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Cypen & Cypen
February 28, 2013

Stephen H. Cypen, Esq., Editor

1.     THE FACTS ABOUT FLORIDA’S PUBLIC RETIREMENT PLANS:  We recently reported on an independent study reflecting negative impact of closing the Florida Retirement System defined benefit plan (see C & C Newsletter for February 21, 2013, Item 1 ).  At about the same time, Florida Retirement Security Coalition, a nonprofit organization working to protect retirement savings for public employees, released “The Facts About Florida’s Public Retirement Plans.”  Retirement plans for state and local government workers affect millions of Floridians, and boost the state economy. These plans directly impact about 1.2 million current or former public employees in Florida and millions of their dependents and other family members. In addition, tens of thousands of Florida businesses benefit each day when retirees spend their retirement checks on goods and services in every community throughout Florida.  These vital benefits are provided through the Florida Retirement System and almost 500 local government retirement plans. The piece is designed to help policymakers, business owners and other Floridians understand how these public retirement plans work for the people and economy of our state.  Here are eight key facts about Florida’s public retirement plans: 

  • The Florida Retirement System is fiscally sound.  FRS is in sound financial condition and stronger than retirement plans in almost all other states. The Florida Legislature's office of policy analysis itself concluded that FRS is better funded than most other states.  
  • Public retirement plans allow Florida workers to take care of themselves after retirement and not rely on other government services.  Retired public workers do not get rich from their retirement plans. In fact, the average annual payment from FRS is only about $18,000. But those dollars are crucial income for many Floridians after their work days are done. That money helps retired workers take care of themselves instead of relying on other government programs. Without traditional retirement plans, they run the risk of outliving their retirement savings, at a large cost to the public treasury.  
  • State and local retirement plans provide important support to the state and local economies.  In 2011, FRS paid out about $6.7 billion in retirement benefits. Local government retirement systems paid out almost $2 billion more. These dollars support retirees and circulate throughout the economy. That money is spent in Florida for food, clothing, housing and other necessities, and supports thousands of jobs spread throughout every community in the state. Every dollar paid in public pension benefits creates $1.64 in total economic activity in Florida. And every tax dollar invested in retirement plans supports $4.47 in total economic output (because investment earnings and employee contributions finance the lion's share of state and local pension plans).  
  • Traditional retirement plans cost taxpayers less, and provide greater benefits to retired workers. Closing the FRS pension plan to new workers would cost taxpayers more and deliver less to retirees.  Most members of FRS are enrolled in its defined benefit plan. Retirees receive a set pension benefit based on years of service and compensation. FRS also offers a less popular defined contribution plan, which provides no guaranteed payment. The contribution is defined, but not the eventual benefit, as in a 401(k).  
  • Most local government retirement plans also are on sound footing. Most of the 492 local government retirement plans, covering about 180,000 active employees and retirees, are on sound footing. Even a disputed [rightfully so] report attempting to grade local retirement systems based on only two criteria provided passing grades to two-thirds of the plans.  In general, the shortfalls of local plans are result of turmoil in the financial markets during the Great Recession, combined in some places by underfunding of the retirement plan by the local governing body.  
  • The Florida Retirement System, funded at a strong level already, would be even stronger if the Legislature had funded it at the recommended rate in past years.  For the last three years the amount necessary fully to fund the unfunded actuarial liability of FRS has not been appropriated by the Legislature. While the Legislature had difficult choices to make to balance the budget, FRS would be even stronger and the unfunded actuarial liability lower if the Legislature had met its obligation fully to fund the unfunded actuarial liability.  Postponing payments increases pension debt, and therefore requires more taxpayer contributions in the end. It also distorts the size of the unfunded liability.  
  • Significant changes have already been made to retirement plans to the detriment of public employees. Any new legislation would inflict further, needless damage to public workers' economic security.  By mandating that three percent of public employees' pay be taken each year for retirement and eliminating future cost-of-living increases, the 2011 Legislature made significant changes to FRS that have cost public workers more than $1 billion to date. Billions more will be lost in future years by first responders, teachers and other public workers -- many of whom already are compensated at less than the national average. The effect goes far beyond a three-percent annual loss in income available for spending. The 2011 changes will cost public workers up to $329,000 over their working years.  Elimination of the cost-of-living increase will result in a 4% to 24% reduction in total retirement income for public employees.  [You read that right.]  
  • Retirement security for public workers benefits everyone in Florida -- and many public servants you know personally.  Retirement legislation being considered in Tallahassee is important to all of us. If you are not one of the more than a million Floridians who depend on public employees' retirement systems for economic security after your work years are done, you know many of them. They are your children's teachers, school bus drivers and cafeteria workers. They are the school resource officers, law enforcement officials, firefighters/emergency medical technicians and correctional officers who work every day to keep us all safe. They are the public servants who work with veterans and Floridians with developmental disabilities. They make our health care, court and park systems work. They are vital to creating the quality of life we enjoy in Florida, and their financial well-being is important to our economy. And many of them are on call 24 hours a day, every day, or work shifts taking care of the public welfare while the rest of us sleep.  

