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Cypen & Cypen
JANUARY 26, 2006

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


On January 17, 2006, the Securities and Exchange Commission voted to publish for comment proposed rules that would amend disclosure requirements for executive and director compensation, related party transactions, director independence and other corporate governance matters, and security ownership of officers and directors. The proposed rules would affect disclosure and proxy statements, annual reports and registration statements. The proposals would require most of this disclosure to be provided in plain English. The proposals would refine the currently required tabular disclosure and combine it with improved narrative disclosure to elicit clearer and more complete disclosure of compensation of the principal executive officer, principal financial officer, three other highest paid executive officers and directors. New company disclosure in the form of a Compensation Discussion and Analysis would address the objectives and implementation of executive compensation programs, focusing on the most important factors underlying each company’s compensation policies and decisions. Following this new section, executive compensation disclosure would be organized into three broad categories: compensation over the last three years; holdings of outstanding equity-related interests received as compensation that are the source of future gains; and retirement plans and other post-employment payments and benefits. Comments on the proposed rules should be received by the Commission within sixty days of publication in the Federal Register. A summary of the release is available at The full text of the detailed release will be posted to the SEC website in the near future. SEC Chairman Christopher Cox’s separate opening statement is available at


According to a blurb in, families of New York firefighters killed at the World Trade Center on September 11, 2001 failed to persuade the United States Supreme Court to allow them to go forward with a lawsuit against New York City and Motorola for supplying rescuers with faulty radios. A three-judge panel of the Second United States Circuit Court of Appeals held that the families had waived their right to sue when they accepted money from the September 11 Victim Compensation Fund. That decision dismissed the lawsuit, which had blamed the City and Motorola for supplying firefighters with handheld communications devices that prevented them from hearing evacuation orders while they were in the North Tower trying to rescue people. The fund was created when Congress passed the Air Transportation Safety and System Stabilization Act, designed to keep airlines from being ruined financially and sending the nation’s economy into further chaos. Apparently, history of these Motorola radios bore out the complaint: the equipment carried by firefighters on September 11 was the same model that had been used by rescuers during the first World Trade Center attack in 1993; the radios failed both times. Thus, Motorola did not address the merits of the complaint, but argued that Congress had given families a choice of filing a lawsuit or accepting money from the fund, and that by opting for compensation from the fund, the families waived their right to sue. Most of us know that New York City’s Fire Department lost 343 of its finest on that fateful day.


Baby Boomers -- those born between 1946 and 1964 -- face a potential retirement catastrophe. A lot of their plans, finance and accounting are woefully inadequate. As the first Boomers turn 60 years old next month, they have about a week to make up for lost time. In a poll conducted of finance and accounting professionals, fully 93% said that the Baby Boom generation is not adequately prepared for retirement; 83% said Boomers suffer from underfunded retirement accounts; 60% said they will have to work longer than expected; 57% said they have unreasonably high expectations for their investments and over 50% of professionals polled said that Boomers’ portfolios are poorly invested or poorly balanced. A lot of the reasons for this situation started with “under,” as in underestimating future cost of living. “Too” came up a lot, as in too much debt. But the most common word was “failure:” failure to make plans, failure to obtain professional advice. Boomers did a remarkable job of shifting from hippy to yuppie. How willingly will they become Dreading Retirement Professionals -- “Drippies?”


No, this piece is not about laxatives -- it’s another item about Baby Boomers, who have often been characterized as a generation in love with consumption and incapable of accumulating assets for a rainy day ... or retirement. But the data do not support that conclusion. The Survey of Consumer Finances, the Federal Reserve’s Comprehensive Survey of Household Wealth in the United States, shows that Boomers have been accumulating wealth at much the same pace as their predecessors, according to a new Issue in Brief from the Center for Retirement Research at Boston College. From 1983 through 2001, the period during which the surveys were conducted, the ratio of wealth to income has remained virtually unchanged at any given age. At first glance, this regularity seems comforting, suggesting that Boomers and the cohorts who follow are as well prepared for retirement as their parents. But that conclusion is wrong. For while Boomers have been accumulating wealth at much the same pace as their parents, the world has changed in four important ways: (1) the prevalence of defined benefit pension plans, an asset not included in the definition of wealth in the SCF, has declined dramatically over the last twenty years; (2) interest rates have fallen significantly, so a given amount of wealth will now produce less retirement income; (3) life expectancy has increased, thus accumulated assets must support a longer period of retirement; and (4) health care costs have risen substantially and show signs of further increase, indicating a need for greater accumulation of retirement assets. The brief presents data from seven surveys of Consumer Finances conducted between 1983 and 2001, and then discusses why each of the foregoing factors requires an increase in the wealth-to-income ratio to produce a comparable standard of living in retirement. In other words, the constant wealth-to-income ratios suggest a deterioration in retirement readiness.


On a little lighter note, Ameriprise Financial has released a groundbreaking, comprehensive study of the retirement journey. With significant increases in life expectancy, retirement is lasting longer than ever for Americans. The Ameriprise Financial New Retirement Mindscape study is the first to explore people’s attitudes, worries, behaviors, ambitions and needs in retirement. What should we expect as we begin to approach our retirement years? How will we feel and what will we worry about? How can people prepare emotionally and financially to make each stage of retirement as positive and empowering an experience as possible? As it turns out, retirement is not a single event. It does not take place in a day or even in a single year. Instead, the New Retirement Mindscape study reveals that people migrate through distinct and predictable stages of retirement, each with its own complex emotions and needs. As people move through these stages, each stage has an impact on every other area of their lives -- their families, their workplace, their communities and their financial situation. The Ameriprise Financial New Retirement Mindscape study identified five distinctive stages: imagination, anticipation, liberation, reorientation and reconciliation. For readers who want more detail, visit


