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Cypen & Cypen
JANUARY 24, 2008

Stephen H. Cypen, Esq., Editor


Utah’s Voluntary Contributions Act prohibits any state or local public employer from withholding voluntary political contributions from its employees’ paychecks. Several Utah labor unions filed suit, asserting that the VCA violates the First Amendment by restricting public employees’ political speech. The Federal District Court granted their motion for summary judgment, and the State of Utah appealed. The United States Court of Appeals agreed with the District Court’s conclusion that the VCA is unconstitutional as applied. State restrictions on payroll systems owned and maintained by independent local governments and school boards do not fall under the nonpublic forum exception to ordinary First Amendment analysis. Because the VCA regulates political contributions, the appellate court applied the exacting scrutiny test, and concluded that as applied to municipalities, counties, school districts and other local public employers, the VCA violates the First Amendment. In affirming, the appellate court held that, although the State may assert the right to oversee use of its own property, there is a relevant distinction for purposes of the nonpublic forum exception between property owned and controlled by the government seeking to implement the speech restrictions and property owned and controlled primarily by independent entities, which local governments are. By banning a contribution method preferred by many union members, the statute increases the difficulty of contributing to labor union political funds. Utah Education Association vs. Shurtleff, Case No. 06-4142 (U.S. Tenth Cir., January 10, 2008).


The 1,000 largest U.S. retirement plans grew 13.5% in the 12 months ended September 30, 2007, the strongest growth rate in a decade according to Pensions & Investments. Assets of the top 1,000 reached $7.36 Trillion as of that date. Assets for the top 200 retirement plans also increased, growing 14% to $5.6 Trillion for the period, the largest gain in 4 years. Defined benefit assets of the 1,000 largest funds grew 13.1% to $5.4 Trillion, while defined contribution assets grew 14.4% to $1.96 Trillion. For the 200 largest plan sponsors, defined benefit assets increased 13.8% to $4.4 Trillion, compared to an increase in defined contribution assets of 14.6% to $1.2 Trillion. Defined contribution assets now make up 26.6% of all assets held by the 1,000 largest retirement plans and 21.3% of top 200 plan assets.


Pensions & Investments also writes that public pension funds might help rescue ailing Wall Street banks (although their corporate counterparts will probably sit this one out). Only the biggest public funds with large internal investment operations have deep enough pockets and the investment latitude to follow the lead set by the New Jersey Division of Investment. That unit, which oversees over $81 Billion in state pension assets, recently provided capital infusions for Citigroup Inc. and Merrill Lynch & Co. Inc., both of which took huge write-downs because of their exposures to subprime mortgages. The New Jersey Division invested $400 Million in convertible preferred shares in Citigroup and another $300 Million in convertible preferred shares in Merrill Lynch. Nevertheless, almost any pension plan would be hard-pressed to compete with the giant sovereign wealth funds that took major stakes in Citigroup and Merrill Lynch, unless, of course, sentiment against foreign funds turns sharply negative on Capitol Hill. Already, some are calling for increased transparency for sovereign wealth funds. Citigroup’s sale of convertible preferred securities amounted to $12.5 Billion, with a single sovereign fund -- the Government of Singapore Investment Corp. -- ponying up 55% of that total! Other investors included Kuwait Investment Authority, HRH Prince Alwaleed bin Talal bin Abdulasziz Alsuad, Sanford Weill and his family foundation (didn’t Sandy once control Citigroup?), Capital Research Global Investors and Capital World Investor. Merrill Lynch’s $6.6 Billion private placement was bought primarily by Korea Investment Corp., Kuwait Investment Authority and Mizuho Corporate Bank. Ah, so.


Democrats are frequently characterized as ”tax and spend” by those on the other side of the political spectrum. And while that may be an unfair generalization, a new survey reviewed by finds a connection between one’s political affiliation and one’s thriftiness. Republicans and those identifying themselves as independent voters were more likely to be making plans for saving more. Forty-three percent of Republicans were planning to save more in the year ahead, as were 44% of independents, while 27% of Republicans and 28% of independents were planning to save more for retirement. Those numbers compare with just 35% of Democrats looking to save more and a mere 22% planning to save more for retirement. Republican savings behaviors may simply be reflecting their relative optimism about their economic prospects: 30% said they were more secure about their financial situation compared with just 14% of Democrats. Moreover, 25% of Republicans said they thought the economy would improve this year, versus just 11% of Democrats. On the other hand, independents, who are almost as pessimistic about the economy and their individual financial fortunes as Democrats, were just as committed to saving as those more optimistic Republicans. Let sleeping elephants lie?


