DECLARATION OF DISABILITY IN SSDI APPLICATION DOES NOT PRECLUDE SHOWING
OF ABILITY TO PERFORM ESSENTIAL JOB FUNCTIONS:
Kiely is virtually blind. In Kiely’s disability
discrimination case brought under Michigan law, a federal appeals court
was asked to decide whether, notwithstanding Kiely’s attempt
to reconcile what looked like inconsistent positions, the fact that
he had signed a Social Security Disability application in which he
swore that he was “disabled” and “unable to work” precluded
him as a matter of law from showing that he was capable of performing
the essential functions of his job. In reversing a summary judgment
in favor of the employer, the court concluded that statements made
by Kiely in his application for Social Security Disability benefits
were not necessarily inconsistent with the claim that he could do his
job. The appellate court further held that Kiely proffered an adequate
explanation of the seeming inconsistency. The word “disabled,” when
used in the Social Security context, does not necessarily connote a
literal inability to work. For one thing, Social Security’s definition
of “disability” does not take into account the possibility
of accommodation. For another, Social Security regulations call for
award of SSDI benefits to any applicant who is not working and who
has a “listed” impairment, regardless of whether the applicant
is actually able to work. A declaration of disability in an SSDI benefits
application often implies “I am disabled for purposes of the
Social Security Act.” Although the result probably would have
been the same, note that Kiely sued under the Michigan Persons With
Disabilities Civil Rights Act and not the federal Americans with Disabilities
Act. Kiely v. Heartland Rehabilitation Services, Inc., Case No. 02-2054
(U.S. 6th Cir., February 26, 2004).
OF DISABILITY PENSION NOT NECESSARILY INCONSISTENT WITH CLAIM UNDER
On the same day that Kiely was decided, another federal court of appeals
decided a similar issue, this time under the Americans with Disabilities
Act. To refresh our readers’ memory, in order to establish a
claim under ADA, a plaintiff must show (1) that he is disabled within
the meaning of the ADA; (2) that he is qualified to perform the essential
functions of the job either with or without reasonable accommodation;
and (3) that he has suffered adverse employment action because of this
disability. This particular case presents some rather unusual facts.
Murphey applied for and received permanent disability benefits from
the Public Employees Retirement Association. PERA defines “total
and permanent disability” as the inability to engage in any substantial
gainful activity by reason of any medically determinable physical or
mental impairment that can be expected to be of long-continued and
indefinite duration. Nevertheless, continuation of employment does
not make one ineligible for disability benefits under the statute!
In any event, Murphey was subsequently terminated for disability, and
brought suit under ADA. The appellate court reversed a ruling in favor
of the employer: Murphey, in fact, had met his burden of presenting
a sufficient explanation of the apparent inconsistency between his
ADA claim and his successful application for disability benefits. Considering
the criteria necessary for pension disability benefits, this decision
is tough to square with simple logic. Murphey v. City of Minneapolis,
Case No. 02-3824 (U.S. 8th Cir., February 26, 2004).
U.S. SUPREME COURT RULING MAY PROTECT SMALL BUSINESS OWNERS’ PENSION
ASSETS FROM CREDITORS, EVEN IN BANKRUPTCY:
Yates was sole shareholder and president of a professional corporation that maintained
a profit sharing plan. From the plan’s inception, at least one person other
than Yates or his wife was a plan participant. As required by the Employee Retirement
Income Security Act of 1974, the plan contained an anti-alienation provision: “Except
for ... loans to Participants as [expressly provided for in the Plan], no benefit
or interest available hereunder will be subject to assignment or alienation.” In
a bankruptcy action involving Yates’s beneficial interest in the plan,
three lower courts held that a self-employed owner of a pension plan’s
corporate sponsor could not “participate” as an “employee” under
ERISA, and therefore could not use ERISA’s provisions to enforce the restriction
on transfer of his beneficial interest in the plan. On review, the Supreme Court
of the United States reversed. The working owner of a business may qualify as
a participant in a pension plan covered by ERISA. If the plan covers one or more
employees other than the business owner and his or her spouse, the working owner
may participate on equal terms with other plan participants. Such working owner,
in common with other employees, qualifies for the protections ERISA affords plan
participants and is governed by the rights and remedies ERISA specifies. Raymond
B. Yates, M.D., P.C. Profit Sharing Plan v. Hendon, Case No. 02-458 (U.S., March
THINGS TO PONDER BEFORE ISSUING PENSION OBLIGATION BONDS:
The February 2004 GRS Insight has an excellent piece on Pension Obligation
Bonds. Interest in POBs has grown among state and local governments in recent
years, primarily due to historically low interest rates, budgetary problems and
declines in pension plans’ funded ratios. POB proceeds are usually used
to pay some or all of a pension plan’s unfunded accrued liability. To achieve
the expected budgetary relief, the issuer must invest bond proceeds at a rate
higher than the cost of borrowing. The desired result is to reduce the annual
pension contribution by more than the cost of borrowing. The following issues
should be considered before issuing Pension Obligation Bonds:
1. Is the POB period sufficiently long to earn the required excess
2. How will market performance, particularly in the short-term, affect
the funded ratio of the plan?
3. Will issuing POBs to pay annual pension contributions signal financial
4. Is the issuer’s financial position strong enough to service
the debt if the expected budget relief does not materialize?
similar budget relief be achieved within the plan’s
present funding policy?
