MERGERS: In a survey of over 100 senior insurance executives, 59 percent said the industry will see an increase in mergers and acquisitions activity in the next 12 months.

RESEARCHERS STUDY 2.7 MILLION AUTO RECORDS AND FIND IRREFUTABLE CONNECTION BETWEEN CREDIT HISTORY, RISK OF LOSS: In the largest and most comprehensive study ever undertaken on the connection between credit history and insurance risk, a team of researchers has found that a consumer's credit-based insurance score is unquestionably correlated to that consumer's propensity for auto insurance loss. Even more significantly, the study found that insurance scores are consistently among the most important rating variables used by insurers.

LTC: The top writers in the 3rd quarter of 2003 account for a combined market share of 86%, up five percentage points from the same period last year. More than 362,000 people bought LTC insurance in the U.S. during the first nine months of 2003. That is 4% fewer than had done so during the same period in 2002.

There are five to ten LTC carriers that you could that have a good history of paying claims. That said, they all have different rates and deals so you still ahve to do a lot of shopping.

AND YOU THINK MEDICAID WILL COVER FOR LONG TERM CARE COSTS??: In Massachusetts where already one resident in eight is 55 or older, Medicaid consumes roughly $7 billion out of a state budget of $22 billion. While the elderly constitute 9 percent of Medicaid enrollees, they account for 27 percent of the program's spending. There has never been, is not now, nor will be in the future enough money to cover for public LTC. Never.

MUTUAL FUNDS: (ICI) The number of U.S. households that own mutual funds fell to 53.3 million in July, (47.9 percent of total households) from 54.2 million (49.6 percent) in July 2002. The survey also found that the number of individuals owning mutual funds slipped to 91.2 million from 94.9 million in 2002. About 33 percent of all households -- or 36.4 million -- owned mutual funds inside employer-sponsored retirement plans.

There has been a slight increase from then, but a lot of people are still skeptical about future returns as well as the ethics of the market.

PENSION PLANS (Watson Wyatt survey) The percentage of fully funded pension plans declined from 84 percent in 1998 to 37 percent in 2002. Yet the situation was much worse after the passage of ERISA. In 1978, the number of fully funded plans was only 25 percent, but by 1985 that number soared to 78 percent.

TIME DIVERSIFICATION: Some practitioners take the view that the longer the horizon, the more investors benefit from investing in equities. Young investors, for instance, are typically advised to allocate more to equities than those whose retirement is imminent, on the grounds that equities are less risky over long horizons. A common rule of thumb is that the percentage of stock allocation should equal 100 minus an investor’s age. Several academic authors have argued to the contrary that greater equity allocations are irrational with a constant investment opportunity set. Samuelson (1969) and Merton and Samuelson (1974) claim that, in a standard utility maximization framework, allocations of investors with constant relative risk aversion should be unaffected by the investment horizon. This important difference of opinion has become known as the time-diversification controversy.

Another line of reasoning has been advanced by Bodie, Merton, and Samuelson (1992), who explain that younger workers should bias their investment toward equities on the grounds that unlucky equity losses can be offset by working harder later; older workers do not have this option. This flexibility in labor supply leads to a greater risk tolerance. Finally, intertemporal hedging of changes in the investment opportunity set may provide another explanation.

Beyond the theoretical arguments, there may be empirical reasons for equities to be less risky over long horizons. For instance, there could be mean reversion in long-term equity returns. Several authors have claimed that greater equity allocations are justified on the grounds that shortfall risk declines as the horizon is extended. Poterba and Summers (1988) argue that variance ratios of long-horizon returns to short-horizon returns are lower than one would expect under the random walk assumption, which they interpret as evidence of mean reversion in international stock data. If so, long-horizon returns are relatively less risky, justifying an increased allocation to equities.

A major problem with all these studies is the limited data. Using data on US equities since 1926, there are only seven truly independent observations. Tests based on such small sample sizes are bound to have low statistical power. In addition, statistical tests often rely on asymptotic properties and may lead to biased inferences in small samples.

