Tag: WSJ

Rising Rates Make Life Insurance Funded With Debt More Costly

Mary Pat Campbell

Link: https://www.wsj.com/articles/rising-rates-make-life-insurance-funded-with-debt-more-costly-11663849907?st

Excerpt:

Rising interest rates and a falling stock market are putting new pressure on a popular strategy of borrowing to fund the purchase of multimillion-dollar life-insurance policies.

Even before rates started to rise, consumers were being forced to make big payments when strategies failed to deliver the promised returns. Many sued their agents and insurers.

So-called premium financing has been around for decades. It was mostly used by the super rich to fund large policies that act as tax shelters and offer death benefits worth tens of millions of dollars. When interest rates hit zero, many more people borrowed to fund their policies.

The lawsuits claim that agents misled them about the strategy’s risks. The policies are supposed to generate enough income to repay the loans, which can also be repaid through the death benefit. People often take out one- to five-year loans, with interest rates that reset annually. They also face risk of loans not being renewed.

….

In court filings, the agents and insurers, Pacific Life and Lincoln National, deny the allegations, which include misrepresentation. Chad Weaver, an attorney for Wayne L. Weaver, one of the agents, said “the premium-financing strategy was implemented after numerous meetings and disclosures, and was completely consistent with [Mr. Marenzi’s] objectives and financial situation at the time of purchase.”

….

Insurers don’t release information on the use of premium financing. The Life Product Review, an industry publication, said a 2021 survey of about 60% of the premium-financing market identified $800 million of loans at those firms to pay for policies taken out in 2020.

Author(s): Leslie Scism

Publication Date: 22 Sept 2022

Publication Site: WSJ

Covid-19 Illnesses Are Keeping at Least 500,000 Workers Out of U.S. Labor Force, Study Says

Mary Pat Campbell

Link: https://www.wsj.com/articles/covid-19-illnesses-are-keeping-at-least-500-000-workers-out-of-u-s-labor-force-study-says-11662955321

Excerpt:

Illness caused by Covid-19 shrank the U.S. labor force by around 500,000 people, a hit that is likely to persist if the virus continues to sicken workers at current rates, according to a new study released Monday.

Millions of people left the labor force — the number of people working or looking for work — during the pandemic for various reasons, including retirement, lack of child care and fear of Covid. The total size of the labor force reached 164.7 million people in August, exceeding the February 2020 prepandemic level for the first time. The labor force would have 500,000 more members if not for the people sickened by Covid, according to the study’s authors, economists Gopi Shah Goda of Stanford University and Evan J. Soltas at the Massachusetts Institute of Technology.

“If we stay where we are with Covid infection rates going forward, we expect that 500,000-person loss to persist until either exposure goes down or severity goes down,” said Mr. Soltas. That assumes that some of those previously sickened eventually return to work.

Author(s): Gwynn Guilford

Publication Date: 12 Sept 2022

Publication Site: WSJ

The Government Pension Reckoning Cometh

Mary Pat Campbell

Link: https://www.wsj.com/articles/the-government-pension-reckoning-cometh-equable-institute-report-11660084312?st=j8a7o7efyyvjtdp&reflink=article_email_share&utm_source=Wirepoints+Newsletter&utm_campaign=24f39fc2e0-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_895ee9abf9-24f39fc2e0-30506353#new_tab

Excerpt:

The California Public Employees’ Retirement System reported a negative 6.1% return for the year, which includes a 21.3% positive return on private equity and 24.1% return on real estate as reported through the second quarter of 2022. What will happen if real-estate prices start to fall and some leveraged private-equity buyouts go south amid rising interest rates?

Collective-bargaining agreements limit how much workers must contribute to their pensions, so taxpayers are required to make up for investment losses. Employer retirement contributions—that is, taxpayers—make up 20% of government worker compensation. That amount has soared over the past decade as pension funds tried to make up for losses during the 2008-2009 financial panic.

A recent report by the Equable Institute found that state and local pension plans now are only 77.9% funded on average, which is about the same as in 2008. But some like Chicago’s are less than 40%. Advice to taxpayers in Illinois: Run.