The report is filled with much more important information, all of which can be accessed at .
2.      US SUPREME COURT HANDS CLASS ACTION PLAINTFFS RARE VICTORY:  To recover damages in a private securities- fraud action under §10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5, a plaintiff must prove, among other things, reliance on a material misrepresentation or omission made by defendant.  Requiring proof of direct reliance would place an unnecessarily unrealistic evidentiary burden on a plaintiff who has traded on an impersonal market. Thus, the United States Supreme Court has endorsed a "fraud-on-the-market" theory, which permits securities-fraud plaintiffs to invoke a rebuttable presumption of reliance on public, material misrepresentations regarding securities traded in an efficient market. The fraud-on-the-market theory facilitates the certification of securities-fraud class actions by permitting reliance to be proved on a classwide basis.  Invoking the fraud-on-the-market theory, Connecticut Retirement Plans and Trust Funds sought certification of a securities-fraud class action under Federal Rule of Civil Procedure 23(b)(3) against Amgen Inc. and several of its officers.  The United States District Court certified the class, and the Ninth U.S. Circuit of Appeals affirmed. The Ninth Circuit rejected Amgen's argument that Connecticut Retirement was required to prove the materiality of Amgen's alleged misrepresentations and omissions before class certification in order to satisfy Rule 23(b)(3)'s requirement that questions of law or fact common to class members predominate over any questions affecting only individual members. The Ninth Circuit also held that the District Court did not err in refusing to consider rebuttal evidence that Amgen had presented on the issue of materiality at the class certification stage. On review by certiorari, the United States Supreme Court held that proof of materiality is not a prerequisite to certification of a securities-fraud class action seeking money damages for alleged violations of §10(b) and Rule 10b-5. The pivotal inquiry is whether proof of materiality is needed to ensure that the questions of law or fact common to the class will predominate over any issues affecting only individual members as the litigation progresses.   For two reasons, the answer is no.  First, because materiality is judged according to an objective standard, it can be proved through evidence common to the class.  Second, a failure of proof on the common question of materiality would not result in individual questions predominating.  Therefore, the Court affirmed the Court of Appeals.  Amgen, Inc. v. Connecticut Retirement Plans and Trust Funds, Case No. 11-1085 (U.S. February 27, 2013)
3.      5 THINGS TO KNOW ABOUT SOCIAL SECURITY:  USA TODAY says although you might not talk about Social Security very often, it is an enormous part of the national debate and your retirement future as well. Here are five of the most important things you need to know about Social Security:

  • It is not all that generous.  Social Security was never intended to be a pension on which you could live. Instead, it was designed to be a supplement to retirees' income. Currently, the average Social Security payout is $1,262 a month, $15,144 a year.  A remarkable number of people do live nearly entirely on Social Security, however.  For about 23% of all married beneficiaries, Social Security represents 90% or more of their income. That number soars to 46% of single beneficiaries.  Nevertheless, that $1,262 a month would be tough for individuals to replace, especially because payouts are adjusted for inflation each year.  
  • It is already means-tested (somewhat).  A common suggestion to make Social Security more financially solvent is to means-test it: give wealthier recipients smaller payouts and poorer recipients larger ones.  To some extent, benefits are already means-tested, via the Internal Revenue Code. Individuals do not have to pay taxes on Social Security benefits if their total income is less than $25,000. For couples, the limit is $32,000. If you make more, however, you will pay income taxes on a portion of your benefits, and that portion rises as your income does.  
  • Life expectancy has not increased that much.  You often hear that one reason Social Security could run out of money is that people are living longer than they were in 1935, when the system was created. And that is true, especially if you measure a worker's life span from birth. The increase in life span is smaller, however, if you measure from 65, the traditional retirement age. For example, a man born in 1940 could expect to live to 70.4.   A male born in 2011, however, can expect to live to 82.2 years old -- a pickup of nearly 12 years.  
  • It can pay to wait.  Generally speaking, you can retire early and collect lower Social Security payouts for a long time, or you can retire later and collect higher payments for a longer time. In theory, it all adds up to about the same thing. But the main purpose of Social Security is providing a stream of income into your old age. While the average 65-year-old woman can expect to live an additional 21 years, that life expectancy is just the average. Half of all women will live longer. And, while you may be able to work into your late 60s and 70s, that ability declines as you hit your 80s and 90s.  To the extent that you can, then, it makes sense to get as high an income as you can by delaying retirement. The difference can be substantial. For example, if you retire at 62, you'll get about $750 a month, according to Social Security. Wait to 66, you'll get $1,000. Wait until 70, you'll get $1,320, nearly double what you would have gotten at 62.  
  • It is not in immediate danger.  For most years of its existence, Social Security Administration has collected more in taxes than it has paid out in benefits. The additional funds have been allocated to the Social Security Trust Funds. According to the most recent report by the Social Security Trustees, Social Security payouts will outstrip tax revenues after 2021, and the Social Security Trust Funds will run out of money in 2033, at which point benefits would have to be reduced.  Why do so many doubt that Social Security will be around? One reason: the trust funds are invested entirely in special government securities, which, in essence, are IOUs the government has written to itself. The Treasury must honor these IOUs when Social Security redeems them, which means it will either have to take money from the nation's general budget, which could squeeze other programs, or borrow more funds.  Fixing the trust funds would require either raising Social Security taxes by 2.61 percentage points, to 15.01%, reducing benefits by 16.2% or some combination. Other fixes could include raising the amount of income to which Social Security tax applies. Currently, you pay Social Security tax on your first $113,700 of income. [This last solution is quick, easy and would be our choice.]  

No fix is likely to be universally popular. On the other hand, abandoning Social Security or slashing its benefits would be unlikely as well. 
4.      TAKE ME OUT TO THE BALLGAME... : Several readers noticed our typographical error in last week’s item 6, in which we said “On this day in history: In 968, Baseball announces a minimum annual salary of $10,000.”  Of course, we meant 986 (just kidding).  The published version will have a correct date, 1968.  However, one cleaver reader submitted the following lineup for the 968 Israel Israelites:
          1B Reuben
          LF Simeon
          2B Levi
          CF Judah
          RF Dan
          SS Naphtali
          3B Gad
          C Asher
          P Isaachar
          In the Bullpen:
          Pitching Coach: Jacob
          Manager: Abraham
We would have added “Closer: “Angel of Death.” 
5.      REVISED 60’s HITS FOR BABY BOOMERS:  Leo Sayer  -- You Make Me Feel Like Napping.
6.      PROFUNDITIES: Government's view of the economy could be summed up in a few short phrases: If it moves, tax it.  If it keeps moving, regulate it. And if it stops moving, subsidize it.  Ronald Reagan.   Note to those who picked up the baseball typo.  You missed the much more conspicuous typo “profoundities.”
7.      ON THIS DAY IN HISTORY: In 1933, first female in cabinet: Frances Perkins appointed Secretary of Labor.
8.      KEEP THOSE CARDS AND LETTERS COMING: Several readers regularly supply us with suggestions or tips for newsletter items.  Please feel free to send us or point us to matters you think would be of interest to our readers.  Subject to editorial discretion, we may print them.  Rest assured that we will not publish any names as referring sources. 
9.      PLEASE SHARE OUR NEWSLETTER: Our newsletter readership is not limited to the number of people who choose to enter a free subscription.  Many pension board administrators provide hard copies in their meeting agenda.  Other administrators forward the newsletter electronically to trustees.  In any event, please tell those you feel may be interested that they can subscribe to their own free copy of the newsletter at .




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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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