Average returns and volatilities for real capital appreciation returns on global equity markets across various horizons. Returns beyond one year are annualized. Statistics for one-year to ten-year data involve overlapping observations. Average ten-year return, for instance, is the arithmetic average of all ten-year returns. Average return over the total period is the geometric growth.

Table IV also shows a wide dispersion in annual volatilities across countries, ranging from about 20% to 70% per annum. The median one-year volatility is 23%. In particular, the socalled emerging markets of Asia and Latin America display the highest volatility.16 US equities are among those with the lowest volatility, even though they enjoyed the highest growth.

Pre-tax deferrals averaged 5.2% of pay for lower-paid and 6.3% of pay for higher-paid employees.

Average Percentage of Pre-Tax Salary Deferral Among Non-Highly Compensated Participants, 1994-2002

Companies' primary reasons for providing plan education were to increase participation (31.7%), to increase plan appreciation (22.5%), and to introduce plan changes (20.4%). To accomplish these goals, companies use a variety of approaches, including enrollment kits, fund performance sheets, newsletters, slides, seminars, Internet, paycheck stuffers, modeling software, and more.

80.8% of plans offered 10 or more fund options for participant contributions in 2002, up from 69.8% of companies in 2001, and 61.5% of companies in 2000.

On average, 14 funds were available for company contributions and 15 funds were available for participant contributions in 2002.

The average company contribution was 4.1% of payroll. Company contributions were highest in profit sharing plans (8.8% of payroll) and lowest in 401(k) plans (2.8% of payroll). Company contributions averaged 25.6% of total net profit for profit sharing plans and 11.3% of total net profit for 401(k) plans.

Numerous formulas are utilized to determine company contributions. In plans permitting participant contributions, the most common formula is a fixed match only, present in 25.7% of plans (including plans with safe harbor matches). The most common type of fixed match is $.50 per $1.00 up to the first 6% of pay, present in 27.9% of plans that have fixed matches. The most common type of company contribution for profit sharing plans is a discretionary profit sharing contribution only, which is present in 75.7% of plans.

Matching contributions are most frequently made on a payroll period basis (56.5% of plans), while nonmatching contributions are most often made annually (67.4% of plans).

Assets are most frequently invested in actively managed domestic equity funds (28.1% of assets), stable value funds (12.0%), balanced stock/bond funds (10.3%), indexed domestic equity funds (8.5), and cash equivalents (7.7%).

7.4% of plans surveyed have automatic enrollment. It is most popular in large plans 21.1%) and least common in small plans (1.5%).

The most common default deferral percentage is 3% of pay, present in 55.4% of plans.

Predominate services for defined contribution plans continued to be investment management, trusteeship, and recordkeeping.

Plan assets were most commonly managed by mutual funds (39.1% of assets), banks (19.7% of assets), insurance companies (12.1%), and investment advisors (10.8%).

41.6% of plans are self-trusted, 33.3% use bank trustees, and 25.1% use non-bank trustees. Small plans tend to be self-trusted, while larger plans tend to use bank or non-bank trustees.

The use of Internet in plan administration continues to increase rapidly; 89.9% of plans permit participants to make some type of transaction via the Internet, up from 83.9% of plans in 2001 and 79.3% in 2000.

Plan loans continue to be a common feature. 81.8% of the plans studied permit loans. Loans are permitted in 86.2% of 401(k) plans, 83.6% of combination plans, and 34.4% of profit sharing plans.

On average, in plans that permit loans, 23.1% of participants have loans, averaging $6,765 per borrower. Loaned assets accounted for 2.2% of total plan assets in plans permitting loans.

DISABILITY. 9.4% of Americans have some form of disability between the ages of 35 to 44. It is 23% between 55 and 64.