Author(s): WSJ Editorial Board

Publication Date: 9 Aug 2022

Publication Site: WSJ

Job Switchers Are Earning a Lot More Than Those Who Stay

Mary Pat Campbell

Link: https://www.wsj.com/articles/inflation-switch-jobs-more-money-fed-atlanta-data-11658699425

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Excerpt:

The pay difference between those who stay and those who changed jobs is growing, according to the Federal Reserve Bank of Atlanta. Job stayers, or people who stayed in their job for the past three months, increased their wages by about 4.7% as of June 2022. Meanwhile, those who switched jobs received a raise of 6.4%. The gap is the largest in two decades.

Workers are facing fast-rising prices on gas, groceries, rent and other essentials. Even in a tight labor market, many workers aren’t getting a large enough pay increase at their current job to keep up with inflation, say workers and economists who study the labor market. As a result, some Americans are reconsidering expenses they once considered affordable, while many also are looking for a new job with a bigger paycheck to keep up.

Prof. Yongseok Shin, an economics professor at Washington University in St. Louis, says inflation and the ability to get higher wages by changing companies are pushing many to move on. Some 47 million Americans have changed jobs in the past year, according to the Bureau of Labor Statistics. “I think the workers are paying a lot more attention,” said Prof. Shin. “They are comparing their wage growth with the headline inflation numbers.”

Author(s): Julia Carpenter

Publication Date: 25 Jul 2022

Publication Site: WSJ

Think You’ve Never Had Covid-19? Think Again

Mary Pat Campbell

Link: https://www.wsj.com/articles/think-youve-never-had-covid-19-think-again-11658741403

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Excerpt:

Dr. Ding is a member of a shrinking club of people who are pretty sure they have never been infected with SARS-CoV-2, the virus that causes Covid-19. Geneticists and immunologists are studying factors that might protect people from infection, and learning why some are predisposed to more severe Covid-19 disease.

For many, the explanation is likely that they have in fact been infected with the virus at some point without realizing it, said Susan Kline, professor of medicine at the University of Minnesota Medical School. About 40% of confirmed Covid-19 cases are asymptomatic, according to a meta-analysis published in December in the Journal of the American Medical Association.

More than two years into the pandemic, most people worldwide have likely been infected with the virus at least once, epidemiologists said. Some 58% of people in the U.S. had contracted Covid-19 through February, the Centers for Disease Control and Prevention has estimated. Since then, a persistent wave driven by offshoots of the infectious Omicron variant has kept daily known cases in the U.S. above 100,000 for weeks.

Yet some people haven’t gotten sick or tested positive.

Author(s): Julie Wernau

Publication Date: 25 Jul 2022

Publication Site: WSJ

Biden’s ESG Tax on Your Retirement Fund

Mary Pat Campbell

Link: https://www.wsj.com/articles/bidens-esg-tax-on-your-retirement-fund-pension-planning-regulation-climate-change-investment-returns-portfolios-11658245467?st=4e8f8bvbqr4vurf&reflink=desktopwebshare_permalink

Excerpt:

BlackRock CEO Larry Fink wrote in 2020 that “sustainable investing is the strongest foundation for client portfolios.” Al Gore said in 2021 that “you don’t have to trade values for value. Green can enhance returns.” These claims haven’t aged well: ESG (environmental, social and governance) funds have trailed the market since the beginning of the year and are badly underperforming the sectors they shun, including oil, gas and coal.

That may spur retirement fund managers to reconsider their commitments to ESG funds. But new ESG-favoring regulations may come to the rescue. Last year the U.S. Labor Department proposed a regulation that would tell retirement-fund managers to consider ESG factors such as “climate change” and “collateral benefits other than investment returns” when investing employees’ money.

This would encourage America’s perpetually underfunded pension plans to invest in politically correct but unproven ESG strategies. It would also violate retirees’ basic right to have their money invested solely to advance their financial interests.

….

The new regulation may also expose fiduciaries who don’t consider ESG factors to lawsuits. Already, activist shareholders are pursuing litigation against public companies that don’t take ESG-approved steps. NortonLifeLock was sued for allegedly breaching its fiduciary duties by telling investors it was committed to “diversity” when it had no racial minorities on its board. Exxon was sued for allegedly misleading investors by failing to disclose the likely effect of climate change on its bottom line. To date, courts have generally found that no reasonable investor would make investment decisions based on board diversity or, as one judge put it, “speculative assumptions of costs that may be incurred 20+ or 30+ years in the future.”

