Avoiding Madoff-Style Ponzi Schemes: 12 of The Best Resources for Investors
How can investors protect themselves from financial losses in a Ponzi scheme of the type associated with Bernard Madoff? What red flags should they look for to alert them to a possible Ponzi scheme? What do investors need to know in general about spotting and avoiding investment fraud? The nonprofit Alliance for Investor Education (AIE) recently outlined 12 of the best Web-based resources for investors to educate themselves about investment fraud, particularly Ponzi schemes. The AIE’s new “Avoiding Madoff-Like Ponzi Schemes: What Investors Need to Know to Protect Themselves” is their website. AIE is the organization of the United States’ leading financial-related foundations, nonprofit organizations, associations and governmental agencies. AIE president, Dallas Salisbury, who also serves as president and CEO of the Employee Benefit Research Institute and chairman of the American Savings Education Council, said: “Investors can become victims of fraud at any time, but they need to be particularly vigilant when they are seeking to recoup market losses in turbulent markets. We want to make sure that Americans know where to find the best available information so that they can have the confidence to continue investing, while avoiding Madoff-style Ponzi swindles.” The new Avoiding Madoff-Like Ponzi Schemes section of the AIE Web site features the following 12 top resources for consumers, including: The Alert Investor: Ponzi Schemes - North American Securities Administrators Association, Lessons to Be Learned from Madoff Scandal - Financial Planning Association, and others.

Americans Spending Less, Saving More
Americans have cut back spending by 1 percent in December, and increased personal savings by 3.6  percent, in response to concerns about job security and economic stability, according to a Department of Commerce report released early February. Spending fell $102.4 billion, a steeper drop than the $77.8 billion loss in November. Personal income fell $23.5 billion in December. The personal savings rate has been steadily increasing since the 0.8 percent growth rate in August, the report showed.

After hovering near zero for much of the decade, savings as a portion of disposable income rose from 2.4 percent in October to 2.8 percent in November, according to the Bureau of Labor Statistics. Also, in November, auto loans, credit cards and other forms of consumer borrowing fell by $7.9 billion, the largest dollar amount since record keeping began 50 years ago. The accelerating contraction of the manufacturing industry could be behind the drop in spending and personal income, according to the Institute for Supply Management. The Washington-based group keeps track of factory activity and creates a factory index based on productivity. Although the factory index for last month rose to 35.6 from a December reading of 32.9, the manufacturing market is still suffering; any number below 50 indicates contraction. 

What are the Tax Breaks in the 2009 Stimulus Bill
The new recovery act, according to the White House, will give a direct tax break to 95 percent of workers and their families, through the Making Work Pay Credit. The law contains many other tax breaks that should provide a financial boost to everyone from the unemployed and low income, to families with children and children in college, to first-time homebuyers and taxpayers buying new cars. The $787 billion legislation, which President Barack Obama signed February 17, is designed to get both individuals and businesses to open their wallets and to lift the economy out of its slump. Most of the cuts are good for only a year or two.

Tax breaks for individuals, families:

Workers

• Making Work Pay Credit: Workers and the self-employed would get a payroll tax credit for 2009 and 2010 of up to $400 a year for single taxpayers, and up to $800 for couples filing jointly.
• The IRS will get the money to taxpayers by adjusting the withholding tables, thereby boosting paychecks. The increase could be as much as $40 per month per worker, depending on when the withholding tables are changed. Self-employed workers will claim the credit on their tax returns. In the meantime, they can reduce their estimated tax payments for 2009.
• For single tax filers, the credit will begin phasing out at an Adjusted Gross Income (AGI) of $75,000. For couples filing jointly, the phaseout zone will start at $150,000 of AGI. (Adjusted Gross Income is your total income from wages and other income minus certain adjustments, such as deductible IRA contributions and alimony paid.)

Unemployed

• Reduced taxes on unemployment income: Normally, people receiving unemployment benefits must report them as income and can be taxed on them. The new bill makes the first $2,400 of unemployment income nontaxable. 

First-time homebuyers

• First-time Homebuyer's Credit: The tax package increases the $7,500 first-time homebuyer credit to $8,000 for primary residences purchased between January 1, 2009 and November 30, 2009, and eliminates the requirement that the credit be repaid, as long as the house isn’t sold within three years.

