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Cypen & Cypen
NEWSLETTER
for
MARCH 15, 2004

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001

1. FOR FLSA OVERTIME EXEMPTION, AGREEMENT TO COMPENSATE POLICE OFFICER’S AT-HOME CANINE CARE MUST BE REASONABLE:

The Fair Labor Standards Act requires employers to pay overtime wages equal to one and one-half times the employee’s regular rate for work performed in excess of 40 hours per week. Law enforcement employers are governed by a slightly more permissive regime for computing overtime hours. Leever sued the city for unpaid overtime wages pursuant to FLSA, alleging that the city failed to compensate her for overtime work spent caring for her assigned police dog. The city claimed it was exempt from the overtime provisions of FLSA, pursuant to regulation, because it had a “reasonable agreement” to compensate Leever for her overtime work by way of a bi-weekly flat fee. A collective bargaining agreement in effect provided that an officer permanently assigned to canine duty shall receive a salary differential of $60 per pay period for the care and feeding of a dog. Leever claimed that she spent, on average, 28 off-duty hours per week caring for her dog. In reversing a summary judgment for the employer, the United States Court of Appeals held that an agreement under the regulation must take into account some approximation of the hours actually worked, or reasonably required to be worked. Here, the appellate court found that the lower court could not have concluded that the agreement for off-duty compensation was reasonable. Note, the court remanded for further proceedings, but did not determine that the agreement was unreasonable as a matter of law. The court made clear that it was not suggesting the rate of pay for home canine care must be equal to the rate of pay for law enforcement work. The court took no position on that issue, although the Wage and Hour Administrator’s position is that dog care activities do not have to be compensated at the same rate of pay as paid for law enforcement activities. Leever v. City of Carson, Case No. 02-16525 (U.S. 9th Cir., March 4, 2004).

2. GREAT SOURCE FOR VETERANS AND MILITARY WEBSITES:
Although a little bit off our usual subjects, we did come across a comprehensive listing of Veterans and Military Websites. This Homepage contains links to over 100 other web pages. And if you are searching for a long-lost military buddy, there are even locator resources and registries. Visit the site directly at http://members.aol.com/veterans/warlib6.htm.

3. CONSUMER NET WORTH, DEBT RISE:
According to a short piece from plansponsor.com, the Federal Reserve reports that rising house and stock prices pushed the total net worth of United States households to $44.41 Trillion at the end of last year. The previous record was $43.58 Trillion, reached in the first quarter of 2000 (right at the market peak). The year-end figure was a 5.1% increase from the third quarter of 2003, the fifth consecutive quarterly increase. At the same time, consumer credit outstanding rose $14.3 Billion in January, to $2.016 Trillion. The latest increase is in addition to the $8.3 Billion rise in December (to $2.002 Trillion). However, consumer credit last quarter grew at a 3.7% annual pace, down from 6.2% in the third quarter..

4. CALSTRS ADOPTS MUTUAL FUND GUIDELINES:
In January, California Treasurer Philip Angelides proposed Mutual Fund Protection Principles. Angelides, who sits on the California Public Employees’ Retirement System and the California State Teachers’ Retirement System, was joined by the New York State Comptroller and the North Carolina Treasurer. Now, $117 Billion CalSTRS, third in size to CalPERS, has adopted those guidelines. The following is a short summary of these mutual fund protection principles, which in some cases are more stringent than the proposals being discussed by Congress and the SEC:

1. Shareholder Reforms. Mutual fund shareholders must receive an annual statement of the charges, expressed in dollars, charged to the account for management, 12b-1 fees and other distribution expenses. The management fee schedule must be reasonable and must contain breakpoints that provide meaningful economies of scale to shareholders. Only independent directors of the fund may vote to approve fees.

2. Board Reform. At least three-quarters of the mutual fund board and the chairman must be independent, and shall not have had any material business or employment relationships with the fund company, advisor or any service provider for at least the last five years. The independent directors must meet at least annually with the chief compliance officer of the fund and advisor, as well as the independent auditor -- without management present.

3. Manager Reform. The mutual fund must disclose in its annual report compensation of the portfolio manager, together with methods and factors used to derive compensation. Each portfolio manager and senior management of the advisor must reveal in any annual report the number of shares owned in the fund, including all purchases and sales in the fund for the previous twelve months. A portfolio manager and any other research, marketing or senior executive of a mutual fund company or the advisor who purchases shares in one of its own mutual funds must hold those shares for at least twelve months.

4. Fund Disclosure. The mutual fund must disclose its security holdings on a quarterly basis. A mutual fund must disclose in its annual report information on the trading costs of the fund, including turnover, and a schedule of commissions paid to, and shares traded with, broker dealers. A mutual fund must disclose in its annual report the amount of soft dollars paid by the fund, together with a schedule of the brokers utilized to execute trades and a list of the soft dollar services purchased through the trades. A mutual fund must disclose in its annual report all investment professionals, in addition to the portfolio manager, who are involved in management of the mutual fund, any turnover among such personnel in the last twelve months and all other products and mutual funds managed by the portfolio managers.

Any public pension plan that invests in mutual funds should consider these principles

.

5. DECISION OF STATE COURT IN ADMINISTRATIVE REVIEW OF DISABILITY DENIAL PRECLUDES SUBSEQUENT DISCRIMINATION ACTION:
Garcia, an Hispanic police officer, suffered a heart attack, leaving him totally and permanently disabled, unable to perform his duties as a police officer. He applied to the pension board for duty-related disability benefits equal to 65% of his total salary. Examination by the board’s three physicians left little doubt that the officer was disabled. However, because whether the disability occurred in the line of duty remained uncertain, the board awarded only nonduty-related benefits -- 50% of total salary. The issue of service-connection was to be determined later. Subsequently, in a closed session, the board voted to deny the officer’s duty-related benefits and to continue his nonduty-related benefits. The officer timely sought administrative review in state court, seeking reversal of denial of his duty-related pension benefits. In that proceeding he raised no issue other than that the board’s decision was arbitrary and capricious. While his state court appeal was pending, the officer filed Title VII charges with the Equal Employment Opportunity Commission, and subsequently a lawsuit in federal court against the board. After the state court affirmed the board’s decision, the federal court dismissed the employment discrimination action. Affirming the lower federal court decision, although on different grounds, the federal appeals court found that the judgment of a state court sitting in an administrative review capacity has preclusive effect on claims and issues brought in subsequent lawsuits according to the law of the state where the judgment was rendered. A reading of the federal court of appeals’ decision reveals at least two distinctions between Illinois and Florida: (1) Illinois apparently has no “presumption” of service-connection for cardiac related conditions and (2) meetings -- at least those applicable to disability determinations -- do not have to be held in the “sunshine.” Garcia v. Village of Mount Prospect, Case No. 02-2869 (U.S. 7th Cir., February 23, 2004)

6. NCPERS ENCOURAGES CORPORATE GOVERNANCE POLICY:
National Conference on Public Employee Retirement Systems has adopted a resolution on responsible corporate governance for public pension plans, encouraging all member pension funds to develop and implement due diligence policies with the following principles:

1. Establish a list of standards and a code of conduct for vendors.

2. Develop a list of resources that can be used to rate or survey how investment managers have cast their proxies on key issues.
3. Develop a model proxy voting guideline/shareholder resolution policy statement.

4. Develop a sample questionnaire for companies that will identify greed-driven CEO pay schemes and highlight appropriately established incentive-based CEO compensation plans.

5. Develop a sample investment policy statement for index investing that weeds out companies demonstrating bad corporate policy.

6. Develop list of questions that can be incorporated into all requests for proposal, including issues like privatization and involvement in organizations that oppose the well-being of public pension funds.

7. Develop a position regarding off-shore tax havens and the trend of companies to reincorporate in such countries in order to avoid taxes and weaken shareholder rights.

8. Develop standards that will force companies back toward ethical corporate governance, with a view toward true value production for the long-term investor.

We all owe a debt of gratitude to “The Voice for Public Pensions.”

7. NCTR PUBLISHES WISCONSIN LEGISLATIVE COUNCIL STUDY:
National Council on Teacher Retirement has published the Wisconsin Legislative Council “2002 Comparative Study of Major Public Employee Retirement Systems.” Dated December 2003, the report compares significant features of major state and local public employee retirement systems in the United States. The report compares retirement benefits provided to general employees and teachers, rather than the benefits applicable only to narrower categories of employees such as police, firefighters or elected officials. The 2002 report includes data from the same 85 public employee retirement systems that have been compared in each of the previous reports. Although the report does not cover all major public employee retirement systems, it does include at least one statewide plan from each state. Because the same public employee retirement systems have been covered in the report over time, it can be used to determine long-term trends in public employee retirement systems. Plans in the report cover almost 16,500,000 participants, about 70% of whom are active employees. The 37-page report contains a wealth of information including surveys of normal and early retirement provisions; contribution and vesting requirements; retirement benefit calculations; post-retirement annuity increases and taxes; and actuarial and accounting information. Readers can view the whole report http://www.nctr.org/contents/pdf/02wrsreport.pdf.

8. MACHO PHILLY COPY TO BECOME WOMAN:
Press reports on Heladio Gonzalez, a 36-year member of the Philadelphia police force, who was all toughness and swagger. Now, Gonzalez, 57, will become the first transgender officer in the department’s history. He recently delivered a letter to his supervisor announcing his decision to live and work as a woman. The Police Commissioner said in a written statement that the department “will be supportive in this officer’s lifestyle decision.” Officer Heladio Gonzalez will no longer be teaching firearms at the Police Academy. Officer Maria Gonzalez will. Nice happy ending (beginning?).

Copyright, 1996-2004, 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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