Author(s): Vivek Ramaswamy and Alex Acosta

Publication Date: 19 Jul 2022

Publication Site: WSJ

Pension Funds Plunge Into Riskier Bets—Just as Markets Are Struggling

Mary Pat Campbell

Link: https://www.wsj.com/articles/pension-funds-plunge-into-riskier-betsjust-as-markets-are-struggling-11656274270

Graphic:

Excerpt:

More than 100 state, city, county and other governments borrowed for their pension funds last year, twice the highest number that did so in any prior year, according to a Municipal Market Analytics analysis of Bloomberg data. Nearly $13 billion of these pension obligation bonds were sold last year, which is more than in the prior five years combined.

The Teacher Retirement System of Texas, the U.S.’s fifth-largest public pension fund, began leveraging its investment portfolio in 2019. Next month, the largest U.S. public-worker fund, the roughly $440 billion California Public Employees’ Retirement System, known as Calpers, will add leverage for the first time in its 90-year history.

While most pension funds still avoid investing borrowed money, the use of leverage is spreading faster than ever. Just four years ago, none of the five largest pension funds used leverage.

Investing with borrowed money can juice returns when markets are rising, but make losses more severe in a down market. This year’s steep slump in financial markets will test the funds’ strategy.

It’s too soon to tell how the magnified bets are playing out in the current market, as funds won’t report second-quarter returns until later in the summer. In the first quarter, public pension funds as a whole returned a median minus 4%, according to data from the Wilshire Trust Universe Comparison Service released last month. A portfolio of 60% stocks and 40% bonds—not what funds use—returned minus 5.55% in the quarter, Wilshire said.

Author(s): Dion Rabouin, Heather Gillers

Publication Date: 26 Jun 2022

Publication Site: WSJ

Pensions’ Bad Year Poised to Get Worse

Mary Pat Campbell

Link: https://www.wsj.com/articles/pensions-bad-year-poised-to-get-worse-11652175002

Excerpt:

State and local government retirement funds started the year with their worst quarterly returns since the beginning of the pandemic. Things have only gone downhill since.

Losses across both stock and bond markets delivered a double blow to the funds that manage more than $4.5 trillion in retirement savings for America’s teachers, firefighters and other public workers. These retirement plans returned a median minus 4.01% in the first quarter, according to data from the Wilshire Trust Universe Comparison Service. Recent losses have further eroded their holdings.

“It’s a tough period,” said Jay Bowen, manager of the Tampa Firefighters and Police Officers Pension Fund. “Nobody is immune.”

The declines in stocks and bonds are inflicting pain on household and institutional investors in 2022. The S&P 500 has returned minus 13.5% year to date through Friday, while the Bloomberg U.S. Aggregate bond index — largely U.S. Treasurys, highly rated corporate bonds and mortgage-backed securities — returned minus 10.5%.

Author(s): Heather Gillers

Publication Date: 10 May 2022

Publication Site: WSJ

Fentanyl Overdose Rates Are Rising Fast

Mary Pat Campbell

Link: https://www.wsj.com/articles/overdose-rates-are-rising-fast-cdc-drugs-opiod-crisis-substance-abuse-addiction-fatal-syringe-11652904604

Excerpt:

The latest tally of fatal drug overdoses from the Centers for Disease Control and Prevention shows nearly 108,000 fatalities in 2021. This is far more than in 2017, when President Trump declared drug deaths a public-health emergency. Among blacks, the drug mortality rate has quadrupled in less than eight years.

The Trump administration acted aggressively and directed agencies to implement several recommendations from the Commission on Combatting Drug Addiction and the Opioid Crisis. These included changes to prescribing patterns, treatment paradigms and law-enforcement procedures. The rate of deaths from drug overdoses slowed and then dipped. But then Covid hit, with all its mental-health consequences. The addiction and overdose crisis is now the most important public-health issue facing the country.

…..

Coincident with policy changes advertised as civil-rights progress, the comparatively low drug-overdose rate for blacks began to accelerate. It reached the white rate by 2019 and then surged past it during the pandemic to reach 43 annually per 100,000 of the black population by last September.

Rather than gawking at an accelerating overdose crisis, policy makers could benefit people of all races by investigating new sources of demand and supply. Instead, in a world where a single backpack of fentanyl could kill a million people, Mr. Biden eliminates the controls on illegal immigration instituted by his predecessor.

Author(s): Joseph Grogan and Casey B. Mulligan

Publication Date: 18 May 2022

Publication Site: WSJ

U.S. Births Increase for First Time Since 2014

Mary Pat Campbell

Link: https://www.wsj.com/articles/u-s-births-increase-for-first-time-since-2014-11653364861

Graphic:

Excerpt:

U.S. births increased last year for the first time in seven years, according to federal figures out on Tuesday that offer the latest indication the pandemic baby bust was smaller than expected.

American women had about 3.66 million babies in 2021, up 1% from the prior year, according to provisional data from the Centers for Disease Control and Prevention’s National Center for Health Statistics. It was the first increase since 2014. The rebound spanned age groups, with birthrates rising for every cohort of women age 25 and older.

Births still remain at historically low levels after peaking in 2007 and then plummeting during the recession that began at the end of that year. The total fertility rate — a snapshot of the average number of babies a woman would have over her lifetime — was 1.66 last year, up from 1.64 the prior year, when it fell to the lowest level since the government began tracking it in the 1930s.

Author(s): Janet Adamy and Anthony DeBarros

Publication Date: 24 May 2022

Publication Site: WSJ

States Help Business Owners Save Big on Federal Taxes With SALT-Cap Workarounds

Mary Pat Campbell

Link: https://www.wsj.com/articles/states-help-business-owners-save-big-on-federal-taxes-with-salt-cap-workarounds-11653989400

Graphic:

Excerpt:

Business owners are likely saving more than $10 billion annually in federal taxes through state laws that circumvent the $10,000 cap on state and local tax deductions, according to a Wall Street Journal analysis of state data.

The state laws blunt the cap’s effect on owners of closely held businesses such as law firms, hedge funds, manufacturers and car dealerships, while workers earning wages generally can’t take advantage. The strategy, now available in 27 states, converts business owners’ personal income taxes into deductible business taxes that escape what is known as the SALT cap on state and local tax deductions.

Much of the money flows to high-income people in California, New York and New Jersey, while those in Illinois, Massachusetts, Minnesota and Connecticut are likely saving hundreds of millions of dollars as well. It isn’t just a phenomenon in high-tax Democratic states. The proliferating workarounds mark a rare case where a state-tax policy trend has been swift, national and bipartisan, and Utah, Georgia, Arizona, South Carolina and Kansas now have similar laws.

For states, approving the workarounds has been easy, because their residents benefit and state tax collections are barely altered. For business owners, the chance to lower federal tax bills is attractive, and industry groups are lobbying in the states that haven’t yet enacted workarounds.

Author(s): Richard Rubin

Publication Date: 31 May 2022

Publication Site: WSJ

Individual Income Tax Payments on Pace to Reach Record Level

Mary Pat Campbell

Link: https://www.wsj.com/articles/individual-income-tax-payments-on-pace-to-reach-record-level-11654421400

Graphic:

Excerpt:

An unprecedented gush of income-tax revenue is flowing into the federal government, driven in part by investors and business owners, and the size and speed of the increase has surprised even the nation’s fiscal-policy experts.

Individual income tax collections are poised to reach $2.6 trillion, or 10.6% of the economy in the fiscal year that ends Sept. 30, according to the Congressional Budget Office. That is up from 9.1% in 2021 and would mark a record in the 109-year history of the tax, topping the war-tax receipts of 1944 and the dot-com boom of 2000.

The surge has been particularly notable in taxes outside paycheck withholding, a signal that capital gains and business income are driving the trend. The Penn Wharton Budget Model estimates collections of non-withheld taxes reached an inflation-adjusted $522 billion in April 2022, compared with just over $300 billion in 2018 and 2019, before the pandemic.

Author(s): Richard Rubin, Amara Omeokwe

Publication Date: 5 June 2022

Publication Site: WSJ