College students

• Expanded Hope Credit: The Hope Credit for college costs is increased to $2,500 for 2009 and 2010, covering 100 percent of the first $2,000 of tuition and related expenses per year and 25 percent of the next $2,000.
• The credit is available for all four years of college, up from only two years, and covers the cost of books. It is 40 percent refundable, and begins to phase out at $80,000 of Adjusted Gross Income for singles and $160,000 of Adjusted Gross Income for married couples.
• The bill also allows tax-free distributions from Section 529 College Savings Plans to cover computer purchases.

New car buyers

• New car sales tax deduction: Buyers of new cars, light trucks, SUVs, motorcycles or motor homes during 2009, can deduct the state sales or excise tax they pay, even if they don’t itemize their deductions.
• This break starts phasing out for single taxpayers with Adjusted Gross Income over $125,000 and couples with AGI over $250,000.

Tax Breaks for Families

• Expanded Earned Income Tax Credit (EITC): More couples who file jointly and have children will qualify for the Earned Income Credit.
• The tax package starts the phaseout range at $21,420, an increase of $1,880. Also in 2009, the credit increases for families with three or more children to 45 percent of the first $12,570 of earned income, up from 40 percent.
• Enhanced Child Tax Credit: Plus, the Child Tax Credit will cover more low-income earners: For 2008, the credit is refundable to the extent of 15 percent of an individual’s earned income in excess of $8,500; for 2009 and 2010, that floor drops to $3,000.

Retirees, veterans and the disabled

• One-time payment of $250: Because the payroll tax credit only goes to employees and the self-employed, the bill adds something for others as well: a one-time payment of $250 to recipients of Social Security benefits, Railroad Retirement benefits, Supplemental Security Income payments, and pension and disability benefits from the Veterans Administration.
• Government retirees who don’t get Social Security will also get a one-time refundable tax credit of $250 in 2009.

Homeowners

• Extended energy-saving credits: The 10 percent tax credit for energy-saving home improvements climbs to 30 percent and is extended through 2010. Improvements that qualify for the credit include energy-efficient skylights, windows and outer doors, along with energy-saving water heaters, central air conditioners and biomass stoves.
• The bill also eliminates individual credit caps for the different types of property, and instead imposes a $1,500 cap on all qualifying property.

Middle-income taxpayers

• One-year “patch” on the Alternative Minimum Tax: To keep millions of middle-income taxpayers from being forced to pay the Alternative Minimum Tax (AMT) for 2009, the measure increases the minimum tax exemptions to $70,950 for couples filing jointly and $46,700 for single filers. Otherwise, the exemptions would top out at just $45,000 for couples and $33,750 for singles.

Businesses will get a big share of the tax breaks

• Small businesses would most likely be affected by the following changes:
   Bonus depreciation
   Special 50 percent, first-year bonus depreciation is revived for assets bought and placed in service during 2009.

Loss carrybacks

• Businesses that averaged $15 million or less in gross receipts over the past three years will be allowed to carry back losses for five years instead of two. The easing applies only to 2008 losses.

Adapted from the 360 Degrees of Financial Literacy Web site, by the American Institute of Certified Public Accountants [www.360financialliteracy.org].

Copyright 2009. American Institute of Certified Public Accountants, Inc.  All rights reserved. Used with permission.

DISB Releases Alert on New COBRA Benefits in the Economic Stimulus Plan
In March, DISB released an information alert on its Web site about the new provisions in the stimulus law, which amends COBRA (Consolidated Omnibus Budget Reconciliation Act). COBRA provides certain former employees the right to continue their health insurance coverage at group rates on a temporary basis. A significant provision included in the law established a new federal subsidy of up to 65 percent the cost of COBRA benefits for up to nine months for eligible employees who involuntarily lose their jobs between September 1, 2008, and December 31, 2009. 
Since the provisions became effective upon enactment, DISB Commissioner Thomas E. Hampton said that it requires prompt attention and that employers and administrators should start reviewing the records of terminations from September 1, 2008, to prepare to provide notice of the new requirements as soon as a model notice is available from the federal government.

Eligible employees are those involuntarily terminated between September 1, 2008, and December 31, 2009, and elects COBRA coverage. Residents should note that eligible employees who initially declined COBRA coverage must be given an additional 60 days to elect COBRA coverage and receive the subsidy, and they may opt for lower cost plans.

In the announcement, DISB answers key questions such as does the law extend the length of time for the group continuation coverage; where should eligible individuals sign up; and what to do if an employer refuses to provide group continuation coverage. District residents may visit the Web site to read the full announcement at disb.dc.gov. During the month of April, DISB will be hosting workshops to discuss the COBRA benefit for dislocated workers.  Any resident needing more information on COBRA, please contact DISB at (202) 727-8000. 

