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Miami

Cypen & Cypen
NEWSLETTER
for
JANUARY 8, 2009

Stephen H. Cypen, Esq., Editor

1. FORT LAUDERDALE ERIP IS VALID:

An early retirement incentive program offered to police officers in Fort Lauderdale does not violate the Age Discrimination in Employment Act of 1967 or the Florida Civil Rights Act of 1992. Fourteen current and former police officers employed by the City of Fort Lauderdale sued the City and the City of Fort Lauderdale Police Officers’ & Firefighters’ Retirement Board. (The board entered into a stipulation with the parties in which it conceded the court’s jurisdiction and agreed to “comply with any relief that may be ordered by the Court.” Therefore, the subject order binds the board in accordance with the stipulation.) Plaintiffs’ claims concerned an early retirement incentive program the City implemented following collective bargaining negotiations between it and the Fraternal Order of Police. A collective bargaining agreement effective October 1, 2000 amended the pension plan’s deferred retirement option program. The period of possible DROP participation was extended from 36 months to 60 months. In addition, the age component of DROP was lowered from 47 years of age to 45 years of age. While the years of service component remained the same, officers were made eligible for DROP upon reaching 20 years of service regardless of age. However, an officer did not begin to forfeit time from his DROP participation period upon simple attainment of 20 years of service. Rather, the clock only began to run in a manner that shortened the DROP period upon the attainment of both 20 years of service and 45 years of age. The Court granted the City’s motion summary judgment and denied plaintiffs’ cross motion for partial summary judgment as to liability. As to 13 of 14 plaintiffs, the Court found that releases they executed as a condition to participation in the early retirement incentive program were valid and binding. Alternatively, the Court found that DROP was non-discriminatory. To establish a prima facie case, a plaintiff must produce sufficient evidence to support an inference that defendant employer based its employment decision on an illegal criterion. This evidence is achieved through one of three generally accepted methods: by direct evidence of discriminatory intent; by meeting the four-prong test set out in Title VII case law; or through statistical proof. First, plaintiffs failed to produce direct evidence of discriminatory intent. Second, plaintiffs claims did not allege any indirect evidence of discrimination. Third, plaintiffs failed to establish a prima facie case based on disparate impact because they did not offer statistical evidence in support. We are pleased to have represented our regular client City of Fort Lauderdale Police Officers’ & Firefighters’ Retirement Board, which did not take a position in the litigation. Lerman v. City of Fort Lauderdale, Florida, Case No. 02-60967 (U.S. S.D. Fla., December 23, 2008).

2. PUBLIC RETIREMENT BENEFITS REACH RECORD LEVEL:

State and local government defined benefit employee retirement systems paid $168 Billion to 7.5 million retirees and survivors in fiscal year 2007, according to the U.S. Census Bureau. The increase is $12 Billion from the previous year when 7.3 million received payments. (By our math, the average annual payment went from about $21,400 to $22,400.) There were 2,547 retirement systems in 2007, with total membership of 18.6 million who could be eligible for regular benefit payments in the future. The structure of retirement systems varies widely among the states. In some jurisdictions, state and local government employees are vested in a small number of statewide systems: Hawaii and Maine each have one system for all public employees in the state. Other jurisdictions have a large number of systems, many of which serve only employees of individual local governments: Pennsylvania (with 900 retirement systems!) and Illinois (with more than 350) lead the pack. Receipts of state and local government DB plans totaled $580.5 Billion in fiscal 2007. Receipts included earnings on investments ($473.5 Billion), government contributions ($72.9 Billion) and employee contributions ($34.1 Billion). Payments, including withdrawals, amounted to $183.0 Billion. Cash and security investment holdings in state and local government retirement systems totaled $3.4 Trillion. The largest single category of investment holdings was corporate stocks, equaling 36% ($1.2 Trillion). Another 15% ($518.3 Billion) was invested in foreign/international securities and 13% ($448.5 Billion) was invested in corporate bonds. The remaining assets were in governmental securities, real property, trust funds and other investments. Caveat: all of these figures are from 2007, which seems like a century ago.

3. PLAN NOW TO GET FULL BENEFIT OF SAVER’S CREDIT:

Low- and moderate-income workers can take steps now to save for retirement and earn a special tax credit in 2008 and the years ahead, according to Internal Revenue Service. The saver’s credit helps offset part of the first $2,000 workers voluntarily contribute to Individual Retirement Arrangements, 401(k) plans and similar workplace retirement programs. Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply. Eligible workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2008 tax return. People have until April 15, 2009 to set up a new IRA or add money to an existing IRA and still get credit for 2008. However, elective deferrals must be made by end of the year to a 401(k) plan or similar workplace program, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state and local governments and the Thrift Savings Plan for federal employees. Employees who are unable to set aside money this year may want to schedule their 2009 contributions soon so their employer can begin withholding them in January. The saver’s credit can be claimed by:

  • Married couples filing jointly with incomes up to $53,000 in 2008 or $55,500 in 2009;
  • Heads of Household with incomes up to $39,750 in 2008 or $41,625 in 2009;
  • Married individuals filing separately and singles with incomes up to $26,500 in 2008 or $27,750 in 2009.

Like other tax credits, the saver’s credit can increase the taxpayer’s refund or reduce the tax owed. Although the maximum saver’s credit is $1,000 ($2,000 for married couples), IRS cautioned that it is often much less and, due in part to impact of other deductions and credits, may, in fact, be zero for some taxpayers. Begun in 2002 as a temporary provision, the saver’s credit was made a permanent part of the tax code in legislation enacted in 2006. To help preserve value of the credit, income limits are now adjusted annually to keep pace with inflation. IR-2008-134 (December 1, 2008)

4. COST OF “THE TWELVE DAYS OF CHRISTMAS” (BELATED):

Even though Christmas has passed, we thought we should keep up our tradition of reporting PNC’s Christmas Price Index (see C&C Newsletter for December 6, 2007, Item 8). Well, items in the song increased by a lavish 8.1% over last year, the second biggest leap in history. According to the 24th Annual Survey, cost of the PNC CPI is $21,080.00 in 2008, $1,573.00 more than last year. The PNC CPI exceeds th U.S. Government’s Consumer Price Index, the widely used measure of inflation calculated by the Bureau of Labor Statistics, which rose just 3.7% this year. As part of its annual tradition, PNC also tabulates the “True Cost of Christmas,” which is the total cost of items gifted by a True Love who repeats all of the song’s verses. This holiday season, very generous True Loves will pay more than ever before -- $86,609.00 -- for all 364 items, up from $78,100.00 in 2007, a staggering 10.9% increase. We’re betting that Bernie Madoff did not receive very many Christmas gifts.

5. EMTS NOT ENTITLED TO OVERTIME PAY UNDER FLSA:

Gonzalez brought a federal action against the City of Deerfield Beach, Florida, where he, and other plaintiffs, worked as either a Firefighter/Emergency Medical Technician or Rescue Supervisor. Although each had training necessary to engage in fire suppression, they rarely, if ever, were called upon to do so. In fact, Gonzalez was the only plaintiff ever to have engaged in fire suppression, having done so on only a handful of occasions. Instead, plaintiffs’ duties consisted of providing emergency medical assistance. They responded to car accidents, heart attacks and other situations requiring medical care. As a general rule, plaintiffs did not respond to fire calls, and when they did, they tended to victims of the fire instead of fighting the fire itself. Moreover, although plaintiffs are assigned protective “turn-out” gear worn by firefighters, they did not wear it in responding to fire calls; they wore the gear only when called to accident scenes involving a hazard of broken glass. The district court granted summary judgment in favor of the city in the subject action, which sought unpaid overtime compensation pursuant to the Fair Labor Standards Act. On appeal, plaintiffs argued that the district court erred by concluding that they had responsibility to engage in fire suppression within meaning of FLSA, and thus were not entitled to overtime pay under the Act’s ordinary overtime requirements. On appeal, the judgment was affirmed. FLSA generally requires employers to pay employees one-and-a-half times their normal rate when they work more than 40 hours a week. However, an employer is not subject to such requirements if the employees are employed by a public agency engaged in fire protection or law enforcement activities. To fall within the exemption, an employee must (1) be trained in fire suppression; (2) have legal authority to engage in fire suppression; (3) have responsibility to engage in fire suppression; (4) be employed by a fire department of a municipality, county, fire district or state; and (5) be engaged either (i) in prevention, control and extinguishment of fires or (ii) in response to emergency situations where life, property or the environment is at risk. In affirming, the court relied upon one of its recent decisions that is on “all fours” (see C&C Newsletter for February 21, 2008, Item 4). Gonzalez v. City of Deerfield Beach, Florida, Case No. 07-11280 (U.S. 11th Cir., November 24, 2008).

6. LETTING LEHMAN FAIL A GREAT MOVE?:

According to usnews.com, letting Lehman fail was the best move of 2008 -- despite the conventional wisdom on Wall Street that it was the biggest government mistake of last year. Lehman Brothers in the summer of 2008 had many of hallmarks of a firm destined for failure. It had violated the rules of its own business, taking poor risks and accumulating astounding levels of debt. Richard Fuld, Lehman’s headstrong CEO, turned down efforts to buy his firm when there still was a chance to salvage it. Fuld and his Lehman chums, convinced that their firm was impervious to market forces, basically vaporized $75 Billion worth of assets by failing to plan for an orderly bankruptcy. Lehman was also an egregious example of corporate greed: Fuld earned about $240 Million between 2005 and 2007 -- $80 Million per year -- while making the very decisions that would doom his firm. On average, the CEO of a public company listed in the S&P 500 Index earns about $15 Million a year, and most of them run companies that earn a profit and stay in business. Here is some new thinking on why it may have been perfectly legitimate to let Wall Street’s oldest investment bank fail:

Bear Stearns was the real mistake. The Bear bailout gave a false sense of security to the markets. Lehman was the wake-up call. If the government had let Bear fail completely, there might have been a credit freeze and market plunge in the spring instead of the fall. But it probably would have been less severe. And as Lehman’s troubles mounted, Fuld and his minions almost certainly would have acted differently if they knew that oblivion was a real possibility.

Lehman may not have triggered the financial meltdown after all. There were so many cataclysms in mid-September that it is easy to forget who else was reeling. But one day after the Lehman Brothers bankruptcy, the government granted the huge insurance company AIG an $85 Billion emergency loan to prevent it, too, from going belly-up. AIG had nearly twice the revenue of Lehman, four times as many employees and a massive web of investments that the feds clearly thought could trigger a global catastrophe if the firm collapsed. If it turns out that AIG’s near-death experience was the most powerful trigger for the financial freeze-up that followed, then Lehman’s failure looks tolerable by comparison. And the bank looks a lot less vital than its Wall Street apologists believe.

Somebody has to fail. Maybe there are a few institutions that are truly “too big to fail,” but most are not, and failure of unsuccessful firms used to be capitalism’s way of clearing the decks for smarter entrepreneurs with fresher ideas and better products. Pure free-market capitalism can be ruthless and volatile, which is why we have thousands of government regulations to protect workers and consumers and promote stability. As the windstorm of 2008 recedes, Lehman Brothers looks increasingly like a firm that we are better off without.

Remember, now, this piece is from a U.S. News & World Report blog.

7. THE TEN WORST ASSUMPTIONS OF 2008:

From the same usnews.com blog as Item 5 above, we get the Ten Worst Assumptions of 2008:

Real estate values always rise over time. The statement was true for most of the last century -- until they rose too much in too little time in the middle of this decade.

Lesson: Never bank on outsized gains that have not materialized yet.

The mighty consumer will keep spending. Remember when economists kept marveling at the willingness of Americans to get out their wallets, no matter what their debt load or job prospects? Well, economists are not so impressed anymore.

Lesson: You cannot spend your way to greatness.

A buyer will always emerge. But at what price?

Lesson: An asset is worth only what somebody else is willing to pay for it -- not what you think it should be worth.

Banks will be careful with their money. Ha! Once upon a time, bankers were conservative investors whose first responsibility was to make sure they did not lose their principal.

Lesson: Never underestimate people's ability to screw up.

Don't worry, the smartest guys in the world are working on the problem. A disproportionate number of the world's geniuses work on Wall Street -- which might be one reason that the problems they cause are so colossal.

Lesson: Arrogance lowers IQ. By a lot.

Technology is the solution. One reason there was so much overconfidence on Wall Street is a vast electronic network that allows millions of global trades to take place every day.

Lesson: Never let technology supersede the basics.

The feds will fix things. Funny how all those free marketeers on Wall Street suddenly want Big Brother to save their skin.

Lesson: Plan for a rainy day, and pack your own umbrella.

There is plenty of liquidity. Those words were the mantra among big investors in the middle of this decade, when vast sums of global money were available for investing in practically anything.

Lesson: Take advantage of credit, but don't become dependent on it.

Things will bounce back. Sure they will, eventually. But timing is everything.

Lesson: Ask what will happen if you are wrong and events do not unfold the way you are sure they will.

It cannot happen to us. If the "it" is another crushing depression, then, yeah, it probably will not happen. But the current recession will be harsh and will erase the beliefs that business cycles are a thing of the past and that modern progress has overcome human nature.

Lesson: There is always a chance you will look stupid tomorrow [and less chance that you will look smart tomorrow)].

Again, a blog from U.S. News & World Report.

8. JAIL IN IPSWICH HAS CONVENIENT ACCOMMODATIONS WITH LOTS OF BARS:

If you are looking for a short break, Ipswich, in England, has a stunning countryside and much to offer, especially “The Lock ‘Em Inn,” Ipswich’s local hoosegow. Recently awarded 5 Golden Handcuffs, the Lock ‘Em Inn confiscates all major credit cards, has sturdy locks on all rooms, offers wipe-clean mattresses and provides free shuttle bus to the doorstep (with secure cage). As the brochure says, “We’re always there to keep an eye on your comfort.” You can find the clever brochure at http://tinyurl.com/72eglk. Our advice? When in Ipswich, clam up.

9. PRICELESS OBSERVATIONS:

Last week, I stated this woman was the ugliest woman I had ever seen. I have since been visited by her sister, and now wish to withdraw that statement. Mark Twain

10. QUOTE OF THE WEEK:

“Be at war with your vices, at peace with your neighbors, and let every new year find you a better man.” Benjamin Franklin

 

Copyright, 1996-2009, all rights reserved.

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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