GAO Suggests Incentives To Keep Workers Working

The Government Accountability Office says more Americans need to work longer to live well in retirement.

"We, along with the others, have suggested that increasing labor force participation for older workers could lessen problems for the economy and Social Security and Medicare trust funds, and boost income security for retirees as well," the July report reads.

The report, commissioned by Congress, offers suggestions for policy changes in the Social Security, healthcare and tax systems to encourage workers to retire later. The report adds to the chorus of those who would like the federal government to increase the minimum age at which individuals can claim Social Security, which is now 62. Since that age was set, life expectancies have risen, and work itself has gotten less physically taxing. Those who retire at 65 can apply for full benefits, including Medicare health benefits.

Yet, 46% of workers retire before age 63, according to a study by the University of Michigan cited in the report.

For those born after 1960, the magic number should be 67, according to the report. Those who work until age 70 should get a premium.

Another policy area the report says should get greater attention is tax policy. People can begin to withdraw money without any penalties from their Individual Retirement Accounts at age 59-1/2. The later that option is penalty free, the longer people are likely to stay in the workforce, contributing to Medicare and Social Security as they go, the report notes.

H&R Block Faces Suits Regarding Express IRA

Despite having a slew of claims dismissed in a New York State courtroom, H&R Block now faces a series of 12 cases in a federal courtroom in Missouri regarding the sales practices of the company's Express IRA product, according to the Kansas City Star.

Plaintiffs hold that the chain tricked consumers by failing to disclose expenses, and by offering investment options it knew were inferior, claims H&R Block denies.

The fact that the judge allowed the claims says nothing about the "viability of the plaintiff's allegations or legal theories," the company said in a statement.

"We continue to believe that the substance and the facts of the case are on our side, and we are committed to mounting a vigorous defense of the Express IRA, which has helped hundreds of thousands of people begin saving, many for the first time," the statement said.

H&R Block has sold more than 600,000 of these accounts, which use tax refund money to open an IRA for the consumer. The company claims those accounts represent $360 million in savings. The problem has been that the accounts' only investment option is a money market fund managed by Reserve Fund.

Plaintiffs argue that as early as 2002, the company knew that the fund's returns were below market, and that the account fees ate into investor gains.

New York State Judge Karla Moskowitz ruled that state law gave her no jurisdiction over the company, but did let stand two claims including fraud and deceptive practices.

But U.S. District Judge Richard E. Dorr in the Western District of Missouri ruled that the plaintiffs had met a reasonable burden of proof, and that the case will be allowed to go forward, despite H&R Block's efforts to get it dismissed.

At the same time, H&R Block's poor performance has led Breeden Capital Management to attempt to take over the company's board. Breeden, which has forced a proxy presenting three of its own candidates for the board, claims that H&R Block's missteps have cost shareholders $4.5 billion.

Ex-U.S. Bancorp Skipper Settles on Insider Trading

A former mutual fund portfolio manager with U.S. Bancorp, now known as FAF Advisors, settled charges by the Securities and Exchange Commission that he accessed non-public information on shares of XOMA that prompted him to sell all 332,000 of his shares, worth $2.5 million.

Joe Frohana, manager of the First American Investment Fund, allegedly accessed a report, which his brother was conducting, on a drug that XOMA and Genetech were jointly developing. The purpose of the study was to determine if the drug had bio-equivalence.

Frohana's brother informed him on April 3, 2002 that the results were negative. On the following day, Frohana sold all of his shares. Then, on the next day, when the two biotechnology companies made the information public, the stock plummeted 42%, which would have hit Frohana's fund with a $954,776 loss.

Without admitting to or denying the allegations, Frohana consented to the SEC's findings that he is permanently prohibited from violating antifraud provisions of the federal securities laws and must pay $954,776 in disgorgement, plus $325,286.57 in interest, as well as a civil penalty of $954,776.

More Financial Advisers Using All-ETF Portfolios

More and more financial advisers are turning to exchange-traded funds to build the core of their client's portfolios, The Wall Street Journal reports.

Once satellite tools, the proliferation of ETFs and companies that sponsor them has made using them as the backbone of their clients' accounts far simpler. One reason ETFs are attractive to advisers is that during market downturns, their trade-all-day agility helps control losses. The fact that they require no minimum investments, have low expenses and offer tax advantages adds to their appeal, advisers said.

Their diversification saves advisers from having to choose between equally attractive stocks, also, said Michael Jones, chief investment officer at Wachovia Securities.