The Florida Retirement System, in Section 121.091(7)(d), Florida Statutes, provides for in-the-line-of-duty death benefits (with the exception of the Deferred Retirement Option Program). The language excepting the DROP program was added by the Florida Legislature when the DROP program was initiated. The Florida Department of Management Services correctly excludes a DROP participant from the in-the-line-of-duty death benefits, because for purposes of the Florida Retirement System, such individual is already retired. However, Section 112.19, Florida Statutes, also provides for death benefits for law enforcement, correctional and correctional probation officers. The payments are in addition to any workers’ compensation or pension benefits and are exempt from the claims and demands of creditors of such officer. Unlike the Florida Retirement System, Section 112.19, Florida Statutes, does not contain an exclusion for DROP participants. Moreover, as stated by the Florida Department of Management Services, Section 112.091(3)(b)3., Florida Statutes, provides that participation in the DROP does not alter a participant’s employment status and such employee shall not be deemed retired from employment until his or her deferred resignation is effective and termination occurs. Thus, death benefits provided in Section 112.19, Florida Statutes, are available to law enforcement, correctional or correctional probation officers who are DROP participants. Split decision. (Informal Attorney General Opinion, December 14, 2005).


The Age Discrimination in Employment Act generally protects individuals over forty from age discrimination in employment. As originally enacted in 1967, ADEA did not apply its antidiscrimination principle to employees of state and local governments. The statute was amended, however, in 1974 to cover employees of state and local governments. Two years later, the United States Supreme Court decided that the Tenth Amendment to the Constitution prohibited imposition of wage and hour restrictions of the Fair Labor Standards Act on state and local governments. It was unclear whether the Tenth Amendment similarly deprived Congress of authority to mandate that states and localities comply with requirements of ADEA. The United States Supreme Court addressed that question, holding that ADEA could be applied to state law enforcement officers. Thus, states and localities were subject to ADEA and were required to show that age was a bona fide occupational qualification in order to use age limitations in hiring law enforcement officers. In other words, states and localities had to satisfy the same standard as private employers to justify using age as a criterion in employment decisions. In 1986, Congress amended the ADEA to provide state and local governments an exception covering employment of law enforcement officers and firefighters. The amendment permits state and local governments that had age restrictions for firefighters and law enforcement officers in place on March 3, 1983 to continue to apply those restrictions. The amendment included a provision repealing the exception on December 31, 1983, whereupon the BFOQ standard once again applied to employment of firefighting and law enforcement personnel. In 1996, Congress again amended ADEA and reinstated a law enforcement exception. That exception is like the 1986 exception, but applies retroactively to termination of the 1986 exception and without an expiration date. The 1996 exception permits states and political subdivisions, under certain circumstances, to engage in age discrimination with respect to hiring and firing of firefighters or law enforcement officers. The exception can absolve a state or local government of liability under ADEA for an age limit in law enforcement hiring, regardless of whether that age limit was in existence pursuant to local law on March 3, 1983, or whether it was enacted after the 1996 ADEA amendments that reinstated the law enforcement exception. By its terms, the law requires that the relevant age limitation be a bona fide hiring plan that is not a subterfuge to evade purposes of ADEA. Feldman challenged New York’s Civil Service Law, which prohibits an applicant who is over thirty-five years of age at the time he sits for the Civil Service examination from becoming a police officer. On appeal from a United States District Court order of dismissal, the United States Court of Appeals for the Second Circuit affirmed. To challenge a bona fide law enforcement hiring plan under ADEA, Feldman bore the burden of establishing that the plan is being used as a subterfuge; in other words, in a discriminatory manner forbidden by a substantive provision of the statute not directly covered by the exception. Feldman did not meet that burden because he alleged no facts indicating that New York’s Civil Service Law is anything other than what it purports to be -- an age restriction on hiring of police officers and firefighters pursuant to the statutory exception. No allegations in Feldman’s complaint suggest that the New York Legislature exceeded its authority under the statutory exception by engaging in a kind of discriminatory conduct that ADEA by its very terms forbids. (Basically, Feldman alleged that the New York State Legislature impermissibly relied on an “economic rationale” in enacting its age limitation.) Feldman v. Nassau County, Case No. 05-0444 (U.S. 2d Cir., January 9, 2006).


The lead article in a recent International Foundation Benefits & Compensation Digest is entitled “Defined Benefit and Defined Contribution Plans: A History, Market Overview and Comparative Analysis.” For many Americans, retirement income is likely to come from three main sources: Social Security, personal savings and employer-sponsored retirement savings plans. Personal savings rates in our economy are at historically low levels and Social Security will soon face a growing strain, because we will have fewer workers contributing to the pay-as-you-go system supporting a growing number of beneficiaries. These two trends would seem to stress the importance of employer-sponsored retirement plans as a means for providing vital retirement income for many Americans. For most of the 20th Century, employer-sponsored retirement plans took the form of defined benefit plans. However in the early 1980s, federal legislation cleared the way for the 401(k) plan, a style of defined contribution plan attractive to many employees and employers. Since then, 401(k) plans have become the dominant type of retirement plans being introduced by companies. The article describes the historical evolution of defined benefit and defined contribution plans, discusses current utilization of employer-sponsored defined benefit and defined contribution plans and investigates the efficacy of the two types of retirement plans. The article then highlights some potential risk in the current trends of our employer-sponsored retirement plans. (For example, (1) 401(k) plans do not provide the same amount of stable, long-term savings as do defined benefit plans; (2) on average, 401(k) plans have not delivered investment returns as high as defined benefit plans; and (3) 401(k) plans result in a much broader distribution of investment outcomes than defined benefit plans, creating a wide spectrum of winners and losers.)

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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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