next month is 28 percent. The one month movement of represents a change of one standard deviation over the next month. Consequently, given a VIX of 28  there is a 68 percent probability that movement in the S&P 500 will be within plus or minus 8.08 percent.

More information on the VIX is available at the CBOE

Be Aware of Deceptive Mortgage Relief Ads

Consumers using Internet searches for government mortgage relief programs have be deceptively diverted to sites that fraudulently profit from scamming distressed borrowers.

FTC Press Release

FTC Obtains Court Order Halting Deceptive Mortgage Relief Internet Ads; Marketers Falsely Claimed to Operate MakingHomeAffordable.gov

At the Federal Trade Commission’s request, a federal district court issued an order to stop an Internet-based operation that pretends to operate “MakingHomeAffordable.gov,” the official Web site of the federal Making Home Affordable program for free mortgage loan assistance. The FTC alleged that the defendants deceptively diverted consumers who searched online for the free government assistance program to commercial Web sites that offer loan modification services for a fee.

Read more.

Pricing Medical Services

You can use the following free website for finding the typical cost of medical treatments. Be aware that these are average prices. Prices can range significantly because of specific medical needs.

Health Care Blue Book

The Healthcare Blue Book is a free consumer guide to help you determine fair prices in your area for healthcare services. If you pay for your own healthcare, have a high deductible or need a service your insurance does not fully cover, we can help. The Blue Book will help you find fair prices for surgery, hospital stays, doctor visits, medical tests and much more.

New American Opportunity Tax Credit for Students

From the IRS website:

American Opportunity Credit

Audio file for podcast: ARRA Tax Credits

Under the American Recovery and Reinvestment Act (ARRA), more parents and students will qualify over the next two years for a tax credit, the American Opportunity Credit, to pay for college expenses.

The American Opportunity Credit is not available on the 2008 returns taxpayers are filing during 2009. The new credit modifies the existing Hope Credit for tax years 2009 and 2010, making the Hope Credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels. These income limits are higher than under the existing Hope and Lifetime Learning Credits.

For more information, see Publication 970, Tax Benefits for Education.

National Retirement Risk Index

The Center for Retirement Research at Boston College has created the National Retirement Risk Index.

The National Retirement Risk Index (NRRI) measures the percentage of working-age households that are at risk of being unable to maintain their pre-retirement standard of living in retirement. It addresses one of the most compelling challenges facing the nation today — ensuring retirement security for an aging population.

The index assumes that households annuitize all of their assets. Those that fail to come within 10 percent of the targeted retirement income are said to be at risk. It assumes retirement at age 65. The index incorporates a wage indexed smoothing approach for estimating retirement consumption. This seems to generate a replacement rate in retirement of between 70 to 71 percent. Currently, about 45 percent are at risk of not reaching a sustainable retirement.

Got to the National Retirement Risk Index

The Taxing Consequences of Gift Giving

Arden Dale reviews the tax consequences of gift giving in this WSJ article. In short, take your losses and give away your gains.

Story here: GETTING PERSONAL: Think About Taxes When Giving Stock

UMaine to Offer Free Personal Finance Workshops

From UMaine website:

ORONO — The University of Maine Financial Education Program, in collaboration with the UMaine School of Economics, will offer a series of workshops related to household financial management. The set of five workshops will run continuously through the summer in a rotating cycle that starts Thursday, May 21. All workshops are free and open to the public.

Link here.

FTC Files Suit to Stop Robocalls Pushing Vehicle Warranty Extensions

Extended warranties typically are not a good buy. This is why retailers put so much effort into promoting extended warranties.

The Federal Trade Commission is asking a federal court to shut down a telemarketing campaign that has been bombarding U.S. consumers with hundreds of millions of allegedly deceptive “robocalls” in an effort to sell them vehicle service contracts under the guise that they are extensions of original vehicle warranties.

In two related complaints filed in federal court, the Commission took action against both the promoter of the phony extended auto warranties, as well as the telemarketing company that it hired to carry out its illegal, deceptive campaign. In its complaints, the agency contends that the companies are operating a massive telemarketing scheme that uses random, pre-recorded phone calls to deceive consumers into thinking that their vehicle’s warranty is about to expire. Consumers who respond to the robocalls are pressured to purchase extended service contracts for their vehicles, which the telemarketers falsely portray as an extension of the manufacturer’s original warranty.