Powershares, XTF Asset Management and scores of other companies looking to get in on the ETF boom have provided model products for advisers to offer their clients. Ted Feight, a financial planner in Shanty Creek, Mich., said that ETFs account for 95% of the products he uses to manage his $2 billion business. He uses sectors and international funds to gain access to splices of the market mutual funds can't get at. In fact, Feight said he sees the strength of ETFs as the Achilles heel of the mutual fund industry, bringing with them the potential to weed out weak contenders.

"If I was a bad [mutual fund] manager," Feight said, "I would be quaking in my boots."

States, Brokers Outline 529 Abuses for Treasury

Following Congress' decision last year to authorize the Department of the Treasury to create regulations for 529 college savings plans, an association representing the plans, as well as groups representing brokers and mutual funds, have written to the Treasury, outlining potential 529 abuses, Defined Contribution and Savings Alert reports.

"It's clearly in the best interest of the states, as well as private companies that administer the plans, that there be a proposal without undue expense," noted Jackie Williams, chair of the College Savings Plan Network, which issued the suggestions from the plans. The other letters were from the Securities Industry and Financial Markets Association and the Investment Company Institute.

Ahead of Guidance, DCs Embrace Target-Date Funds

Although the Department of Labor hasn't issued guidance yet on what acceptable default options should be in 401(k) plans, many sponsors are embracing target-date and target-risk funds, Dow Jones reports.

Last month, the DOL submitted its suggested list to the Office of Management and Budget, but it hasn't given any hint of what the list contains or when the guidance will be issued.

But many believe the DOL will include target-date and target-risk funds, and fund companies continue to roll these out, introducing 25 additional such funds this year.

Today, about 25% of 401(k)s include target-date funds, said David Wray, president of the Profit Sharing/401(k) Council of America. Eventually, Wray said, "nearly all 401(k) plans will have some way for the employee to delegate the asset-allocation decision."

About 15% of Vanguard clients use auto-enrollment, and of them, 67% include target-date funds, said Stephen P. Utkus, principal at the Vanguard Center for Retirement Research. "A few years ago, virtually no one adopted them as default options, so there's a gradual shift underway," he said. "I expect the shift to really solidify once the Department of Labor publishes its final regulations."

The DOL has said it expects auto enroll will increase 401(k) accounts by $45 billion to $90 billion a year.

Waddell Comfortable Targeting Middle-Income

As Waddell & Reed celebrates its 70th year, it recently held a press conference in New York to give its perspective on its standing.

While there's long been talk of the separation of manufacturing and selling products, Waddell is content handling both, Reuters reports. With $54 billion of assets under management and a focus on middle-income clients, the firm is also comfortable with its niche.

The strategies are apparently working, for Waddell is solidly profitable. "Because of our distribution capability, as long as that distribution system is healthy, we have a defensible niche in the business," said Waddell Chief Executive Officer Hank Herrmann. "We're growing at a pretty good rate, too, and we're highly profitable."

One of the driving factors, Herrmann said, was the acquisition of the Ivy Funds in 2003, which added wholesalers reaching broker/dealers to the firm for the first time. Previously, Waddell sold directly to investors through a sales force of 2,400 advisers.

"We're growing faster now than we've grown for many, many years as a result of going into [the wholesale] channel," the CEO said.

In addition, the company is going to upgrade desktops for its advisers, and has signed a letter of intent with Pershing.

Fiserv Paying $4.4 Billion To Acquire CheckFree

Fiserv is acquiring CheckFree for $4.4 billion. The all-cash deal expands Fiserv's customer base among large financial institutions.

Fiserv said it will boost revenue by $125 million and add to its underlying cash earnings per share in 2008.

"CheckFree's industry-leading payment and Internet banking capabilities will significantly accelerate our strategic transformation, extending our service platform to the largest financial institutions," said Jeffrey Yabuki, Fiserv president and chief executive officer.

Barclays Branches Out Into Exchange-Traded Notes

Barclays Global Investors, by far the dominant player in the exchange-traded fund market, has been offering a variation on the popular theme for the past two years, eight exchange-traded notes, Registered Rep reports, and now Merrill Lynch plans to join the nascent market.

An ETN is more tax efficient than an ETF because it is not required to distribute dividends to investors every year. It can also track indexes more closely and cost less because it owns a note tracking the benchmark rather than individual stocks.

"The ETNs have been very successful with financial advisers and registered investment advisers," said Philippe El-Asmar, head of investor solutions, Americas, for Barclays Capital.

But some in the industry aren't so sure ETNs are a good alternative to ETFs. "ETNs are young, and it is not yet clear how they will perform over the long term," said Gus Sauter, chief investment officer of Vanguard.

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