Retirement healthcare could bust the budgets of many US cities [Brookings Institution]

While the deficits of public pension plans have been widely discussed, much less attention has been given to the obligations of US local governments to supply healthcare for their retired employees.

The unfunded liabilities for retiree healthcare for the 30 largest US cities exceeds $100bn, according to the Pew Charitable Trusts, a Philadelphia-based non-profit organisation. The unfunded liabilities for the 50 US states exceeds $500bn, according to Standard & Poor’s, the rating agency.

Retiree healthcare plans are uniquely American. They exist because the US has never offered universal healthcare before Medicare, the national social insurance programme, at age 65.

Many employees of cities and states retire between 50 and 55, so local governments usually provide them with highly subsidised healthcare between retirement and Medicare, and sometimes beyond.

Yet retiree healthcare plans of local governments, on average, have less than 10 per cent of the funding they need to meet their future obligations. By contrast, if a public pension plan were less than 60 per cent advance funded, it would be considered to be in dire straits.

Read the rest at…

No More Dizzying Earnings Adjustments [Wall Street Journal]

Whether Microsoft’s $26.2 billion purchase of LinkedIn makes sense might depend on where you look. Glancing at LinkedIn’s press release for the full year 2015, you will see a prominent projection for “adjusted” earnings this year of $950 million.

Yet if you closely read the press release and its appendix, you can figure out that the company’s projected 2016 earnings under GAAP, the generally accepted accounting principles required in securities filings, are minus $240 million.

What accounts for that enormous difference? Like many companies, LinkedIn reports one set of figures to the Securities and Exchange Commission but touts adjusted figures elsewhere. LinkedIn’s adjusted projection excludes large expenses: $630 million for stock awards to executives and $560 million for depreciation and amortization.

Read the rest at…

How to Fix Jeb Bush’s Corporate Tax Reform Plan [Real Clear Markets]

The corporate aspects of the tax plan recently announced by presidential candidate Jeb Bush are aimed at achieving the worthwhile goals of economic growth and job creation. However, these goals are likely be undermined by the plan’s treatment of foreign profits of U.S. multinationals and unrealistic projections of tax revenues from rate cuts.

Almost everyone would agree that the current U.S. system for taxing foreign profits of U.S. multinationals is seriously flawed. In theory, such profits are taxed by the U.S. at its standard corporate tax rate of 35 percent — one of the highest in the industrialized world. In fact, such profits are NOT subject to any U.S. corporate tax as long as they are held overseas. As a result, such profits of U.S. multinationals are effectively “trapped” overseas – they are generally not repatriated to build US plants, buy US start-ups or pay dividends to their American shareholders.

The Plan on taxing PAST foreign profits of U.S. multinational is sensible — a one-time tax of 8.75 percent paid over a period of years. That could raise close to $180 billion in revenues. Since U.S. multinationals reasonably relied on the existing U.S. tax rules for foreign profits by holding them abroad, these corporations should be taxed at a modest rate on such past profits.

In the future, however, Jeb’s plan calls for a pure territorial system — foreign profits will be taxed only in the country where they are “earned.” This plan, if adopted, would strongly encourage U.S. multinationals to transfer their intellectual property (patents, copyrights and trademarks) — which can be moved easily at minimal cost — to tax havens, like the Bahamas, where they pay little or no corporate taxes.

Read the rest at…

The Underfunding of Corporate Pension Plans [Real Clear Markets]

The current low level of interest rates poses a big challenge to pension plans with benefits guaranteed by their corporate sponsors. These pension plans have a difficult time earning a decent return from high-quality bonds with relatively low risk.

In response, Congress has recently revised the rules for calculating the obligations of corporate pension plans. But these revised rules allow corporate pension plans to assume that they will earn unrealistically high returns. As a result, many corporate sponsors will not contribute enough to meet their likely benefit obligations to retirees.

Read the rest at

A realistic discount rate for pensions []

Co-authored with Theresa Hamacher.

Private pension funds across the world are finding it more difficult to meet their obligations to future retirees. In July 2012, the 100 largest US private pension funds faced a $533bn shortfall, according to the consulting firm Milliman. In the same month, private pensions in the UK faced a £283bn shortfall, according to the government’s insurer of pension plans.

Read the rest at

Pension ‘savings’ in transportation bill may be costly [Washington Post]

The transportation bill that Congress passed this summer is financed, in part, with a budget gimmick: Lawmakers changed the funding rules for corporate pension plans. These changes help the federal budget in the short term by reducing the tax deductions that corporations take for contributing to these plans — thereby reportedly increasing their taxable income.

Read the rest at

Mandatory audit rotation risks outweigh benefits [Economia]

Since the financial crisis, mandatory rotation of audit firms has been a subject of debate on both sides of the Atlantic.

Last year, the European Union proposed requiring auditors to rotate every six years (or every nine years if the company has two auditors).

In February, the lower house of the Dutch parliament voted to require automatic rotation every eight years. The U.S. Public Company Accounting Oversight Board (PCAOB) held hearings in March on the same subject.

Read the rest at

Search for auditors; don’t rotate [Pensions & Investments]

In March, the Public Company Accounting Oversight Board held hearings about whether to require public companies to change — or “rotate” — their external auditor periodically. Meanwhile, the European Union is proposing to require mandatory rotation every six or 12 years, and the lower house of the Dutch Parliament recently voted to require auditor rotation every eight years.

Read the rest at