October 24, 2014

Missouri to limit pension advance operators

Missouri will become the first state later this summer to ban operations that state officials say can defraud thouands of retirees out of all or part of their pensions.

The effort will protect only retired government employees who are approached by  pension advance operators.   The bill passed by the Legislature this spring and signed by the governor goes into effect August 28th.  State Treasurer Clint Zweifel, who made the issue his top legislative priority this year, says pension advances are dangerous and can be frauds.

“These schemes are currently unregulated in Missouri…and these agreements can be easily misrepresented to the borrower. Pension advances often include requirements to buy life insurance…Interest rates can often exceed 100percent,” he says.

The new law blocks pension advances by making it illegal for any participant in a  state retirement to transfer or assign any part of that retirement plan to somebody else.

Zweifel says pension advances are dangerous: “You could put yourself in a serious position where, because of the upfront payment, you really reduce your retirement security for the long term,” he says.

The new law does not apply to pension plans in the private sector.  But it’s a caution for non-government pensioners as well.

AUDIO: Zweifel interview

 

Payday loan bill advances (AUDIO)

A proposed law that could keep some customers of payday loans from becoming victims of payday loans is close to approval by the state senate.

The legislature has been trying to put some limits on payday loan companies for years. This time, the industry is not fighting the effort. Rogersville Senator Mike Cunningham is not trying to shut down the industry. He’s trying to limit opportunities for customers to get into trouble.

Cunningham says payday loan companies are needed because banks don’t want to make small loans of the kind a customer sought one day while he was visiting one of those stores–a few dollars to buy a new washing machine because hers had broken..

A key feature of his bill prohibits borrowers from having more than one loan at a time.  And it prohibits rollover loans. Cunningham admits his bill is flawed on that point.  But the alternative to the flaw is worse. “How you would enforce it, I don’t know, and when you do try that you drive people to the internet to borrow money, where you lose all control,” he says.                                     

The bill lets people have an extended payment plan with no interest charged during that time, but not a loan to pay off a loan.

The bill can go to the House with one more favorable vote.  

 AUDIO: debate segment 30:19

MU study: Americans not putting enough in retirement funds

Missourians aren’t contributing very much to their retirement funds, according to one University of Missouri researcher. The study by University of Missouri associate professor of personal finance planning, Rui Yao, shows that more than 90 percent of Americans are contributing only a minimal amount of their salaries to retirement funds.

Rui Yao is an Associate Professor of Personal Financial Planning at the College of Human Environmental Services at MU.

Rui Yao is an Associate Professor of Personal Financial Planning at the College of Human Environmental Services at MU.

She looked at how much people invested in retirement funds compared to the limits set each year by the Internal Revenue Service (IRS) of the amount of income a person can set aside for retirement with tax benefits. In 2004, 43 percent of adults 21-70 contributed 20 percent or less of the IRS maximum amount to their retirement funds. In 2007 that was true of more than half of those adults and in 2010 it grew to more than 90 percent. Also in 2010 only 3 percent of working Americans contributed the maximum amount allowed by the IRS.

Yao says the behavior runs contrary to common economic theory.

“We see the pattern is that when economic performance is not good, people reduce or refrain from their defined contribution plan deferral.”

Yao says one possible explanation is that people are responding to the risk of the market rather than the returns.

“If the returns go up and down very much, people freak out. They get concerned and scared. They stop participating in this thing that they’re not seeing a good future of.”

She says that runs contrary to common sense economic theory, to buy when the market is low and sell when it is high.

“If security prices are lower it’s a good opportunity for people to get in, but people are not practicing what they know is a golden rule.”

She adds, “If Americans truly want to maximize their retirement funds it is critical that they contribute more during a weak economy while they can ease up a little bit when the markets are higher.”

Yao says employers and financial advisors must recognize the pattern her study revealed, and educate their clients and employees on the importance of contributing higher amounts during poor economic times.

“People responded to market performance when they shouldn’t be, so financial planners and advisors and employers should realize that people make decisions not because they are completely informed, not because they are completely rational but because they are looking at the future from a bias, and this bias is based on their … immediate past experience.”

Yao’s study was published in the Family and Consumer Sciences Research Journal. She was also recognized by AARP with its Public Policy Institute’s Financial Services and the Older Consumer Award.

Treasurer warns retired Missourians about pension advances

The state treasurer is warning retired Missourians about a threat to their pensions. Advertisements have been popping up for “pension advances,” which offer an up-front, lump-sum payment in exchange for signing away a part of a pension.

Missouri State Treasurer Clint Zweifel

Missouri State Treasurer Clint Zweifel

Treasurer Clint Zweifel says these advances are particularly tempting for individuals who are desperate for money to pay bills for themselves or aging parents.

“These schemes take advantage of retired employees during tough financial times, charging sky-high fees and interest rates. Effective interest rates have ranged up to 106 percent but they can be even higher than that. As State Treasurer it’s my job to protect Missourians from schemes that threaten their retirement security.”

Zweifel says these advances are not classified as a loan or a security.

“They’re really in some sort of Purgatory in terms of regulatory environment. What it means is that these folks are really taking advantage of Missouri seniors, and they’re threatening their retirement security with these instruments … and really no consumer protections in place for the individual borrower.”

Zweifel says it is not known how many Missourians might have already entered into a pension advance agreement. He says his office is working with that of Attorney General Chris Koster to investigate.

“That process is beginning through conversations I’m having with the public, but also online there’s a portal on my website, treasurer.mo.gov, where individuals can share experiences they’ve had in dealing with any of these companies, whether they’ve been approached or done business with them.”

Zweifel says he is also talking to state and federal lawmakers about combatting the practice legislatively.

Missouri praised for “data-driven policy-making” (AUDIO)

Missouri has been highlighted as a leader in use of cost-benefit analysis to determine whether state programs and services are worth the taxpayers’ money put into them.  Director Gary VanLandingham with the Pew Charitable Trust-MacArthur Foundation’s Results First Initiative says Missouri is one of ten states that have used the principle well in the last four years.

He says Missouri has used cost-benefit analysis seventeen times since 2009 to evaluate programs  and initiatives.  He says it’s a good way to measure whether tax credits can be justified.

VanLandingham says the process works better in some circumstances than in others. “When there are very tangible results that are being produced or are  predicted to be produced by a program, it is easier to put a dollar value on those. And sometimes, particularly programs or initiatives that are doing things like saving time, it is harder to put a value on them,” he says. .

VanLandingham says most of the studies done here focused on economic development initiatives or transportation department initiatives.

He says the strongest cost-benefit evaluations focus on the long term.  “It’s one of the powers of this technique,” he says, “That’s particularly important when looking at policies like education programs or pre-kindergarten programs where the state is trying to achieve goals that will not be achieved for many years.” 

Kansas is the only neighboring state of Missouri getting praise in the study for what is called “data-driven policy-making.”

AUDIO: VanLandingham interview 14:29