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Cypen & Cypen
FEBRUARY 4, 2010

Stephen H. Cypen, Esq., Editor

1.         AFSCME RELEASES BEST PRACTICE POLICIES FOR TRUSTEES AND PENSION SYSTEMS:  AFSCME has published “Enhancing Public Retiree Pension Plan Security:  Best Practice Policy for Trustees and Pension Systems.”  AFSCME represents 1.6 million state and local employees and retirees who share a common commitment to public service and who have invested in a financially sound public retirement system for their financial security.  AFSCME members participate in more than 150 public pension systems, with assets totaling more than $ 1 Trillion.  Some members have the added responsibility of serving in a fiduciary capacity as a trustee of one of those public retirement systems.  As an organization, AFSCME works to ensure its members' financial security, and to give those members who serve as trustees on public retirement systems the tools to be effective in that position.  To fulfill their mission, trustees and staff of public pension systems in the United States must invest billions of dollars prudently, ensure sufficient funds will be available to pay retirement benefits many years into the future and make certain systems are in place to pay retirement benefits in a timely and accurate manner.  Under the best of circumstances, this burden is a heavy one, and in recent years, public pension systems have had to cope with additional economic and political challenges that have made the jobs of those who oversee and administer such systems even more difficult.  AFSCME has reviewed the policies of leading public pension funds, as well as public pension fund governance best practices research. AFSCME has used this information to develop recommended best practices policy language for public pension funds in three key areas: 

1.            Board Member Responsibilities and Core Competencies

2.            Board Member Education

3.            Ethical and Fiduciary Conduct, including: 
A.            Fiduciary Duties

B.            Statement of Ethical Conduct

C.            Prohibition on Insider Trading

D.            State and or Local Conflict of Interest Laws

E.            Avoidance of Appearance of Nepotism

F.            Limitation on Receipt of Gifts

G.            No Contact Policy

H.            Disclosure of Communications

I.            Prohibition on Campaign Contributions (Pay-to-Play)

J.            Disclosure of Third-Party Relationships and Payments; Permanent Ban on Current or Former Board Members or Employees from Providing Placement Agent Services in Connection with the System

In developing these recommended policies, AFSCME had two goals:  first, and foremost, to ensure decisions by public pension fund fiduciaries are made solely in best interests of the plan members, retirees and beneficiaries; second, to provide examples of best practice policies that meet that objective, but do not inappropriately tie the hands of those fiduciaries.  AFSCME recognizes that few public retirement systems have the time or resources to conduct an extensive development or overhaul of their governance and ethics policies.  Nevertheless, these recommendations can help systems review their existing policies, identify any gaps and revise them or develop new policies as appropriate.  This very valuable tool is on the web at

 2.            THE GOVERNMENT WANTS TO HIJACK YOUR 401(K):  Keith Fitz-Gerald, Chief Investment Strategist, Money Morning, has written an opinion piece in which he says it is bad enough that we have been forced to bail out Wall Street.  Now the Obama administration is hatching plans to raid retirement savings, too.  The author is outraged every time he thinks about the government's latest hare-brained scheme.  According to widespread media reports (we must have missed them), both the U.S. Treasury Department and the Department of Labor plan are planning to stage a public-comment period before implementing regulations that would require U.S. savers to invest portions of their 401(k) plans and Individual Retirement Accounts into annuities or other "steady" payment streams backed by U.S. government bonds.  There is only one reason these agencies would do such a thing:  the nation's creditors think that U.S. government bonds are a bad bet, and do not want to buy them anymore.  So like a grifter who is down to his last dollar, the administration is hoping to get its hands on Americans’ hard-earned savings before they realize they have had the wool pulled over their eyes ... once again.  Right now, Americans are apparently smarter than the administration believes.  In fact, a survey by the Investment Company Institute found that more than 70% of all households disagreed with the idea of requiring retirees to buy an annuity with a portion of their assets.  And it did not matter whether the annuity was offered by an insurance company or by the government.  (Incidentally, one of the numerous reader-responses came from Don King, who opined:  Well, the government has given us the tax-exempt 401(k) in the first place.  If it will help the country to require a percentage to go into super-secure government bonds, then I think it is a good idea.  BELIEVE IN AMERICA!!  Do what you want with your money, Don.)

 3.            THE GREAT RECESSION AND THE STATE AND LOCAL GOVERNMENT WORKFORCE:  Hiring freezes, pay freezes, layoffs and furloughs top the list of ways that local and state governments are cutting costs, according to a Center for Excellence online survey of government managers.  States and local governments also have made significant changes in their benefit offerings.  Half of the respondents report that their governments have made changes to their health care plans:

  • Increased employee contributions (69 percent)
  • Added number of years required to vest (25 percent)
  • Added wellness programs, 24-hour nurse lines, or on-

site clinics (25 percent)

  • Reduced benefits (23 percent)
  • Tiered benefits (15 percent)
  • Decreased employer contributions (10 percent)

Among the 21 percent whose governments have changed their retirement plans, 73 percent say the changes have not affected current workers and 60 percent say the changes have not affected new hires.  Governments need a more strategic approach to their talent challenges, as they struggle to fill critical positions such as law enforcement.  Even furloughs have not produced savings that had been anticipated in some places.

 4. PENNSYLVANIA STATE OFFICIALS CREATE A PENSION SHORTFALL:  In a letter to the editor of the Altoona Mirror, the writer makes reference to recent reports alluding to Pennsylvania's looming pension crisis.  An objective review of the facts indicates that this so-called crisis was both foreseeable and contrived. The slide into oblivion began when then-Governor Tom Ridge, in order to maintain his image as a tax cutter, consistently underfunded the Public School Employee Retirement System.  In conjunction with a compliant Legislature, the governor rejected 40 years of practice whereby annuitants, employers and the commonwealth contributed relatively equally to PSERS.  During the Ridge years, the commonwealth's contribution rate decreased from about 10 percent of payroll in 1994 to 0 percent of payroll in 2002.  While workers were contributing 6.5 percent to 7.5 percent of their salaries to PSERS, the state contributed nothing.  The Legislature compounded the situation in 2002 by using accounting tricks over a 10-year period that prolonged the underfunding, while relying on the stock market to overperform indefinitely to mask their actions.  During this time, annuitants contributed $7.3 Billion to the system, while the school districts and the state contributed only $3.7 Billion combined.  No one should then be surprised by a shortfall after more than a decade of negligence.  Thus, PSERS projects a state contribution rate of 31 percent of payroll in 2012, often dubbed the pension spike.  There will be pressure on the Legislature from special interests to exploit the situation, much like the efforts to privatize Social Security.  Such blatant attempts to enrich Wall Street brokers must be rejected, as should any two-tiering scheme, which would only precipitate deterioration of the middle class.  A better solution would be to smooth out the spike and commit to lower payments over a longer period, thus averting an immediate shock to the system.  Such resolution would require legislators finally to act responsibly and keep their promise to public servants while being accountable to the taxpayer.  As we have been saying for decades:  Cities cannot continue to take “funding holidays” and then feign surprise when contributions spike as part of reversion to the mean. 

 5. MICHIGAN GOVERNOR WANTS 46,000 TO RETIRE:  Declaring Michigan’s once prosperous manufacturing economy gone forever, Gov. Jennifer Granholm offered bold steps Friday to cut the cost of state government and schools by prodding 46,000 state and school employees into retirement, and requiring new state employees to pay twice as much as current ones for their health insurance, according to the Detroit Free Press

 6. IF FAMOUS CHARACTERS THROUGHOUT TIME HAD JEWISH MOTHERS: GEORGE WASHINGTON'S JEWISH MOTHER:  “Next time I catch you throwing money across the Potomac, you can kiss your allowance good-bye!”

 7. FABULOUS RANDOM THOUGHTS:  Sometimes, I'll watch a movie that I watched when I was younger and suddenly realize I had no idea what the hell was going on when I first saw it. 

 8. QUOTE OF THE WEEK:  “Boors bore each other, too -- but it never seems to teach them anything.”  Don Marquis


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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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