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Cypen & Cypen
JANUARY 6, 2005

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


Lobbyists spent a record $1.1 Billion in the first half of 2004 to influence Congress and the Bush Administration, according to documents filed with the Senate. U.S. Chamber of Commerce led the way with $30 Million. Second was the American Medical Association at $9.2 Million. The overall amount is the most ever in any six-month period, and compares with $963 Million the same period last year, according to PoliticalMoneyLine, an independent group that tracks campaign finance and lobbying. The Chamber of Commerce, the nation’s largest business lobby, spent $20 Million directly and an additional $10 Million through its Institute for Legal Reform, which advocates restrictions on lawsuits. Those two affiliated groups spent less than $35 Million for all of 2003.


The City of San Diego, terminated a police officer for selling videotapes he made and for related activity. The tapes showed the officer engaging in sexually explicit acts. He brought suit, alleging, among other things, that the termination violated his First, Fourteenth Amendment rights to freedom of speech. The United States District Court granted summary judgment for the City, but the Court of Appeals for the Ninth Circuit reversed. On petition for writ of certiorari granted, the United States Supreme Court reversed. Investigation revealed that the officer’s conduct violated specific SDPD policies, including conduct unbecoming an officer, outside employment and immoral conduct. Although a government employee does not relinquish all First Amendment rights otherwise enjoyed by citizens just by reason of his employment, a governmental employer may impose certain restraints on the speech of its employees, restraints that would be unconstitutional if applied to the general public. The court has recognized the right of employees to speak on matters of public concern, typically matters concerning government policies that are of interest to the public at large, a subject on which public employees are uniquely qualified to comment. Here, the speech in question was detrimental to the mission and functions of the City. There is no basis for finding that it was of concern to the community as the court’s cases have understood that term in context of restrictions by governmental entities on the speech of their employees. City of San Diego, California v. Roe, 18 Fla. L. Weekly Fed. S21 (U.S., December 6, 2004).


A rather disturbing article in the New York Times deals with veterans, desperate for money, signing over their military pensions in exchange for “cash advances.” In one example, a frantic Army veteran desperately needed money to get his wife out of the Philippines after her home had been destroyed by a bomb. So, in exchange for $20,000, he signed over his $1,000-a-month military pension for the next five years, a total of $60,000 -- equivalent to an interest rate of 56% a year! Although federal law prohibits retired military personnel from signing over their future pension payments to others, companies offering these deals say they are arranged to avoid that restriction. The problem is the Pentagon does not see pension advances as examples of retirees signing away their future pensions, which it acknowledges would be illegal. A Pentagon spokesperson says “these agreements appear to be loans based on retired pay as collateral.” (Talk about a distinction without a difference.) Besides, these companies, which use military-sounding names, are allowed to advertise in military newspapers. So far, two judges have upheld the right of third-parties to claim future military payments, but did not address how their decisions squared with federal anti-alienation statutes. Two other federal judges dealt directly with the issue, and found that the sale of future military pension payments was specifically prohibited by federal law. How rich is this area for potential abuse? Well, last year, about 1.7 million military retirees received $33 Billion in pension payments.


When the trial judge announced his ruling in the divorce of Joseph Carollo and Maria Carollo, Joseph was to receive a municipal pension of $9,404.63 per month. The court determined the marital portion to be $8,180.80 per month, and ordered Joseph to pay his wife $4,090.40 per month. However, between the time the trial judge announced his ruling and the time it was reduced to final judgment, the City of Miami Elected Officer Retirement Trust “corrected” an error in valuation of Joseph’s pension, and substantially reduced it. Although Joseph brought this matter to the lower court’s attention via a timely filed motion for rehearing, it was denied on the ground that a property distribution order cannot be modified. On appeal, the Third District reversed: the trial court abused its discretion in denying Joseph an opportunity to show how the amount of his pension was affected by the City’s recalculation. Also, the court reaffirmed the well-settled (at least to us) proposition that a municipal pension benefit is not subject to a Qualified Domestic Relations Order; the only remedy is for the court to order payment of the spouse’s allotment each month, enforceable by contempt. Further, as a general rule, income deduction orders are not available to achieve an equitable distribution of marital assets. Carollo v. Carollo, 30 Fla. L. Weekly D99 (Fla. 3d DCA, December 29, 2004).