CHANGES: If you have read my web section on asset allocation, you will note the extended commentary by Bill Jahnke regarding the necessity of advisors to adjust portfolio rather than use the preprogrammed stay the course. Additional adjustments were noted here by Peter Bernstein. And from a recent Financial Advisor comes, "Most of us who earn our living by navigating the capital markets eventually come to appreciate that successful investing requires both discipline and creativity. The fundamentals must be understood and incorporated in our daily work, yet there is a role for vision, for insight, even sometimes for departing from the heard in search of value. But, for most of us, innovation is uncomfortable."

Absolutely true and also the reason why separate articles note why some advisors went out of business. They just used pre programmed software, a nice office, pretty secretary, etc. and a 1% fee to garner a lot of business (and money) during the 90's without ever recognizing the vagaries of the economy. It is the economy and the associated risks of investing (or not) that drive asset allocation. It is not a 10 question questionnaire "defining" a client's supposed risk into a stay the course allocation that never changes.

Of course that teaching went nowhere in the 90's- hence why I don't teach university courses any more. Why bother if the students don't want to listen about what happened in 1973/74. Bet a lot more are listening now

An overwhelming 97 percent of investors realize they need to be better informed about investing. And nearly half of the participants said they could have avoided a negative experience had they known more about investing.

Seventy percent of investors failed to understand that when you buy on margin, you can lose all of your investment even if the value of your shares does not go to zero.

Nearly 80 percent did not understand fully the meaning of "no load" mutual funds.

BETTER ANALYSIS? The Upside Potential Strategy: A Paradigm Shift in Performance Measurement (Frank A. Sortino and Bernardo Kuan) "Why should I engage the counsel of a financial advisor to tell me what to invest in? I'll just pick the one that performs the best." But the "hot dot" approach to manager selection is problematic. The problem is that popular performance measures like the Sharpe ratio and the Information ratio are one-dimensional, one-size-fits-all measurement tools which do not recognize a clients' personal variances (e.g., age, goals, level of wealth). Frank Sortino has developed a two-step procedure for performance measurement called the Upside Potential (U-P) Strategy, designed to help individual investors achieve their goals. The results are interesting. In the sell-off of 2000, the top three funds identified in the U-P Strategy were up 13% in a market that declined 32%, while the top three performing funds of the previous year were down more than the market.

This new study is after the fact- as are many new methods of finding the best funds that supposedly beat the market. Personally, I think the research of economics is a much better gauge of what to do. That said, I did not get out of the market before March 2000. Sure, "everyone" knew something should hit the fan given the absurd valuations- particularly of the dotcoms. But the same could have been said in 1997, 98, etc. People out of the market then made little money.

In any case, once the fall of the market was obvious (more than a correction), I opted out of equities almost in full. Clients went to short and medium term bonds till this year. While most people were sustaining losses, we made gains through bonds. Did I hit the highs and lows? That's not the intent. The intent is to manage risk first and foremost. If you do that, you can capture most of the upside and miss most of the downside. Frankly, I think that's a pretty good strategy.

ASSISTED LIVING: (Met LIFE) The average cost of a month's stay, including room and board, housekeeping and personal-care assistance, has jumped to $2,379 a month, up 10.2% in the past 18 months. People who move into such facilities stay there three years on average, per the National Center for Assisted Living, .

Fees for assisted living climbed faster than the consumer price index, which rose 2.2% during the 12 months ended in August. Overall medical-care prices rose 3.9%. One factor driving costs upward is a "huge increase in liability insurance".

Constricted supply is also a problem, she says, with the assisted-living facility "becoming a place of choice for people who can afford it as a viable alternative to a nursing home." The people moving in are "a little frailer than what the facilities thought they would be handling.” The additional $220 a month on average can be tough on families, since Medicare and Medicaid typically don't cover the rent (with the exception of a few states with experimental Medicaid-waiver programs). Two-thirds of assisted-living residents pay out of their own pockets, and about 13.5% use Supplementary Security Income, MetLife says. What's more, at least 64% of residents are cognitively impaired when they move in, and their round-the-clock supervision can bump costs even higher.

YOU ARE GOING TO SEE A LOT MORE STATES WITH SIMILAR POSITIONS: Connecticut attacks Medicaid Planning to save money and encourage private LTC Insurance.

The single greatest barrier to increasing the role of private LTC financing--and thereby reducing the strain on public programs and providers--is the steady expansion of public financing beyond its intended safety-net function and the resulting impact on perception and behavior. Despite recent budget-related cutbacks across the nation, the extent to which Medicaid and Medicare do fund LTC services for a growing segment of the population anesthetizes the public from taking seriously the LTC risk. Why save, invest or insure when it seems the government pays for long-term care? This perception problem is made worse by the success of professional Medicaid planners who help their clients maneuver and manipulate Medicaid's ostensibly strict eligibility rules to qualify for taxpayer-financed benefits without spending down.

The State of Connecticut recognizes the negative impact of Medicaid planning on promoting personal responsibility and a more evenly balanced LTC financing system and is proposing to do something about it. Connecticut's Department of Social Services recently submitted a groundbreaking waiver proposal to the Center for Medicare and Medicaid Services (CMS; formerly the Health Care Financing Administration). The "Transfer of Assets Section 1115 Research and Demonstration Waiver Proposal" seeks to modify several Medicaid eligibility provisions with a central goal of reducing asset transfers for the purpose of qualifying for Medicaid and thus increasing the extent to which people pay privately for their care. This change of behavior, in turn, would realize substantial savings for the state's Medicaid program. Section 1115 of the Social Security Act authorizes the Secretary of Health and Human Services to waive State Medicaid Plan requirements of Title XIX for purposes of carrying out an approved demonstration project.

(1) change when a penalty period is imposed for individuals who transfer assets for less than full market value in order to qualify for Medicaid--tolling the penalty period from the date of eligibility for Medicaid LTC services rather than the date of the transfer because the latter method allows for transfer strategies which render meaningless the imposition of a penalty (see below for an explanation of the notorious "half-a-loaf" strategy);

(2) lengthen the look-back period for transfers of real property from 36 to 60 months; and

(3) create threshold transfer levels that would allow cumulative transfers within certain dollar and date ranges to be disregarded in order to streamline the application process.

The Department predicts savings of more than $87 million over five years and expects the project to be a model for others states and the federal government. The proposal itself does an excellent job of presenting the desired rule changes, gives helpful scenarios to explain how the changes would affect Medicaid applicants, and provides detailed budget, caseload and cost projections with and without the requested waiver changes.

According to research at an Elingsh uinervtisy, it deosn't mttaer in waht oredr the ltteers in a wrod are, the olny iprmoetnt tihng is taht the frist and lsat ltteer is at the rghit pclae. The rset can be a toatl mses and you can sitll raed it wouthit a porbelm. Tihs is bcuseae we do not raed ervey lteter by itslef but the wrod as a wlohe.

ELDERCARE: An AARP/National Alliance for Caregiving study from as early as 1997 estimated that one in four American households struggled to provide care for an elderly individual. Another, from Metropolitan Life Insurance Company, estimated productivity losses due to elder care issues ranging from 11 to 29 billion dollars per year. The SHRMâ 2003 Elder Care Survey reflects similar findings as 47 percent of HR professionals report seeing an increase in the number of employees dealing with elder care issues over the last several years. Despite the increase, only 25 percent of organizations offer elder care benefits.

HR professionals estimate that nearly 15 percent of employees in their organization deal with elder care issues. But, a significant percentage of respondents witnessed employees who missed a full day from work (59 percent), encountered workday interruptions (44 percent) or stress-related health problems (29 percent). Sixteen percent of all respondents said they had experienced turnover or attrition due to elder care issues.

OVERSEAS: at least 15 percent of the 2.81 million jobs lost in America since the decline began have reappeared overseas. the estimates being made suggest that the work sent overseas has been enough to raise the unemployment rate by four-tenths of a percentage point or more, to the present 6.1 percent.