6. How does the plan amortization schedule in the pension plan compare
year-by-year with the sequence of debt payments on the POB?
7. How might POB borrowing affect the government’s debt capacity?
8. Would issuing a POB encourage plan members to expect benefit increases,
especially if the employer reduces or stops making pension contributions?
9. Does the plan sponsor recognize, as it must, that the long-term
solvency of the plan will ultimately depend upon systematic contributions,
not POB borrowing?
The conclusion is that while a POB can be a tool to manage pension
fund obligations, plan sponsors must recognize that POBs involve assuming
SHOULD YOUR INVESTMENT RETURN ASSUMPTION BE CHANGED?:
The February 2004 GRS Insight also has an item entitled “Is
It Time To Change Your Investment Return Assumption?” The investment
return assumption is the most influential assumption in a defined benefit
plan’s actuarial valuation. It is supposed to reflect the best
estimate of a plan’s long-term investment returns. Considering
investment experience for 2000-2003, whether current investment return
assumptions are still reasonable has been called into question. The first
question to be examined is obvious: Should the investment return assumption
be reduced or kept the same? There is no single best choice for the return
assumption -- only hindsight will tell which choice would have been optimal.
Of course, reducing the investment return assumption will increase liabilities
(for example, from 8% to 7% = 25% increase in liabilities), instantly
raising employer contributions. Second, before making a decision, the
board should discuss the matter with its investment consultant, and consider
1. Ongoing retirement systems have investment horizons of more than
2. The investment return assumption should really be considered for
a term of at least 30 years.
3. In the 1980's and 1990's investment results exceeded investment
return assumptions for most pension plans.
4. Few people believe diversified investment returns will be negative
over periods of 10 years or more.
5. The investment return assumption affects the timing of contributions,
not the actual cost.
6. Due diligence requires the board to review any assumption that
is not being consistently met.
7. Consider revising the asset valuation method and monitoring the
ratio of the funding/actuarial value of assets to market value.
8. Changing the investment return assumption cannot be solely based
on the experience of the last 3 or 4 years, because doing so could
9. If long-term average investment returns are to be positive, at
some point investments will have to outperform in order to offset recent
10. Lowering the investment return assumption may appear to increase
the cost of benefit changes.
11. It is possible to change the short-term investment return assumption
without changing the long-term investment return assumption, but that
is equivalent to recognizing losses before they happen. (This one is
news to us.)
12. There is presently no prudent method to postpone indefinitely
recognition of poor investment performance.
13. Review amortization periods for unfunded actuarial accrued liability;
shortening a period will increase current contributions, lengthening
it will decrease them.
14. Be aware of benefit provisions that are linked to the investment
15. Do not lose sight of the primary focus of the pension plan: to
fulfill benefit promises being made to participants.
GRS concludes that considering these points will help prepare retirement
system staffs, boards and sponsors to ask the right questions of the
right professionals and determine if it is time to change the investment
ELIGIBILITY FOR DISABILITY PENSION NOT DETERMINATIVE OF RIGHT TO
A former City of Hollywood employee was granted temporary disability
benefits under Workers Compensation. The employer appealed, contending
that the record lacked competent and substantial evidence that the employee
had experienced a wage loss causally connected to a compensable injury.
(After 1994 amendments to Chapter 440, Florida Statutes, a claimant must
still prove a causal connection between a work-related injury and a resulting
wage loss to recover temporary partial disability benefits.) In reversing
because the employee failed to show a causal connection between his injury
and subsequent wage loss, the appellate court held that “although
the record reflects that the claimant was found eligible for a disability
pension by the City’s pension board, that finding is not determinative
of a causal connection between a work related injury and a wage loss
under Section 440.15.” City of Hollywood v. Cappozzia, 29 Fla.
L. Weekly D447 (Fla. 1st DCA, February 19, 2004)
“RELATION-BACK” DOCTRINE NOT APPLICABLE TO FLORIDA
Section 112.31895(1)(a), Florida Statutes, provides that a complaint
alleging retaliatory action by an employer must be filed with Florida
Commission on Human Relations within 60 days after the retaliatory act.
Here, the complaint to FCHR was filed more than 100 days after the alleged
act. The date of the complaint cannot be related-back to the date a similar
complaint was filed by another employee, because the administrative rule
providing for this relation-back doctrine was adopted pursuant to the
Florida Civil Rights Act and is applicable only to proceedings under
that act. Thus, the lower court order reinstating the employee to his
former position was reversed, as the matter should not have proceeded
to circuit court in the first place. Department of Transportation v.
Florida Commission on Human Relations, 29 Fla. L. Weekly D448 (Fla. 1st
DCA, February 19, 2004).
PRESIDENT SIGNS NEW SOCIAL SECURITY BILL:
On February 11, 2004 the House of Representatives passed the Senate version
of the Social Security Protection Act of 2003 (H.R. 743), which President Bush
signed into law on March 2, 2004 [Public Law No. 108-203]. There are two provisions
that generally impact public employees. First, the “last-day exemption” under
the government pension offset provision has been eliminated. Previously under
the GPO, workers eligible for a government pension based on non-covered employment
were allowed full Social Security spousal benefits if Social Security taxes and
retirement plan contributions were withheld from their pay on final day of employment.
The new provision, effective July 1, 2004, requires an individual to work five
years under Social Security to avoid the GPO.