The Postman Always Rings Twice
Getting mail from the IRS is rarely something to celebrate. If it’s a bill, consider yourself lucky — at least you can just pay it and be done. If it’s a “CP 2000” notice proposing a change to your taxes, get ready for a ride on the paperwork tilt-a-whirl. If it’s an audit notice, all bets are off. (Relax — it only feels like you’re a prisoner at a CIA black-ops site.)
But one taxpayer may have won the booby prize for “worst IRS correspondence ever” when he got a letter helpfully notifying him he had died. Deceased. Croaked. Bought the farm.
Siegfried Meinstein is 94-year-old World War II veteran. He’s currently enjoying his retirement in an assisted-living facility just outside Columbus, Ohio. And granted, he is 94 — but plenty of 94-year-olds are doing just fine, thankyouverymuch. Here’s how Fox News summed up his story:
“… The old-timer’s troubles began in April when he filed his tax return online through his accountant. The IRS rejected the return and the reason given was because the filer was dead according to the Social Security Administration.
A few days later, Meinstein and his son went to the Social Security office in Columbus and were told that their records did not list the elder Meinstein as deceased. The office gave the Meinsteins a letter to send to the IRS. They did, only to have the IRS kick it back to Social Security.
There was some back-and-forth and then Meinstein and his son visited the local IRS office where they were informed that the problem would be resolved.
Instead, the senior citizen received a letter from the IRS that said, ‘We are unable to process your tax return. Our records indicate that the person identified as the primary taxpayer…was deceased prior the tax year shown on the tax form.'”
The IRS sent another letter reminding him that he was still dead in September. And again in November. His daughter-in-law appealed to the Taxpayer Advocate’s office, which resolves problems that fall through the regular IRS cracks, and they said they had miraculously brought Meinstein back to life. Then, like a bad penny, the letter showed up again in December. The IRS says they’re working to resolve the problem. But of course the gears of bureaucracy grind very slooooooooowly, and they’re slowing even further after recent budget cuts. Here’s hoping the IRS gets it all fixed before Meinstein owes estate tax!
In the meantime, being dead doesn’t seem to be cramping Meinstein’s style. “It isn’t really a problem in my daily life,” he told the Columbus Dispatch. “Everybody accepts my money.” Even the IRS still cashes his checks!
If you’re alive to read this, congratulations! Dealing with taxes isn’t much fun, but it’s a key to your financial defense, and a crucial part of any financial plan. So call us when you’re ready for a plan to pay less, and here’s to a long and happy life.
In The Headlines
Global Oil Funds Shift their Investment Focus to Healthcare
Global crude prices are in the midst of a slump, squeezing the bottom lines of oil companies and petro-states around the world. So how do sovereign wealth funds (SWFs) cope in this environment? The asset management arms of many oil-producing countries around the world are worth a collective $7 trillion. Most SWFs, particularly those based in the Middle East, are notoriously secretive yet have a lot of weight—and cash—to throw around in global markets. They are also regarded as patient, big-picture moneymakers. A working paper from the International Monetary Fund notes that SWFs sustained heavy losses in the 2008 crisis, but recovered them “by demonstrating their willingness to be long-term investors and riding out their financial turmoil.”
Still, oil prices have lost more than 50% of their value in the last year, raising the question of how these mega-funds cope when the very source of their wealth is eroding, with little relief in sight. A recent study by the Sovereign Wealth Fund Institute sheds some light on how these funds are sinking a lot of money into different assets and regions.
According to the organization’s data, SWFs have developed a particularly voracious appetite for healthcare over the last decade, spending more than $26 billion on the sector since 2003. Of that amount, SWFs—primarily those based in Asia—have spent $17.4 billion on pharmaceuticals, and over $4 billion more on investments in healthcare providers. Recently, the government of Qatar announced a five year, $35 billion multi-sector investment in the U.S. that included industries such as energy, technology, and healthcare.
The question might be asked, “why healthcare?” “For most investors, they are looking to get a commercial return. Healthcare is one of those sectors where it’s doing pretty good,” said Michael Maduell, SWFI’s president, in an interview. There is a strategic development factor involved in investing in health, he said, which is widely considered a growth sector that creates jobs and spends vast sums.
Most of that spending is concentrated in regions with aging populations such as Europe, Asia, and North America, where healthcare spending is projected to rise. The U.S. alone spends about $3 trillion on health and hospital care, according to data from the Centers for Medicare and Medicaid Services. Given those massive figures, it makes sense that sovereign funds view the sector as attractive.