Late last week, the Treasury Department and Internal Revenue Service issued Notice 2005-5, Guidance on the New Automatic (or Default) Rollover Rules for Qualified Retirement Plans. The new rules were added to the Internal Revenue Code as part of the Economic Growth and Tax Relief Reconciliation Act of 2001, but will not be effective until March 28, 2005, the effective date of related final regulations published by the Department of Labor. This Guidance answers many questions regarding application of the new requirement and will make it easier for plan sponsors to comply in a timely manner. The new automatic rollover rule requires that mandatory distributions of more than $1,000.00 (and not more than $5,000.00) from a qualified retirement plan be paid in a direct rollover to an Individual Retirement Account unless the distributee elects to have the amount rolled over to another retirement plan or to receive the distribution directly. EGTRRA also requires that the plan administrator notify the distributee in writing that the distribution may be paid in a direct rollover to an IRA. The Guidance also clarifies that the automatic rollover requirement applies to governmental plans, although a transition rule is provided for these plans to comply. The Guidance provides that all plans have until the end of 2005 to establish administrative procedures for processing automatic rollovers and clarifies that rollover IRAs can be set up without the participant’s participation. (Governmental plans will not be treated as out of compliance if the automatic rollover provisions are not applied to mandatory distributions from such plans that are made prior to the close of the first regular legislative session of the legislative body with authority to amend the plan that begins on or after January 1, 2006.) Finally, the Guidance includes sample language that can be used to amend plans or to provide notice to participants:

In the event of a mandatory distribution greater than $1,000 in accordance with the provisions hereof, if the participant does not elect to have such distribution paid directly to an eligible retirement plan specified by the participant in a direct rollover or to receive the distribution directly in accordance with the provisions hereof, then the plan administrator will pay the distribution in a direct rollover to an individual retirement plan designated by the plan administrator.


According to a Thomson Financial Report summarized in, investment-grade corporate bond sales rose to $689 Billion in 2004 from $665 Billion in 2003, topping the previous record of $668 Billion in 2001. Domestic junk bond sales climbed to $141 Billion from $135 Billion in 2003. (The previous record was $138 Billion in 1998.) Sales of convertible securities fell to $47 Billion from $97 Billion in 2003. U.S. asset-backed securities issues totaled a record high of $857 Billion in 2004, up from $605 Billion in 2003.


For many years, Ohio School Employees Retirement System provided a health care plan for retirees in addition to paying pensions, disability benefits and survivor benefits. Prior to 1989, all SERS members who retired from covered employment and qualified for SERS pension benefits also received free health care coverage from SERS, in addition to their pension. Through the years, SERS changed benefits provided under its health care plan and increased co-pay amounts and out-of-pocket maximum requirements. The changes shifted a greater percentage of the health insurance cost to retiree and disability recipients. SERS ostensibly undertook these changes to protect and preserve its health care fund in face of rising health care costs and lower investment returns. In response, Ohio Association of Public School Employees, an employee organization, sued SERS, seeking declaratory, injunctive and other relief. On appeal from an order resolving all claims in favor of SERS as a matter of law, the appellate court affirmed: premium costs and levels of health care coverage provided to SERS retirees at time of retirement cannot vest, and, therefore, may be changed. Ohio Association of Public Employees v. School Employees Retirement System Board, Case No. 04AP-136 (10th Dist. Ohio, December 28, 2004).

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Items in this Newsletter may be excerpts or summaries of original or secondary source material, and may have been reorganized for clarity and brevity. This Newsletter is general in nature and is not intended to provide specific legal or other advice.

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