DISB Urges Consumers to Avoid High-Cost Loans
As the tax season winds down, DISB recently warned taxpayers to steer clear of refund anticipation loans (RALs). According to recent data by the National Consumer Law Center (NCLC), the Consumer Federation of America (CFA) and the Internal Revenue Service (IRS), RALs drained the refunds of 8.67 million American taxpayers in 2007 (for tax year 2006), costing $833 million in loan fees, as well as more than $68 million in other fees. In addition, another 11.2 million taxpayers spent $336 million on related financial products to receive their refunds.

RALs are high cost, high risk, short-term loans secured by, and repaid directly from the proceeds of a consumer’s tax refund from the IRS. The RAL is a bank loan in partnership with a tax preparer, and must be repaid even if the IRS denies or delays the refund, if the refund is smaller than expected, or if it is frozen. They may be considered predatory because they can be extremely expensive, with the combination of RAL fees, tax preparation, electronic filing, and other fees that make up a substantial portion of the refund. Some data has shown that RAL loan fees may translate into Annual Percentage Rates of about 50 percent to more than 500 percent as the loans last about 7-14 days until the IRS refund repays the loan.

DISB Commissioner Thomas E. Hampton suggested that District residents consider the following so they may not have to rely on RALs:

• E-File with Direct Deposit. File the tax return electronically (e-file) to speed up the refund. Instruct the IRS to deposit the refund directly into a bank account by providing the account number on the tax return. The refund is delivered in about 10 days without paying for a loan.
• Open a bank account. There are many unbanked consumers in the District, and if consumers don’t have a bank account, open one and take advantage of direct deposit. A savings account may also be used to receive a tax refund.
• Avoid check cashers. Check cashers charge an extra fee to cash RALs and tax refund checks. It has been reported that some check cashers charge up to 7 percent to cash a RAL check. A $2,000 refund could cost $60 to cash the check, which is in addition to tax preparation fees.
• Use a VITA Site. Some free tax preparation programs called Volunteer Income Tax Assistance (VITA) sites can file taxes electronically, and if consumers have Internet access, they may be able to obtain free tax preparation and electronic filing at icanefile.org. Using VITA sites may result in saving money as they provide free services to low- and moderate-income taxpayers. VITA sites are sponsored by the IRS and may be found in libraries, community centers, and other locations during tax time. For the nearest VITA site, call the IRS general help line at (800) TAX-1040, or go to tax-coalition.org. AARP’s Tax-Aide program offers free tax preparation for low-income taxpayers at the Web site, aarp.org/money/taxaide. The IRS Free File program is available for taxpayers who earn $54,000 or less.  The Capital Area Asset Builders (CAAB) coordinates 11 VITA sites in the District of Columbia, and residents can find a list of tax sites at dceitc.org. They may call the toll free number at 1 (877) SAVE-515.  The Capital Area Asset Builders (CAAB) coordinates 11 VITA sites in the District of Columbia, and residents can find a list of tax sites at dceitc.org. They may call the toll free number at 1 (877) SAVE-515.
  • Reduce tax withholding, if permitted, so you will not have to wait for a refund next year.

For more information on RALS, please call the DC Department of Insurance, Securities at Banking at (202) 727-8000.

Consumer Groups Applaud Insurance Regulators’ Decision to Keep Life Insurers Financially Strong
The Consumer Federation of America and the Center for Economic Justice recently praised state insurance commissioners for rejecting proposals from the life insurance industry to reduce the amount of money they must hold to ensure they can pay claims and benefits to consumers. The National Association of Insurance Commissioners (NAIC), of which the DC Department of Insurance, Securities and Banking (DISB) is a member, voted to reject proposals from the life insurance industry for “capital and surplus relief,” a euphemism for reducing the requirements for the amount of capital and reserves that life insurers must hold for payment of claims and benefits to policyholders. The consumer groups noted that the regulators will continue to consider the industry proposals over the next few months according to the normal, not “emergency,” procedures at the NAIC. They said they expect regulators to now take the time to carefully analyze the impact of specific proposals on the financial condition of the life insurance industry as a whole and on individual insurers before embarking on another precipitous action.

DISB in the Community

DISB Akoma Project Health Fair DISB staff attended the Akoma Project Health Fair at Union Temple Baptist Church in southeast to provide information on health insurance to attendees. More than 100 people attended this event on February  7. Public Affairs Specialist Tanya Bryant and Insurance Operations Specialist Sylvia Matthews participated in a 10 minute yoga session.

