Spitzer's Absurd Techniques Once Again Fail..

I think these techniques are deplorable that the NY AG uses. He makes vast accusations, puts it in the public spotlight when a company is most vulnerable and just looks for a quick payoff.

Its ironic that he would be against a deferred taxes savings tool that would help so many during retirement and teach them to save and not depend on the government and social security. I think this guy's techniques are deplorable and he should not be able to get away with this. The sad part is that these lawsuits and settlements are not benefitting you and me. When companies are forced to settle, have lawsuits and have more insurance, the prices of their goods and services goes up and we end up having less discretionary spending money and the government again decides better how to spend our money than us. After all how would WE know how to spend our money!


REVIEW & OUTLOOK (Editorial)

The Spitzer Savings Plan

954 words

24 March 2006

The Wall Street Journal

A10

English

(Copyright (c) 2006, Dow Jones & Company, Inc.)

New York Attorney General Eliot Spitzer has been struggling to counter the public perception that he has a "temperament" problem. If his recent treatment of H&R Block is anything to go by, he needs a few more anger management sessions.

Mr. Spitzer blew a gasket last Friday after Block CEO Mark Ernst had the temerity to deny, in an op-ed in this newspaper, the AG's charges that his company had fraudulently sold retirement savings plans. His Lord High Executioner threatened Block with "vast fines" for refusing to roll over. And he further warned that he might now find it more difficult to keep H&R Block "alive and viable" (read: corporate indictment), and promised to "dig deeper" into its affairs.

So rather than let a jury evaluate his charges, Mr. Spitzer is once again threatening to use his power to ruin a company before it even steps into a courtroom. Not that his accusations appear to have much to do with the law in any event. It has escaped no one that this is tax season, and, lo, Mr. Spitzer's target happens to be the nation's largest tax preparation firm. H&R Block has had a string of bad news -- including miscalculating its own state income taxes -- and may have seemed vulnerable to a hit-and-run settlement. Mr. Spitzer was clearly eager for such a painless victory, offering to settle for less than $30 million before filing his $250 million suit.

Block is resolutely defending its Express IRAs, and on the public record so far rightly so. Nearly 600,000 Block customers have used this product, which encourages low-income individuals to divert a portion of their tax refunds into Individual Retirement Accounts. Because Express IRAs have a minimum deposit requirement ($300) far below that of most competitors, and because the money is put into safe (albeit low-interest bearing) money market accounts, Mr. Spitzer claims most users are paying more in fees than they receive in interest and have thus been defrauded.

That must be news to the many Democrats and liberal think tanks plumping for precisely such accounts. As academic studies have long shown, savings tend to rise with income. Only about one in eight Americans in the bottom 20% of income levels have retirement accounts. Many don't work for companies that offer retirement plans, while the idea of making regular contributions can be daunting to households that survive paycheck to paycheck.

One popular response has been to let workers funnel tax refunds directly into private retirement accounts. Low- and moderate-income families receive large tax refunds (in 2001, they saw checks totaling some $78 billion, or $1,500 per family), and many of them view refunds as "extra" money to be put aside. Supporters include the Brookings Institution, the Pew Charitable Trusts, and House Democrats Rahm Emanuel and Jim Cooper -- who have sponsored legislation to require the IRS to set up direct-deposit procedures. Does Mr. Spitzer plan to subpoena all of them?

It was against this background that Block introduced its Express IRA in 2001. The company also hoped to exploit another Congressional initiative -- this one part of the Bush tax cuts -- called the Saver's Tax Credit. Anyone who earns up to $50,000 a year, pays taxes and contributes to a retirement plan gets a "match" from the government of up to 50%. Block has helped nearly half of its Express IRA clients claim this savings subsidy.

The company says its average Express IRA customer earns just $30,000 a year, 42% had previously never opened a savings account, and 20% lacked even a checking account. Yet even after Block's fees, 78% of accounts opened between 2001 and 2005 have had positive net tax savings and interest earnings. Express IRA accounts have accumulated some $360 million. They have also inspired more thrift. Roughly 23% of clients who made an initial refund contribution have since recontributed -- often at a higher amount. Some 40,000 clients are depositing an average of about $50 a month. And some 27,000 have accumulated enough to graduate to a brokerage account.

None of these facts made it into the Spitzer complaint, which cherrypicks data to paint a one-sided picture. While H&R Block has been selling its Express IRA for four years, Mr. Spitzer focused on accounts opened in 2002. That year marked the beginning of the nationwide Express IRA program -- before some clients could build up balances -- and was a time of very low interest rates. It was also the year before the Saver's Tax Credit kicked in, which has sent some $50 million in additional tax benefits to Express IRA users.

Thus Mr. Spitzer was able to claim that 79% of Express IRA customers had lost money. To reach this figure the AG also had to include clients who initially contributed a low amount and soon withdrew their money -- incurring a substantial federal tax penalty. In our book this is called consumer choice, and was to be expected given that many users were new savers under financial pressure. As for Block's fees, they remain among the lowest for IRA operators, which explains why the company says it is still losing money on this product.

All of this might be difficult to grasp for Mr. Spitzer, who can afford to invest in hedge funds to finance his comfortable lifestyle and retirement. But his detachment from the struggles of working people is no excuse for launching a political attack on a law-abiding company, the main benefit of which would be to foreclose a promising avenue for low-income savers.

 

So do you think the express IRA accounts are wrong and are defrauding investors? Or would you rather not encourage individuals to benefit from tax deferred accounts?

Do you believe manipulating statistics in that manner in order to push a company to pay up during a season in which their reputation is the cornerstone of their business is not slanderous?

 

He has not won anything, those costs paid by the companies are going to be passed on to consumers. Tactics like this forcing companies to settlements increases the prices of all goods and services to you and me.

Its ironic that some of his strives to make investing better has simply increased regulations and so many investment firms now raise their minimum investments for clients because of higher fees. So who is losing out in this situation Sam? Smaller investors.

 

I believe that there were wrong doings in many corporations. If it was criminal than I believe the executives should be liable, just as someone robbing a store is. I think Adelphia, Worldcom and Enron are examples of illegal activities that should lead to criminal and civil penalties that are equatable to the lives they have destroyed.

But there must be a line drawn as to the ability to bully companies using government power into rapid settlements using their good name. Spitzer's techniques are to find a practice that can be statistically manipulated to show fraud, and then to use the media to adversely affect the company's business hoping for a quick settlement and payoff. Most companies will simply pay up as their reputations are quite important to their business.

This is not why our government is here.

 

Well this is the issue that we are discussing. Stressing to individuals to save money and invest into an IRA which is a tax-deferred vehicle is smart investing. The largest cost to investors are not fees, but taxes. These are the lowest cost IRA's on the market and are invested in money market funds in order to lower volatility. If it was invested in any investment tool, i'm sure Spitzer would sue HR Block's product even if the historical return was better. But they did this to limit the fees.

The fact that people took money out of their IRA's and were penalized by THE GOVERNMENT, not H&R Block, is a silly notion to determine the pool of individuals lost money after only a few years in which money market rates have been very low. If these people continued to invest in these tax-deferred instruments, then that money will compound and give them something to retire on.

It seems you would rather hurt business owners and shareholders than promote utilizing tax deferred savings plans. Do you feel this money from this suit would be spent towards taking care of these individuals when they retire?

 

Voodoo Economics? The wealthy do not use H&R Block to do their taxes. Its primarily for lower to medium income individuals that do not have complicated tax returns. Frivolous suits like these increase the prices of H&R Blocks services to all of its clients. So prices increase to lower and medium income families.