The total saving for an American company can be as much 50 percent for each job shifted, even allowing for the extra cost of transportation, communication and other expenses that would not be needed if the work was done in the United States. 995,000 jobs have been lost overseas since the last recession began in March 2001. That is 35 percent of the total decline in employment since then. While most of the loss is in manufacturing, about 15 percent is among college-trained professionals.

MARKET TIMING AND ALLOCATIONS: Most economists warn that it is too soon to declare a turn in Europe's fortunes. Part of the caution stems from experience. Most of these surveys registered similar gains in sentiment last year, stoking hopes of a recovery that never materialized. Germany fell back into a mild recession last autumn, while the rest of Europe stagnated.

Here is the point. The use of various allocation/funds may succeed over time (then again, think about gold) but if the economy tanks in an area, why suffer the losses? Admittedly, one could invest now in foreign securities and do very well- but that was also stated last year. Do you want to take the risk? And therein is the real key to allocation. Correlation- the supposed moves of one investment as compared to another- is a moving target that is almost impossible to evaluate unless well after the fact. Right now, the correlation is still pretty strong between Europe and the U.S. It means that as the U.S. goes, so does Europe. So why have some foreign stocks done well? It’s because of the dollar’s drop. I was unwilling to take a gamble on the dollar dropping years ago and I am not going to attempt such a reverse strategy now. Frankly, I think the dollar will firm- certainly after some agreement for democracy is finalized in Iraq.

DRUG BENEFITS: (Segal) Since 2001, companies' cost for providing prescription drug benefits to employees has increased 19 to 20 percent annually. Segal predicts an increase of 18 percent in 2004.

LABOR SHORTAGE: ( Employment Policy Foundation) Studies say there's a dramatic labor shortage looming in the United States. In 10 years, available jobs could outnumber workers by 6.7 million. By 2030, the gap could widen to 35 million. Not too much help right now but the future is coming.

WHAT, ME WORRY? Fifty percent of adult Americans with annual incomes between $25,000 and $75,000 said that they were worried about their financial condition, and one in five within that group was very worried. People who are anxious about their finances are likely to believe they have too little income or savings, and as unemployment has risen they also may be more concerned about losing their jobs.

An analysis of Federal Reserve household income data by Catherine Montalto showed that during the boom from 1995 to 2001, the net wealth of the typical middle-class household rose 23%, from $60,000 to $74,000. While stock holdings grew, stocks still represented a minor portion of net wealth for the typical middle-income family.

That meant that middle-class Americans were relatively unaffected by the stock market decline that began in early 2001, compared with affluent Americans — who suffered the greatest losses in stock values

NURSING HOMES: Seventy percent of all people in America's nursing homes are on Medicaid. Because Medicaid residents tend to be the longest stayers, the program's notoriously low reimbursement rates--often less than the cost of providing the care--apply to nearly 80 percent of all nursing home patient days.

THEY WILL HAVE TO KEEP WORKING BECAUSE THEY DIDN'T KNOW WHAT THEY WERE DOING (NOR DID THE ADVISORS): (WSJ) Many older workers are planning to push their final retirement dates into their 70s, or in some cases their 80s largely because of deep nest-egg losses. The AARP findings quantify a significant shift in older Americans' retirement goals, resulting largely from the combination of the stock-market downturn, historically low interest rates on conservative investments favored by retirees, and widespread cutbacks in retiree health benefits.

Forty-five percent of the combined groups said they expect to work into their 70s or beyond, with 27% expecting to quit sometime before age 80, and 18% planning to work after that. The numbers are even higher among preretirees, with 34% expecting to work into their 70s, and 23% expecting to keep at it into their 80s.

The need for money was named as the primary motivation for older workers' decision to stay on the job, with 22% of people who haven't retired giving it as their top reason for staying on the job, along with 35% of people working in retirement.