FTC Files Suit to Stop Illegal Robocalls Pushing Vehicle “Warranty” Extensions
Federal Trade Commission, Plaintiff, v. Voice Touch, Inc., et. al.
Federal Trade Commission, Plaintiff, v. Transcontinental Warranty, Inc., et. al.
How to Steer Clear of Auto Warranty Scams

Is the Housing Bust Over?

Michael Shenk says probably not? You can read his full answer in the current issue of Economic Trends published by the Federal Reserve Bank of Cleveland.

It’s been three years—is the housing market correction finally over? The short answer is probably no, but there are some encouraging signs of improvement.

Existing single-family home sales, by far the largest segment of the housing market, have been relatively stable for the past five months. Prior to a steep drop off in November, sales had held steady for roughly 14 months. This stability has come at a cost though, as the median price of homes sold has fallen drastically over the past year and a half.

Stimulus Checks for the Dead

Don’t let death stop you from getting a little stimulus. Video from myfoxny.com

Compare Hospital Costs

Anna Mathews in Tallying the Cost to Bring Baby Home (WSJ) writes on the high cost of her hospitalization during the birth of her child. The article provides a link to sites that let you compare hospital costs at ConsumerHealthRatings.com. You should check out these relative costs before a planned hospital stay.

Anna had a maximum out-of-pocket charge of $2,000 under her health insurance policy. You might think, as she did,  that this would limit your expenses for a delivery to $2,000. However, the cap is for each patient. Since the baby was also a patient the cap was actually $4,000.

What’s the Cost of a Day in the Hospital?

Kaiser State Health Facts lists data from the 2007 AHA Annual Survey published in 2009. The most expensive state for a day in the hospital is not a state. It is the District of Columbia at $2,381 for one in-patient day. The least expensive is South Dakota at $869.

Page link

Interactive Asset Allocation Chart at Bankrate.com

Bankrate illustrates three asset allocation portfolios from aggressive to moderate. As you slide your mouse over a slice of the pie chart a window pops up with a brief description of the assets in that category. The chart is accompanied by a brief explanation of portfolio theory.

Page link

Work Disability Affects the Spousal Early Retirement Decision

Serhii Ilchuk in a dissertation published by the Rand Corporation finds that …

The onset of a husband's work disability can lead to an earlier age of retirement not only for the husband himself but also, through joint retirement, for his wife.  This effect can be defined as a “joint early retirement” phenomenon.  Husbands whose wives become ill also tend to retire at earlier ages. The “joint early retirement” phenomenon is more pronounced among families where the spouse remaining in the labor force is a low earner.

The author also calculates cost-of-illness estimates for indirect costs (productivity lost through an early retirement) of different health conditions at the individual and societal levels, and estimates total family productivity lost due to the spouse's work disability.

Retirement Decisions of Women and Men in Response to Their Own and Spousal Health
Source: RAND Corporation

Medicare Projected to Go Bust in 2017

The 2009 Medicare Trustees Report has been issued and the projections are not good.

In 2008, 45.2 million people were covered by Medicare: 37.8 million aged 65 and older, and 7.4 million disabled. About 22 percent of beneficiaries have chosen to enroll in private health plans that contract with Medicare to provide health services. Total benefits paid in 2008 were $462 billion. Income was $481 billion, expenditures were $468 billion, and assets held in special issue U.S. Treasury securities grew to $381 billion.
…
The HI trust fund is not adequately financed over the next 10 years. At the beginning of 2009 the assets of the HI trust fund were $321 billion and are projected to be exhausted during 2017, under the intermediate assumptions. The HI trust fund does not meet the short- range test of financial adequacy. Although the short-range financial status of the HI trust fund has not been considered satisfactory since 2003, the outlook has further deteriorated as a result of the current economic recession.

The SMI trust fund is adequately financed over the next 10 years and beyond because premium and general revenue income for Parts B and D are reset each year to match expected costs. However, further Congressional overrides of scheduled physician fee reductions, together with an existing “hold harmless” provision restricting premium increases for most beneficiaries, could jeopardize Part B solvency and require unusual measures to avoid asset depletion.

