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Week in Review


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.

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