Military Saves Week DISB staff did several outreach activities to members of the military before and during Military Saves Week, February 22 to March 1, to encourage the military community to meet immediate needs and build long-term wealth through saving and debt reduction. Staff does outreach at Andrews Airforce Base on February 18. Military Saves Week is part of two larger campaigns—the Department of Defense’s Financial Readiness Campaign, and the national America Saves campaign, a program that DISB recognizes and sponsors.

Upcoming Events In April, the District marks its third Financial Literacy Month. DISB will host seminars and be on hand at several events to provide information as the agency believes that financial education is key in helping you achieve personal financial goals by establishing and maintaining healthy financial habits. Check the agency calendar online for further updates. Second Annual DCSaves Financial Fair—Saturday, April 4, 10 am to 2 pm, Boys and Girls Club at THEARC, 1901 Mississippi Avenue, SE. DISB will host a workshop for laid off and dislocated workers on the new COBRA benefits in President Barack Obama’s stimulus package at noon. The agency will also have a booth for you to pick up information on COBRA, financial fraud and other financial education materials. DISB will also host a presentation on COBRA on May 12 at a small business expo at the Washington Convention Center, 801 Mt. Vernon Place, NW. Financial Crime Forum —Wednesday, April 8, 10 am to 12:30 pm, 6001 Georgia Avenue, NW, Community Room. DISB will have several of its financial crimes experts on hand discussing insurance, investment and banking frauds against seniors. This event is sponsored by the Metropolitan Police Department, 4th District. Southeastern University Career Fair —Wednesday, April 15, 3 pm to 7 pm, Southeastern University, 501 I Street, SW. DISB will be engaged in outreach to attendees at this event, sponsored by the university. US Department of Transportation Financial Education Fair —Wednesday, April 22, 10 am to 2:30 pm, 1200 New Jersey Avenue, SE (West Atrium). DISB will be on hand to give away information. Financial Literacy is yearlong, so in May, the agency will be co-hosting an investor- education seminar series. How Can I Afford Retirement? investor education in your community seminars will be launched in the District of Columbia on May 14, from 6 pm to 8:30 pm, at Howard University Law School, 2900 Van Ness Street, NW. These solicitation-free events are open to the public. For each session, there will be a presentation, break out groups and a question and answer period. Refreshments will be served. The topics are: Taking the Mystery Out of Retirement Planning (May 14) Setting retirement goals Projecting retirement income and expenses Allocating assets for retirement investments Developing a personal financial/investment plan Next steps Closing the Gap: Investment and Expense Strategies—Even for Late Starters (May 28) Determining the gap between desired and projected income Building investment strategies to address financial gaps Creating retirement income from investment assets Learning catch-up provisions Investing Wisely to Avoid the Financial Risk of Longer Life Expectancy (June 4) Assessing the risk of outliving your assets Determining the best diversification, asset allocation and types of investments Understanding the impact of withdrawal rates on your investments Protecting Your Investments—The Best Defense is a Wise and Safe Investor (June 11) Learning the common investment and retirement planning mistakes Understanding common methods of financial fraud and abuse Discovering basic insurance investment strategies for retirement Using Your DC Public Library and the Internet for Financial Education and Lifelong Learning (June 16, Martin Luther King Jr Library, 901 G Street, NW) For additional updates, select the agency calendar on disb.dc.gov.

New Council Chair With Oversight Over DISB
DISB has a new chair with oversight of the agency at the Council of the District of Columbia. Ward 4 Councilmember Muriel Bowser is the chair for the Committee on Public Services and Consumer Affairs with oversight over DISB. The committee is responsible for matters related to consumer and regulatory affairs, public utilities and cable television, the regulation of banks and banking activities, and securities and insurance including private health insurance matters. Other committee members are Councilmembers Jim Graham, Harry Thomas Jr., Michael A. Brown and the previous chair Mary Cheh.

FDIC Insurance Coverage Increased in Late 2008
In the fall of 2008, the US Congress temporarily increased the basic FDIC insurance coverage limit from $100,000 to $250,000 through Dec. 31, 2009. That's the result of a new law passed by Congress October 2008. It means that if you (or your family) have $250,000 or less in all of your deposit accounts at the same insured bank, you don't need to worry about your insurance coverage – your deposits are fully insured.

In addition, the FDIC simplified the rules for the calculation of deposit insurance coverage for revocable trust deposits, including an expanded definition of the “eligible beneficiaries” for additional insurance coverage. As a result, certain previously published information related to FDIC insurance may not reflect the current insurance coverage. For more information, go to fdic.gov or call toll-free 1 (877) ASK-FDIC (1-877-275-3342) Monday through Friday, 8 am to 8 pm. For the hearing-impaired, the number is 1 (800) 925-4618.