It is also in keeping with their overall desire to become less reliant on crude revenues, according to market observers. “In a broader sense, it’s a diversification play away from oil,” said Joel Moser, founder and CEO of Aquamarine Investment Partners. “That suggests healthcare, which is a growth industry.” Medical services “…is a major market, and there is significant disruption around how it’s delivered,” Moser said. “Technology will play a big role … but there will always be a big need.”
Emerging markets are also a big part of the SWF strategy. In October, Norway’s sovereign wealth fund—the world’s biggest with nearly $900 billion in assets—announced it would significantly increase its holdings in India, as part of an overall strategy to generate larger returns. “Wealth funds are a stable source of capital,” said SWFI’s Maduell. “They don’t have to leave quick, and they don’t have a timeline” like other institutional investors, he said.
Is Low Job Fluidity Hampering the Recovery?
One reason the labor market has been so slow to recover may lie in the relatively low levels of churn, or fluidity, in the workforce. One of the historic strengths of the U.S. economy has been the ease with which American workers move into and out of jobs. This fluidity, as economists call it, can lead to higher wages. People often get higher pay when they switch jobs, while the risk of losing quality workers to a rival can entice employers to pay more. Yet, post-recession, this pattern of “lose a job, get another” seems to be taking much longer to work its magic.
Steven Davis, an economist at the University of Chicago Booth School of Business, has been tracking job churn for more than 20 years. He calculates fluidity by adding up the number of new hires, layoffs, and people who voluntarily quit their jobs before comparing that number with the total workforce. By this measure, job fluidity has fallen more than 25% since 2000. Most of the decline happened as a result of the recession. He calculates that fluidity dropped 18% from 2007 to 2010.
Davis’s latest paper, published in December and co-written with University of Maryland economist John Haltiwanger, argues that a more rigid labor market explains, at least partly, why it has taken so long to recoup the 8.7 million jobs lost in the recession. As the unemployment rate rose, it became harder and harder for out-of-work Americans to get back into a job market that had seized up. It was not until last July that the number of jobs finally surpassed the previous highs of 2007. And even though fluidity finally began to rise again in 2014, it is not nearly back to the levels the U.S. economy enjoyed in the 1990s.
Some of this drop in fluidity has to do with the changing nature of the workforce. The median age of a U.S. worker is 42, up from 37.8 two decades ago. Older workers tend to change jobs less often. But Davis says it is not so much the aging of the workforce that is behind the drop in fluidity as it is the aging of the companies hiring them. Older firms tend to hang on to workers longer than younger ones, and right now, older firms are dominating the U.S. economy in a way they have not before. In 1992, companies more than 16 years old accounted for 23% of private-sector firms and employed 60% of workers. By 2011 they represented 34% of companies and 72% of employment.
That is not entirely bad. Stable employment gives workers more time to learn skills on the job. But the aging of U.S. companies is a sign that startups are having trouble. Economist Robert Litan of the Brookings Institution estimates that the number of new companies, as a share of the total number of companies in the private sector, dropped by half between 1978 and 2011. “Firms aged because fewer people started businesses, and those who did were more likely to fail,” says Litan. The first-year failure rate for startups rose to 25% from 20% during that time.
Michael Madowitz, an economist with the Center for American Progress, points out that fluidity is only one way to measure job turnover. He says a recent increase in nonstandard employment, such as independent contracting, is not included in Davis’s estimates. That could mean there is more fluidity in the job market than Davis found. Madowitz also is not convinced that changing jobs more often is good for growth. “It undermines the relationship between employers and employees,” he says, which means they invest less in each other.
Neil Dutta, head of U.S. economics at Renaissance Macro Research, is optimistic the recovery is finally raising rates of entrepreneurship, which should boost job fluidity, because young firms account for a large share of job creation and destruction. “People don’t quit during a recession,” he says, “but the number of quits has started to increase again.” Dutta says a stronger housing market will spur new startups, since entrepreneurs often use their house as collateral to secure a business loan. Policymakers are trying to help. Both the 2012 Jumpstart Our Business Startups Act and the Startup Act, under debate in Congress, ease regulations and improve young firms’ access to capital. It is too soon to tell if this will be enough to restore the labor market’s dynamism.
Citations
1. http://cnb.cx/1yZ2Tn5 – CNBC
2. http://bloom.bg/1DisIOc – BusinessWeek
The Good News Is . . .
• Consumer confidence was up sharply this month, to a reading and recovery best of 102.9. Gains were broadly based, including a 12.7 point surge in the present situation component to 112.6. The jobs-hard-to-get subcomponent indicated special strength in the jobs market, down 1.6% percentage points to 25.7%. This is a positive indication for the upcoming monthly employment report. Strength in consumer expectations for future income was strong, due to a combination of strength in the jobs market, the stock market, and also the positive effect of lower gasoline prices. Inflation expectations, reflecting lower gas prices, were steady at 5.0%.