A judge has found that a retired 500-pound police officer cannot increase his pension check by blaming his disability on an accident, when a medical board “rationally” found it was related to his obesity. reports that a New York State Supreme Court justice found the police pension fund medical board’s decision to deny the officer’s request for a large accidental disability retirement pension was based upon credible medical evidence. An ordinary disability pays an officer a taxable pension of half his salary. An accidental disability pays a nontaxable pension of three-fourths of salary. When the officer, now 40, joined the force 15 years ago, he stood 5'7" and weighed 250 pounds. In 2004 he applied for ordinary disability benefits, saying he was unable to function fully as a police officer because of high blood pressure, sleep apnea and morbid obesity. The pension fund’s medical board noticed he was suffering from other physical ailments, including osteoarthritis in his right knee. At the time, he had already been placed on limited duty. His lawsuit alleged that in 2005 he tripped over a wooden pallet in an apartment building, hurting his right knee. Based upon that fall, the officer applied for accidental disability benefits, which the medical board rejected, although recommending retirement with an ordinary disability pension. The court upheld the medical board’s decision, noting that the officer had not performed full duties as a police officer since 2003. The officer was disappointed by the judge’s decision, but, as of press time, had not decided whether to appeal. Where’s the beef?

6. NC SUIT SEEKS TO STOP DIVERSION OF STATE PENSION MONEY: reports on a lawsuit before the North Carolina State Court of Appeals that could bar state officials from using contributions to the state pension fund to balance the budget -- and force officials to pay penalties for the last time the Governor used it (see C&C Newsletter for June, 2001, Item 11 and C&C Newsletter for September, 2001, Item 10). Earlier this month, the court heard arguments in a dispute over the Governor’s decision in 2001 to divert $130 Million from the state pension fund to plug a hole in the state budget. The state has been paying the money back, but lawyers representing state employees say the Governor deprived the pension fund of millions of dollars in interest payments. Outcome of the lawsuit could determine whether the Governor and Legislature can use employer contributions to pensions when the state cannot pay expenses. The outcome could also mean that schools, colleges and state agencies ordered to divert the money could face a penalty for making late payments to the pension system, although a special deputy attorney general told the court it would be unfair to punish them for following the Governor’s order. A written decision is expected some time later this year.


Individuals may subtract from their federal taxable income certain itemized deductions, but only to the extent the deductions exceed 2% of the adjusted gross income. A trust may also take such deductions subject to the 2% floor, except that when the relevant cost is “paid or incurred in connection with administration of the trust” and “would not have been incurred if the property were not held in trust,” the cost may be deducted without regard to the floor. After the trustee of a testamentary trust hired a firm to advise as to trust investments, the trust deducted in full on its fiduciary income tax return the investment advisory fees paid. The Commissioner of Internal Revenue found the fees subject to the 2% floor, and therefore allowed the deduction only to the extent fees exceeded 2% of the trust’s adjusted gross income. The United States Tax Court decided for the Commissioner, and the United States Second Circuit Court of Appeals affirmed, holding that because such fees were costs of a type that could be incurred if the property were held individually rather than in trust, their deduction by the trust was subject to the 2% floor. Thus, in a rare unanimous decision, the United States Supreme Court affirmed. Knight v. Commissioner of Internal Revenue, Case No. 06-1286 (U.S., January 16, 2008).

A 25 year old man entered a store with a gun in his hand, according to He wanted cash and cigarettes, and while the clerk was complying, he went to put his gun back in his belt. Unfortunately, the weapon discharged, sending a bullet through his right testicle and the bottom of his leg. He actually managed to escape, but shortly thereafter, police dispatchers got a call from someone located several blocks away from the store about a man who had been shot. Of course, it was our boy. If you haven’t already seen this one on television or on the internet, you can see the young genius in action at


Cigarette: A pinch of tobacco rolled in paper with fire at one end and a fool at the other.


“They say the world has become too complex for simple answers. They are wrong.” Ronald Reagan

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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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