 

Trustees Report Summary

Shiller Ratio Close to Historical Average

Professor Shiller’s barometer of stock market performance compares stock market prices to a 10-year trend adjusted for inflation. The WSJ in “By Most Measures, Stocks No Longer Look Cheap,” reports that the ratio is about at the historical average of 15.9 as of last Wednesday. Professor Shiller explains his views on the economy and financial markets in this interview from Bloggingheads.tv (October 2008). You can also find a public lecture and PowerPoint presentation by Professor Shiller at the London School of Economics.

 

See also

• WSJ, “If You Think Worst Is Over, Take Benjamin Graham's Advice”
• The Graham Ratio Indicates the Market Does Not Suffer From Irrational Pessimism

GAO Review of Hedge Funds Oversight

HEDGE FUNDS:  Overview of Regulatory Oversight, Counterparty Risks, and Investment Challenges
(May 7, 2009)

Excerpt from the report

Financial regulators and industry observers remain concerned about the adequacy of counterparty credit risk management at major financial institutions because it is a key factor in controlling the potential for hedge funds to become a source of systemic risk. Although hedge funds generally add liquidity to many markets, including distressed asset markets, in some circumstances hedge funds’ activities can strain liquidity and contribute to financial distress. In response to their concerns regarding the adequacy of counterparty credit risk, a group of regulators had collaborated to examine particular hedge fund-related activities across entities they regulate, and the President’s Working Group on Financial Markets (PWG). The PWG also established two private sector committees that recently released guidelines to address systemic risk and investor protection.

Issue Brief on How Emotions Influence Savings Behavior

Gergana Y. Nenkov, Deborah J. MacInnis, and Maureen Morrin at Boston College’s Center for Retirement Research have posted “How Do Emotions Influence Savings Behavior?” They examine how two different emotions, hope and hopefulness, affect 401(k) participation and asset allocation. Their research indicates that

…people who are hopeful that they will manage to save enough for retirement are motivated by threats to their hopefulness, while this tactic is likely to backfire for people who are not as hopeful. On the other hand, people with a strong hope for having enough to retire increase their information search and risk-taking behavior as a result of a threat to their hope, so threatening the possibility of their desired outcome might prompt them to search more comprehensively, but also to take excessive risks.

The results seem to imply that you need to set realistic goals that you are hopeful of achieving. These savers respond to minor setbacks by increasing their efforts. On the other, those who set unrealistic goals are more likely to abandon their planned savings when confronted with adversity.

Worst Decade for S&P

AllFinancialMatters.com has calculated the total return on the S&P for each decade since the 1930s. Given the current market the total return on the S&P for the decade following 2000 is –29.1%.

School Based Bank Savings Programs

From Press Release April 29, 2009

School-Based Bank Savings Programs: Bringing Financial Education to Students

WASHINGTON — The Office of the Comptroller of the Currency (OCC) today published a Community Developments Insights report that discusses how banks can set up school-based bank savings programs to help students learn about the importance of saving and managing their personal finances.

Comptroller of the Currency John C. Dugan stated, “As a parent, one area of financial literacy that is especially important to me is that our children learn how to make the right financial choices before they leave home.  These school-based bank programs are productive collaborations between banks and schools that share a mutual interest in providing financial education to students eager to learn.”

The OCC encourages bank participation in financial literacy initiatives such as school-based bank savings programs.  Students involved in these programs receive “hands-on” learning, while banks gain added visibility in the communities they serve.

This Insights report explains how the various school-based bank savings programs operate and describes the potential risks and benefits, including positive consideration under the Community Reinvestment Act, that banks participating in these programs may receive.

This Insights report can be accessed on the OCC’s web site at: http://www.occ.gov/cdd/Insights-Schoolbasedbank.pdf. Contact information for the OCC’s Community Affairs Officers is available at: http://www.occ.gov/cdd/contacts.htm.

Compare Cost of Long-Term Care Across the United States

Genworth Financial has posted an interactive map the allows you to compare the average cost of long-term care across the 50 states. You can also download a report on their most recent survey of long-term care along with an affordability index.

Interactive Map