• MasterCard, Inc., one of the leading credit card payment processing companies, reported earnings of $0.69 per share, an increase of 21.1% over year-ago earnings of $0.57. The firm’s earnings topped the consensus estimate of analysts by $0.02. The company reported revenues of $2.4 billion, an increase of 13.6%. Management attributed the company’s results to strong worldwide purchase volumes.
• Two big makers of packaging materials, RockTenn and MeadWestvaco, agreed to merge, creating a $16 billion manufacturer of cardboard cartons and other types of boxes. The new entity will create a stronger competitor to International Paper, with $15.7 billion in combined net revenue and $2.9 billion in adjusted earnings before interest, taxes, depreciation and amortization. The two companies said they would reap up to $300 million in cost savings within three years after the deal closes.
Citations
1. http://bloom.bg/1bidM2T – Bloomberg
2. http://www.cnbc.com/id/18080780/ – CNBC
3. http://mstr.cd/1BK229B – MasterCard Inc.
4. http://nyti.ms/1BK2lBp – NY Times Dealbook
Planning Tips
Guidelines to Unexpected Homeowner Insurance Exclusions
Depending on the state you live in, the type of dwelling and even the age of your home, the coverage provided by your homeowner’s insurance can vary significantly. You might be surprised at some of the perils to your home that are excluded from depending on the type of policy you have. Below are some guidelines for understanding these exclusions.
General types of homeowner insurance policies – There are seven general types of home insurance policies under the industry standard Homeowners 2000 Program, ranging from HO-1 to HO-8 (there is no HO-7) as of 2014. Perils covered under HO-1 policies are very narrow, and they are not sold in all states. HO-2, HO-3 and HO-5 are the types of policies held by most owners of modern houses, with HO-2 providing the most narrow coverage and HO-5 providing the broadest coverage. HO-4 policies are for renters. HO-8 policies are designed to meet the needs of owners of older homes for which the price to replace a building is much greater than its market value. HO-6 policies are designed for owners of condominiums.
General exclusions for HO-2, HO-3 and HO-5 policies – HO-2 policies cover 16 distinct perils ranging from fire and lightning to vandalism. HO-3 policies provide protection for all perils to the house except those outlined in the policy and exclude perils to personal property, for which coverage is for a list of named perils only. HO-5 policies cover all damages to both the house and personal property subject to a list of exclusions outlined in the policy.
Special exclusions for HO-3 policies – Perils to a house that are excluded in HO-3 policies include:
• Ordinance or law: when repairs to a home are greater than what was originally present in order to satisfy new or updated building codes.
• Damages to a home caused by earthquakes, landslides, sinkholes and mudslides are not covered.
• Damages to a home that result from floods and leaks are not covered.
• Power failure: many policies have limited coverage for spoiled food as a result of a power failure but do not cover other losses associated with power failures.
• Neglect: if actions that could have reasonably prevented damage from occurring were not taken, then damage is not covered.
• Damages resulting from war, undeclared war or civil war are not covered.
• Damage as a result of nuclear contamination is not covered.
• Damages that have been intentionally caused with the goal of creating loss are not covered.
• Governmental action: damages or destruction that are the result of a public authority seizing or taking any other action are not covered.
• Damages caused by faulty workmanship or poor materials are not covered.
Other special exclusions – Other events for which homeowners may not be sure if they are covered or not include:
• Loss of market value: if a rendering plant opens in the neighborhood and house prices fall, this is not covered in a standard policy.
• Pollution by nearby business: if a paint company spills paint into a nearby creek, which contaminates a well, this is not covered.
• Home businesses, especially those which see clients visiting a home, need more commercial liability insurance and are not covered under standard homeowner policies.
• Homes falling off eroding cliffs: these damages are not covered by standard policies and require additional coverage.
Ask your agent – Every situation is different, and insurance agents can answer questions about what is and is not covered. If you have any doubts, ask your insurance agent. While many perils are not covered by standard policies, there are many instances where riders or additional policies may be purchased to firm up specific coverage.
Citations
1. http://bit.ly/1Drw5Tp – Insurance Information Institute
2. http://bit.ly/1CYHEDu – Insure.com
3. http://bit.ly/1CYHFYa – Investopedia
4. http://bit.ly/1yZ3ogQ – Zacks.com
5. http://abt.cm/1AcnxC6 – About.com
6. http://bit.ly/1KgEpHO – Wikipedia