Though the bulk of older workers plan to stay in their current professions, 27% expect to do something entirely different, with 16% planning to work for themselves or start their own business. Of those planning to work for hire, 6% are considering teaching.

WILL IT BE SUSTAINED?: Fifty-five percent of the U.S. population was overweight for the 52 weeks ended in February, down slightly from 56 percent the prior year. A BMI between 25 and 29.9 is considered overweight, while one greater than 30 is obese. An acceptable range is 20 to 25.

The study found that 35 percent of the U.S. population said they carefully plan their meals to be nutritious, up from 32 percent in 2001. Americans also report they are exercising more, the study found, with 66 percent indicating they were strenuously exercising at least once a week. That's up from 63 percent in 2002.

NATIONAL EPIDEMIC: The percentage of people who are obese doubles from the teen years to the mid-20s.

NASD AND THE FUNDAMENTALS OF INVESTING: Here is an example of what they now require for arbitrators: NASD is offering several half-day and one-day seminars during the remainder of 2003. Programs will cover various topics, including Fundamentals of Securities Laws and SRO Rules, Recordkeeping, Supervisory Practices, Secondary Market Trading, Capital Adequacy Requirements, Trading with TRACE, Anti-Money Laundering.

Notice anything about the fundamentals of investing? Nope. Never has been any offering like that nor do I think It will occur in the rest of my lifetime. That’s one reason why consumers have a hard time in arbitration.

INSURANCE: 76 percent of those owning insurance now shop around for the best-priced policy every one to three years. Fifty-one percent of the respondents did price-comparison shopping once a year and another 25 percent did so every two to three years.

Fifty-six percent of those surveyed had been insured a year or less by their current auto insurance carrier and 37 percent of homeowner respondents had changed carriers sometime in the past two years. "Brand loyalty, as we knew it, is over,"

Seventy-six percent of the respondents had life insurance and, of those, 69 percent have a policy that is one to four times their salary. "People are dangerously underinsured in this country,". Only 18 percent reported their coverage at four to seven times their annual salary."

Thirty-three percent felt completely comfortable shopping for insurance and other financial services over the Internet and 49 percent were somewhat comfortable. However, 85 percent said if they shopped for insurance on the Internet, they would want to speak to a person before making a purchase.

ADVICE: It appears that those people who need advice the most appear to be the ones who are less likely to seek out a professional adviser. While 73% of college-educated people say they have received professional advice, only 54% of those with high school educations have done so. Respondents making $75,000 to $125,000 are more likely to believe they can afford a financial adviser than those making less, indicating that they also are more apt to go to an adviser.

TOO MUCH CHOICE IS NOT ALWAYS A GOOD THING—AT LEAST FOR 401(K) INVESTMENT OPTIONS. Offering employees lots of investment choices in a 401(k) plan actually leads to lower participation. The research finds that, on average, every additional 10 investment choices cuts participation rates by 2%.

HEALTH INSURANCE A CRISIS: The number of people without health insurance shot up last year by 2.4 million, the largest increase in a decade, raising the total to 43.6 million, as health costs soared and many workers lost coverage provided by employers.

The increase brought the proportion of people who were uninsured to 15.2 percent, from 14.6 percent in 2001. The figure remained lower than the recent peak of 16.3 percent in 1998.

HMO'S: Total U.S. HMO enrollment continues to decline, falling to 71.8 million total enrolled members as of January 1, 2003. The number of HMO plans also dropped, falling from 500 in January 2002 to 454 in January 2003. A lot of this decline is due to Aetna, which closed 27 plans in the last year, almost all of which were Prudential Healthcare Plans the company acquired in 1999.

SUCKING GAS BIG TIME: (Weiss) As a result of historically low interest rates, the investment income generated by 87 annuity writers was insufficient to adequately fund their annuity reserves in 2002. Thus, these 87 companies were forced to reallocate investment income from other product lines, dip into capital, or take from operating profits to meet their reserve requirements, a practice which could ultimately threaten the companies’ ability to meet their annuity contract obligations.

