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 I find it fascinating to watch the Illinois budget fiasco being played out like a game of chicken between the Governor and the Senate. The Senate just overrode the Governor's veto of a tax increase. While this is good to stave off a downgrade to junk status, it is not so good for the citizens of the state. While yes, more money is available to pay for services, there is also less money that people can spend on what they need.

That’s a very common assumption that many people make. Based on the idea that taxes will go down over time, they decide to take as little as possible from retirement accounts and spend their taxable money first. For some people that works fine, but for many it becomes a tax trap.

Wilshire Consulting calculates the funding ratio for State sponsored retirement plans every year. For the year ending June 30, 2016 (the most recent) the average funding ratio, or the amount of pensions that have the money to pay, dropped to 69%.  What this means is that either taxes will need to be raised dramatically to make this up or future pension benefits dramatically curtailed.

Underfunded state pensions are a threat to taxpayers everywhere in terms of probable higher future tax burdens and lower future services. In California, they talk about a "service bankruptcy". That is where all the tax dollars at some future point go to paying benefits for retirees with no money left over to spend on any of the services government provides. All of the future taxes will have to go to pay for promised pensions if nothing changes.

I am glad to see the new requirement for investment advisors dealing with 401(k) plans take effect. Now advisors have to acknowledge their fiduciary status in writing and subscribe to an impartial standard of conduct. The big keys are that under these new standards, these advisors must:

The new rule going into effect with the Department of Labor (DOL) fiduciary rule gives brokers and insurance agents till January 1, 2018 to come into compliance with the rules we have been following for decades.

This is huge news for 401(k) plan participants. Now advisors will have to consider the fees, the benefits and the services provided before they recommend a rollover from a corporate plan to an IRA. Imagine that, a rule that makes these people have to actually work in someone's best interests. I wonder why they fought so hard against it?

Good news for 401(K) plan sponsors and participants! Under the new Fiduciary Standard of Care rule, all advisors that give investment advice to 401(k) sponsors and their employees (participants) now have to comply with the ERISA standard for fiduciary care.

Before this happened, only advisors who, like us, were subject to the Investment Advisors Act of 1940 were held to the fiduciary standard. Others had what's called the suitability standard. Brokers and insurance agents had a lower standard and could earn big payouts from investments with very high fees, but not anymore.

There’s a lot of lingo in the financial planning and investment areas that may be clear to the professional but isn’t always truly understood by most individuals. Take, for example, compensation models for financial advisors that are categorized as fee-based or fee-only. Yes, they both charge fees but fee-based advisors may also receive commissions for products that they sell you. This can lead to a conflict of interest when their compensation influences the type of product they recommend.

On Wednesday, the Federal Reserve raised its short term interest rate for the third time in the last six months, even in the face of tame inflation numbers. For the last five years, inflation has stayed at low levels averaging under two percent. Low inflation is good for savers and retirees as high inflation is a serious threat to most people’s long term retirement plans. Low interest rates are not good for savers, however.

The recent 27^th annual Employee Benefits Research Institute Retirement Confidence Survey reports that the share of American workers who are very confident that they will have a comfortable retirement remains low. I believe this is a growing national problem that will take strong measures of education and leadership to fix. Some of the more interesting findings include: