Cypen & Cypen  
Home Attorney Profiles Clients Resource Links Newsletters navigation
777 Arthur Godfrey Road
Suite 320
Miami Beach, Florida 33140

Telephone 305.532.3200
Telecopier 305.535.0050

Click here for a
free subscription
to our newsletter


Cypen & Cypen
FEBRUARY 21, 2008

Stephen H. Cypen, Esq., Editor


Pensions & Investments reports on a California court ruling that allegedly has pension fund trustees in that state -- and across the country -- walking out of board votes rather than risking charges of conflict of interest. The ruling by California’s Fourth District Court of Appeal found that trustees, who are often participants in the retirement systems on whose board they serve, can be criminally liable if they approve a measure that even tangentially provides them a personal benefit. The case is now pending review by the California Supreme Court. But, meanwhile, nervous board members are declining to participate on some votes and walking out of meetings while the votes are being cast. (Making matters worse, is a state Supreme Court ruling in another case, holding that legal advice does not protect board members from potential criminal liability.) California, like other states, requires public retirement systems to include employees or retirees on their boards. Therefore, members of every public fund board in California could benefit from decisions made by the board for benefit of plan participants, and therefore, risk running afoul of criminal conflict of interest laws -- even if benefits are provided on precisely the same terms and conditions as if they were not board members. In our opinion, while the California appellate decision may be wrong (and even subsequently overturned), this issue is being blown way out of proportion -- at least in Florida. Here is why. Section 286.012, Florida Statutes, provides that no member of a municipal pension board who is present at any meeting of such body at which an official decision, ruling or other official act is to be taken or adopted, may abstain from voting in regard to any such decision, ruling or act. A vote shall be recorded or counted for each such member present except when, with respect to any such member, there is, or appears to be, a possible conflict of interest under provisions of Section 112.311, Section 112.313 or Section 112.3143, Florida Statutes. Those sections, respectively, are general legislative intent and declaration of policy; standards of conduct for public officers, employees of agencies and local government attorneys; and voting conflicts. The last of the foregoing sections prohibits a municipal pension board trustee from voting upon any measure that would inure to his special gain or loss; which he knows would inure to the special private gain or loss of any principal by whom he is retained; or which he knows would inure to the special private gain or loss of a relative or business associate. Such trustee shall, prior to the vote being taken, publicly state to the assembly the nature of his interest in the matter from which he is abstaining from voting and, within fifteen days after the vote occurs, disclose the nature of his interest as a public record in a memorandum filed with the person responsible for recording the minutes of the meeting, who shall incorporate the memorandum in the minutes. In other words, a Florida municipal pension trustee must vote unless he has a recognized statutory conflict of interest. If he has such conflict of interest, he is prohibited from voting. There is no such thing as a general “abstention” for any other reason. (Without doing any independent research for this little item, we seem to recall a line of cases holding that no conflict of interest is created if the person voting incidentally benefits by the vote as a member of a relatively-large group of similarly-situated individuals.) One thing is for sure: we would not recommend that any trustee present at a meeting absent himself for purposes of avoiding a vote. Certainly, one doing so is still “present” at the meeting for purposes of Section 286.012, Florida Statutes.


In last week’s issue (see C&C Newsletter for February 14, 2008, Item 9), we did a piece on state Family and Medical Leave Laws. We talked about National Conference of State Legislatures’ comprehensive table identifying state family and medical leave laws, qualifying employers and amount of leave offered. In passing, we said “Florida has a provision requiring public employers to offer up to 6 months for birth or adoption of a child or upon serious illness of the employee, child, spouse or parent.” Because the chart was wrong, we were wrong: we should have said the “state” not “public employers.” We apologize for the error and thank an astute reader for bringing the matter to our attention. You just can’t rely on anybody these days.


If so, you may want to sing along with Steven Zelin, the singing CPA. Catch the clever 5-minute ditty at Thanks to Nevin Adams for the first lead to this piece.


Current and former paramedics brought suit against the county, contending they were not excepted under 29 U.S.C. §203(y) from the Fair Labor Standards Act’s normal 40-hour overtime schedule, and accordingly must be paid overtime for work exceeding those hours. The paramedics were trained in fire suppression and had the responsibility to engage in fire suppression. Under FLSA, to be an employee in fire protection activities, one may have a responsibility to engage in fire suppression without ever engaging in fire suppression. Thus, a Federal District Court ruling against the paramedics has been affirmed. Huff v. Dekalb County, Georgia, Case No. 07-10862 (U.S. 11th Cir., February 15, 2008).


SEC Chairman Christopher Cox’s campaign to eliminate soft dollars appears to be ending with a whimper, not a bang, according to Pensions & Investments. Mr. Cox has made clear his concerns that soft-dollar payments hurt investors. Under a soft-dollar arrangement, a money manager directs trades through specific brokers to generate credits, which are used to pay for research services generated by the broker-dealer or pay for research services from a third party. Observers complain that managers are buying unnecessary services or are purchasing research that might not benefit clients directly -- using clients’ money. Mr. Cox was so upset that he asked Congress last year to eliminate Section 28(e) of the Securities Exchange Act of 1934, which permits the soft-dollar arrangements. However, Mr. Cox’s plea for legislative relief has fallen on deaf ears on Capitol Hill. Instead, Securities and Exchange Commission staffers are working on a far less ambitious initiative to propose additional interpretive guidance on soft-dollar use. The agency proposal purportedly will provide mutual fund directors with pointers on whether a fund’s soft-dollar practices are appropriate under current law. But, some say that Congress’ failure to repeal 28(e) and SEC’s apparent reluctance to take sterner action on soft-dollar arrangements will undermine any agency guidance on the issue.


The National Retirement Risk Index has shown that even if households work to age 65 and annuitize all their financial assets, including receipts from reverse mortgages on their homes, 44% will be “at risk” of being unable to maintain their standard of living in retirement. More realistic assumptions regarding earlier retirement and reluctance to annuitize 401(k) balances or tap housing equity would put the percentage ”at risk” even higher. But these previous analyses have not addressed rapidly rising health care costs. When these costs are included explicitly, the percentage of households “at risk” increases dramatically. An Issue Brief from Center for Retirement Research at Boston College explores how rapidly rising health care costs enter the NRRI calculations. It begins with a recap of the NRRI, then describes the health care landscape facing older Americans and finally reports results of incorporating retirement health care costs explicitly into the Index. Results show that once health care is considered explicitly, the percentage of households that will be “at risk” rises from 44% to 61%. As always, the percent “at risk” is greater for those at the low end of the income distribution. And later cohorts show more “at risk” than earlier ones due to the combined effect of a contracting retirement income system and continually rising health care requirements. Other findings: (1) a typical couple needs about $200,000 to cover health care costs in retirement, a figure that will more than double by 2040 and (2) despite the dire outlook, a little more work, a little more saving and a little more exercise could go a long way toward improving the picture.


With 77 million baby boomers headed for retirement, nearly every facet of corporate pension plans will be subject to analysis and change, according to a press release from The Conference Board. The decline in defined benefit plans and the rise in defined contribution plans -- combined with increasing longevity -- is creating growing risk among employees regarding their retirement benefits. As retirement benefits are redesigned for today’s retirees, it is unclear whether employer programs can support long-term financial security. What is the responsibility of a corporation to provide a safe and secure retirement for its employees? The evolving social contract between employees and employers has resulted in many issues that plan sponsors, policy makers and academics need to resolve. Society is asking employees, who should be seen as consumers not investors, to take on significant risks on which they have no clue how to manage. As more companies discontinue their DB plans, they will need to change their overall retirement programs so that they work more effectively for employees. The risk is twofold. The first concern is that employees will outlive their retirement income and will experience a significant decline in their standard of living as they move from the accumulation phase. The situation is entirely possible, as many people underestimate their life expectancy and overestimate how much money they can draw from savings. The employees now face responsibilities for managing retirement assets, distribution options and the payout period, which many are unable to manage effectively. The other danger is that employees are investing more than they should in equities, due in part to the limited options for their DC monies, inflation and market volatility. One option is phased retirement, when an employee moves from full-time to part-time employment before retiring. Phased retirement has gotten a great deal of traction, with 48% of current retirees transitioning into retirement through part-time work, mostly on their own. Another option to make retirement more secure is to create solutions that provide lifetime income, such as inexpensive and flexible annuities. Offering employees in-plan opportunities to purchase income annuities with their defined contribution assets can also provide lifetime income.


AXA Equitable has released its Fourth Annual Retirement Scope Survey. Here are some of the findings:

American Retirees Experiencing Long and Happy Retirement.

A. Three fourths of retired Americans feel their own retirement surpasses that of their parents.

B. The vast majority of retirees are very happy and healthy.

C. The average American retired at age 58.

D. Retirees do not consider a person old until age 78.

E. And, they are maintaining active lifestyles in retirement, from traveling and devoting time to hobbies, to gardening and other projects.

Though Americans Say They Are Planning for Retirement Early-On, They May Not Be Saving Enough.

A. Eight in 10 working Americans say they have begun to prepare for retirement, starting on average at age 30. Retired Americans typically begin saving at 38.

B. Americans note milestone birthdays (40 and 50), children, marriage and advice from friends or relatives as reasons why they have started saving for retirement.

C. Although most Americans are saving for retirement, they are saving less each month than in the past two previous years.

D. Seven in 10 American retirees report receiving lower income in retirement than their most recent salary. And, while a majority (62%) of retired Americans report having sufficient retirement income, there is a sizeable number who say it is insufficient (38%).

When compared to other countries surveyed, working Americans are above average in terms of the age when they expect to retire, but Americans top the list in number of working people who have begun saving for retirement.


National Bureau of Economic Research has issued a new working paper finding new evidence on the annuity puzzle. Researchers examined individuals’ self-reported willingness to exchange part of their Social Security inflation-index annuity benefit for an immediately lump-sum payment, using an experimental module in the 2004 Health and Retirement Study. Their first reading is that nearly three out of five respondents favor lump-sum payment if it were approximately actuarially fair, a finding that casts doubt on several leading explanations for why people do not annuitize. Second, there is some modest price sensitivity and evidence consistent with adverse selection; in particular, people in better health and having more optimistic longevity expectations are more likely to choose the annuity. Third, after controlling on education, more financially literate individuals prefer the annuity. Fourth, people anticipating future Social Security benefit reductions are more likely to choose the lump-sum, suggesting that political risk matters. Other factors such as sex, marital status, income, wealth or presence of children are not associated with respondents’ relative preferences for the annuity versus the lump-sum. Be careful what you wish for... .


The county appealed a decision of the circuit court granting summary judgment in favor of county employees, who were also members of the county Policemen’s & Firefighters’ Retirement Fund, contending that the court improperly failed to conclude that the county complied with the requirements of Kentucky statutes in making contributions to the Fund. Although the statute contains a grammatical flaw, the language recognizes that authority to set pension contributions rests with the board rather than county. Alternatively, and at a minimum, the statute establishes a rational basis for the lower court’s conclusion that the board has authority to set the rate under Kentucky law. The statute does mandate a minimum county contribution of 17% of salaries of active participants. Lexington-Fayette Urban County Government v. Puckett, Case No. 2007-CA-000002-MR (Ky. App., February 1, 2008) (unpublished).


Donna Perry has been a West Virginia educator for more than a dozen years. Now teaching fourth grade, the 63-year-old is eligible to retire in June, according to an Associated Press story. But she probably won’t, because she can’t. Perry is among the more than 19,000 teachers and school officials who rely on 401(k)-type accounts for their retirement. They and the state contribute set amounts each month equal to percentages of their salaries. The individuals then invest those funds to generate benefits. State officials estimate that the average such account contains less than $34,000. For the 1,100 account holders age 60 or older, only 23 have more than $100,000! The largest has $157,000. Perry has $58,000, which, she figures, will provide her a monthly benefit of $320. West Virginia lawmakers set the stage in 2005 for the Teachers Defined Contribution accounts to merge with the state’s traditional pension fund. A majority of TDC enrollees voted to merge, but other account holders, happy with their returns and control TDC gives them over their own investments, successfully sued to block the merger. (In 1991, because the pension plan unfunded liability had grown so large, it was closed to new members, who were then relegated to the newly-created TDC plan as a less-expensive alternative.) A consultant hired by the state has offered possible solutions for lawmakers, but almost any of them will result in higher costs.


Ethics Resource Center’s has released its National Government Ethics Survey, an inside view of public sector ethics, fourth in a longitudinal study of U.S. workplaces. Here is what the 2007 study reveals:

Public Trust is at Risk. Rates of misconduct in government are already high -- nearly 60% of government employees see misconduct. At present, 30% of misconduct across government goes unreported to management.

The Problem is Likely to Get Worse. One in four government employees works in an environment conducive to misconduct. Misconduct will continue to arise unless immediate action is taken.

Solutions Exist. Well-implemented ethics and compliance programs double reporting and lower the rate of misconduct. A strong agency-wide ethical culture also increases reporting and cuts misconduct in half. Coupling a strong ethical culture with a strong ethics and compliance program is the path to the greatest reduction in ethics risk.

Now is the Time for Government Leaders to Raise the Propriety of Ethics. Government leaders can make a meaningful, quantifiable difference. Ethics can be reduced and public trust can be secured.

We only wish we could be as optimistic.


Criminal: A guy no different from the rest... except that he got caught.


“Success is the ability to go from one failure to another with no loss of enthusiasm.” Winston Churchill

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.

Site Directory:
Home // Attorney Profiles // Clients // Resource Links // Newsletters