ONE HOUR AIN'T GONNA CUT IT: Most U.S. students in elementary through high school spend less than an hour studying most nights. That's contrary to the popular wisdom that says kids today get too much homework.

"Some people read so little they have rickets of the mind."

Jim Rohn

DIVERSIFICATION: (Clemens Sialm, Marcin Kacperczyk and Lu Zheng) according to a recent study from the University of Michigan Business School, skilled fund managers actually diversify less.

Sialm and his colleagues studied the performance of over 2,000 actively managed diversified equity funds from 1984-1999, and found that mutual funds with above-median "concentration" yielded an average return, adjusted for risk, of 2.18% per year before expenses and 0.82% per year after expenses. By comparison, more diversified mutual funds yielded an average return, adjusted for risk, of 0.39% per year before expenses and -0.73% per year after expenses. Concentration was measured by the number of industries held by a fund, and the weightings given to the various different industries.

"I think [the study] has important implications for perceptions of mutual fund managers," said Sialm in an interview. "Are they skilled and do they add value? Our study supports that some of them are skilled, and those mutual fund managers tend to choose highly concentrated portfolios. Why do they do that? One manager might have a background in biotech stocks, maybe he is a medical doctor, or has an advanced degree in that area. And of course, he will primarily pick from this sector."

The study also found that managers who run concentrated funds tend to focus on small-cap and growth stocks. "We believe that mispricing in the asset market is most severe for small and growth stocks, so it's easier for mutual funds to find good stock picks in these areas,"

But the study says nothing about volatility. These are forms of sector funds. Remember how well technology funds did just a few years ago. Of course they sometimes can do better, but the risk is apt to be very high.

REMEMBER JUST A FEW YEARS AGO THAT HUGE INHERITANCES WERE EXPECTED?: A new study by AARP suggests that most boomers will receive a small inheritance, if they get anything at all. As of 2001, only about 17% of boomers had received any inheritance. Those that did receive money didn't get much. The median inheritance was $47,909.

Reasons- living longer, long term care (very expensive), health premium increases (including medigap)

401(k): (Hewitt) Nearly half of all workers who changed jobs last year voluntarily cashed out the savings in their 401(k) retirement plans instead of rolling over their assets into their new employers' plans or individual retirement accounts.

Cashing out of a 401(k) deprives workers of years of compounding, which can turn even small sums into a tidy nest egg. Not only will you be hit with a 10% penalty if you take out the money before age 59½, but you'll also be socked with ordinary income taxes.

The highest incidence of cash distributions occurred among younger employees, with 50% of those age 20-29 taking the money. But the number was high for older people as well. More than one-third of employees 60 and older took their distributions in cash, as did 33% of employees 50 to 59.

What was surprising about the survey, which covered 160,000 employees who took 401(k) distributions last year, was the level of cash-outs for older employees and those with large balances. About 87% of workers with $5,000 or less in their accounts took a cash distribution, as did nearly three-quarters of those with balances of $5,000 to $10,000. But the survey also found that 20% of workers with balances between $40,000 and $50,000 and even 6% of those with $100,000 balances and higher opted for a cash distribution.

NON CITIZENS: Resident aliens…persons holding a green card or meeting the substantial presence test…will be required to pay federal income taxes and applicable state taxes on their worldwide income just as US citizens do. Non-resident aliens may still be required to pay income tax on income earned in the US and a non-resident alien married to a resident alien or US citizen may choose to be treated as a resident alien for tax purposes. It is important to be aware whether there is an income tax treaty between an alien's country of residence and the US since this may impact income tax rates and liability for taxes. See IRS Publication 519 for more information.

ANNUITY SALES IN CA- The state of California recently passed legislation that will affect all agents conducting business in the state of california. Much of the legislation, but not all, primarily applies to the sale of annuities and life insurance to seniors (persons age 65 and older). Highlights of the legislation that become effective on January 1, 2004 are as follows:

• No advertisement for an event where insurance products will be offered for sale may use the terms “seminar,” “class,” or “informational meeting,” unless it adds the words “and insurance sales presentation” immediately following those terms in the same type size and font as those terms.

• An annuity shall not be sold to a senior where its purpose is to affect Medi-Cal eligibility.

• Any person who meets with a senior in the senior’s home is required to deliver a notice in writing, in 14- point type, to the senior no less than 24 hours prior to that individual’s initial meeting in the senior’s home.

• Upon contacting a senior in the senior’s home, the agent shall, before making any statement other than a greeting, or asking the senior any other questions, state that the purpose of the contact is to talk about insurance, or to gather information for a follow up visit to sell insurance, if that is the case, and state all of the following information:

– Each person attending a meeting with a senior shall provide the senior with a business card or other written identification stating the person’s name, business address, telephone number, and any insurance license number.

– The persons attending a meeting with a senior shall end all discussions and leave the home of the senior immediately after being asked to leave by the senior.

• Any agent or broker who is not an active member of the State Bar of California may not share a commission or other compensation with an active member of the State Bar of California.

Other aspects of the regulation become effective in January 2005. Highlights include:

• Business cards, price quotes and advertisements must include the word “insurance.”

• Every life agent who sells annuities shall complete eight hours of training (approved by the commissioner) prior to soliciting individual consumers in order to sell annuities. Every other year, four hours of training shall be completed for license renewal.

SAVINGS: Revised Commerce Department data showed Americans saved just 2.3 cents from every dollar earned after taxes in 2002 -- not the 3.7 percent previously reported and less than a third of the 7.7 percent saved in 1992.

LTC- MetLife’s research study entitled “Financial Impact of Premature Death” notes a disturbing financial picture from the point of view of the surviving spouses:

Two-thirds of spouses (65%) reported that the death had a “devastating” or “major” financial impact on the families’ financial security.

More than one third (39%) of surviving spouses received no life insurance proceeds at all.

Two-thirds of spouses who did receive life insurance benefits, received proceeds that were less than three times the annual income of the deceased. One in four beneficiaries received benefits that replaced less than one year of the deceased’s income.

Less than half (46%) of the spouses who received life insurance proceeds described the amount of coverage as “adequate.”

In addition, many families were required to make significant financial adjustments, including working additional jobs, longer hours; withdrawing money from savings accounts, retirement accounts and investments; moving to smaller, less expensive housing, reducing spending on their children’s education; and borrowing money.

NOTHING LIKE TRUST: J.P. Morgan Chase & Co. Inc. JPM.N agreed to pay $25 million to settle a U.S. Securities and Exchange Commission probe into unlawful allocations of initial public offerings,

But here is the part that is most galling- The $25-million civil penalty levied by the SEC equaled less than 1.4 percent of J.P. Morgan's net profit of $1.83 billion for the second quarter of 2003.

AND ANOTHER MERGER: MetLife Inc. , the largest U.S. life insurer, will buy the long-term care insurance business of pension plan manager TIAA-CREF.

This one really had me surprised. I thought TIAA was really trying to make a play for the LTC business.

The business covers about 46,000 customers- and it is that number that makes me believe that the problem in the sales of such product is reflective of what I have taught for year. Insurance- certainly including LTC- is SOLD not BOUGHT. That's why TIAA hardly made a dent- it had not sales staff pushing the product in front of prospective clients. It is the same focus with disability insurance. Rarely is it purchased independently.

AIDS: Every 14 seconds, one person between age 15 and 24 is infected with the AIDS virus.

HOLDING PERIODS: Over the last 50 years, the average holding period for an investor in a mutual fund has fallen to less than 3 years from 16.

LIFE INSURANCE: Overall, for the first half, annualized premium and face amount were down 4% and the number of policies sold was down 6%, compared with the first half of last year. Variable universal life (VUL) and variable life (VL) sales dropped even further in the second quarter, with annualized premiums down 41% and 56% respectively, compared to the same quarter of 2002.