Americans Believe They’re Savvy About Insurance, but Insurance IQ Tells Different Story
During Financial Literacy Month, DISB emphasizes the message that knowledge is your best policy—especially when it comes to insurance in these uncertain financial times. According to a new survey commissioned by DISB and the National Association of Insurance Commissioners (NAIC), a vast majority of Americans believe they are smart about insurance, but a deeper look at the issue tells a different story. The apparent lack of knowledge contrasts sharply with confidence levels expressed by survey respondents. Before taking the IIQ, nearly 60 percent said they feel “very confident” when making insurance decisions overall, with only 15 percent voicing any insecurity about their decision-making abilities.

In today’s economy, consumers need to understand their insurance coverage. With rising joblessness and falling home prices, Americans need to make sure they understand what their insurance policies cover. By making careful, informed decisions about their insurance, consumers can save money and ensure long-term protection for themselves and their loved ones.  Now, more than ever as the District is about to celebrate Financial Literacy Month in April, consumers need to be mindful of the impact their insurance decisions can have on their financial futures, according to DISB Commissioner Thomas E. Hampton. “By arming themselves with the facts—and improving their Insurance IQ —consumers can make sure they are adequately protected, without paying more than they should for that coverage.”

Among the key findings:
Health: Less than half of those surveyed (49 percent) know that if they leave their job and choose the federal Consolidated Budget Reconciliation Act (COBRA) to continue their health benefits, they must pay the full cost of coverage.
Home: Just one in five respondents (19 percent) realizes that the requirement for private mortgage insurance (PMI) on a newly purchased home depends on the size of the down payment and lender; almost 30 percent think PMI is required by law.
Life: Only 14 percent of respondents correctly know that the amount of life insurance typically recommended for individuals is 5-7 times your annual salary.
Auto: Less than two-thirds of Americans (62 percent) are aware of the top three factors that impact the cost of auto insurance coverage (ie, accident history, vehicle safety features, geography).

How to Improve Your Insurance IQ
Here are four useful tips to help District residents better understand their insurance policies:

• Get Savvy.
  Before shopping for a policy, learn as much as you can about insurance. The award-winning “Insure U” consumer-education website is an unbiased, expert resource to help you understand the types of insurance available, the factors that affect price and the insurance options for your personal situation.
• Shop Around; Do Your Homework.
  After learning the insurance basics, get premium quotes from several companies for the amount of coverage you require. The Insurance IQ survey found that although many Americans rely on personal experience and recommendations from family and friends when making insurance decisions, nearly 90 percent do not gather information from other, more reliable sources of information — such as DISB, the District’s insurance department. DISB offers several online tools to assist consumers with the insurance-buying process.
• Before Committing: Stop. Call. Confirm.
  If you are unsure about an insurer or agent you are working with 1) Stop before signing any paperwork or writing a check; 2) Call DISB at (202) 727-8000; and 3) Confirm the company or agent is legitimate and licensed to do business in your state.
• Review Your Policy.
  Do not wait until you need to file a claim before evaluating the scope of your coverage. The Insurance IQ study found that 60 percent of respondents do not periodically review their policy — that is, they wait until they are filing a claim or renewing their coverage. Twenty-five percent admit rarely or never looking at their policies. By understanding your policies, you can be prepared for any situation and, potentially, save money by avoiding unnecessary costs.

Here is one other important element to remember: Throughout the year, people may encounter changes in employment, salary, geographic location and family dynamics. These factors affect your insurance options and the amount of coverage you need. Any time your life situation changes, be sure to review insurance coverage and make any necessary adjustments.

DISB Joined Others to Mark National Consumer Protection Week
In March, DISB announced it joined a group of federal, state, and local government agencies and national consumer advocacy organizations to launch the 11th annual National Consumer Protection Week (NCPW), March 1-7, 2009.

NCPW 2009 — Nuts and Bolts: Tools for Today’s Economy—focused on giving consumers the tools they needed to make smart financial decisions in today’s marketplace. Information helped people get the most for their money, whether they are trying to stretch their paychecks, find a quick fix for a spotty credit history, or tell the difference between a real deal and a potentially fraudulent product or service. The NCPW Web site has tools people can use to recognize a rip-off, sniff out a scam, and make smart choices for today’s market, how to deter and detect identity theft, and how to file a consumer complaint with the appropriate authorities.