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Cypen & Cypen
MARCH 24, 2005

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


An appointed trustee serving on the Board of Trustees of the City of Miami Beach Pension Fund for Firefighters and Police Officers was appointed Director of Human Resources for the City of Miami Beach. In that capacity, she automatically serves as an ex officio member of the Firefighters Relief and Pension Fund Board, a Chapter 175 board. In light of Article II, Section 5(a), Florida Constitution, she asked whether she may simultaneously serve on the City’s Fire and Police Pension Board and on the Chapter 175 pension board. As our readers know, the foregoing constitutional provision prohibits a person from simultaneously serving in more than one state, county or municipal office. While the constitution does not expressly provide for an exception for ex officio service, it is well settled that the legislative designation of an officer to perform ex officio the functions of another or additional office does not violate the dual office holding provision, if the duties imposed are consistent with those already being exercised. The Fire and Police pension board is composed of nine members, three of whom must be members of the “City Administration.” Thus, the Director of Human Resources took the position that her service on the Fire and Police pension board was also ex officio. The Attorney General recognized that the city code required her as Director of Human Resources to serve on the Chapter 175 pension board. “The city code, however, does not require your service on the Fire and Police Pension Board. While you serve on the Fire and Police Pension Board as an administration member appointee, nothing in the city code requires that the administration member appointee to the board be the human resources director. In light of your service on the Firefighters Relief and Pension Fund Board as Director of Human Resources, your service on the Fire and Police Pension Board, which is not required by the city code, appears to violate Article II, section 5(a), Florida Constitution, which was adopted to ensure that multiple state, county, and municipal offices would not be held by the same person.” AGO 2005-15 (March 16, 2005). (Incidentally, as counsel for both boards involved, we informally advised that Ms. Diaz Buttacavoli’s further service on the Fire and Police board was prohibited, but upon suggestion of the city attorney, she sought the Attorney General’s advice.)


When investing for retirement, executives tend to favor fixed-rate options and large-cap funds over other asset classes, according to the Clark Consulting Executive Retirement Report. Among eleven asset classes, ones that provide a fixed rate of return were most popular, accounting for 26.3% of all assets measured. Large-cap funds rank second in popularity, at 24.9%. The report examines investment selections of more than 17,000 executives with annual compensation typically in excess of $100,000, across the following asset classes: balanced, fixed income, fixed rate, foreign, large-cap, medium-cap, small-cap, money market, company stock, specialty and world. According to the report, small-cap funds rank third in popularity among executives, with 10.9% of measured assets, less than half of the amount invested in large-cap funds (but more than twice as popular as mid-caps with 5.1%). And these executives only invested 5.3% in their own company stock. The conclusion is that executives tend to prefer investments perceived as “safer,” considering over 61% is committed to fixed-rate/income and large-cap equities. Do these guys know something that pension plans do not?


A “lifetime” can be a slippery concept in context of retiree benefits litigation under the Employee Retirement Income Security Act. Under ERISA, employee benefit plans are classified either as welfare benefit plans or as pension plans. Pension plans provide retirement income to employees or allow them to defer receipt of income until or beyond termination of covered employments. Welfare benefits, on the other hand, provide medical, surgical or hospital care or benefits, or benefits in event of sickness, accident, disability, death or unemployment. While pension benefits are subject to strict vesting requirements, welfare benefits such as health and life insurance are vested only if the plan contract so provides. Welfare benefits may vest, however, when employers elect to enter into a private contract with employees as set forth in benefit plan documents. A federal appeals court recently reviewed a summary judgment against plaintiff-retirees who claimed that their former employer could not change their medical benefits after “promising” that they would continue to receive these benefits at little or no cost until their death. The court was required to consider whether designating retiree benefits as “lifetime” really means “for life.” Unlike previous cases, where interpretation of explicit “lifetime” language was constrained by reservation of rights clauses allowing an employer to modify or terminate retiree welfare benefits, the plan documents at issue contained no such limiting language. Accordingly, the appeals court found that the “lifetime” language, as used, was ambiguous as to vesting, and thus reversed the grant of summary judgment and remanded the case for further proceedings. Bland v. Fiatallis North America, Inc., Case No. 04-2703 (U.S. 7th Cir., March 15, 2005).


The following are selected findings from the summary of Wilshire’s 2005 Report on State Retirement Systems:

  • For the 64 state retirement systems that provided actuarial data for 2004, pension assets were $779 Billion and liabilities were $942 Billion. The ratio of pension assets-to-liabilities (funding ratio) for all 64 state pension plans was 83% in 2004, up from 77% for the same 64 plans in 2003.
  • For the 64 state retirement systems that provided actuarial data for 2004, pension assets grew 14%, or $97 Billion, from $682 Billion in 2003 to $779 Billion in 2004, while liabilities grew 6%, or $53 Billion, from $889 Billion to $942 Billion. Rising asset values combined with continued growth and liabilities caused the 64 state pension plans to go from a $208 Billion shortfall in 2003 to a $163 Billion shortfall in 2004.
  • For the 109 state retirement systems that provided actuarial data for 2003, pension assets and liabilities were $1.6 Trillion and $1.976 Trillion, respectively. Funding ratio for all such plans was 81% in 2003. The asset shortfall for state pension plans is similar to that of city and county retirement systems. Wilshire estimates that as of June 30, 2003, city and county pension assets totaled $149 Billion, $31 Billion less than pension liabilities of $179 Billion, an aggregate funding ratio for city and county retirement systems of 83%.
  • For the 64 state retirement systems that provided actuarial data for 2004, 84% have market value of assets less than pension liabilities (underfunded). The average underfunded plan has a ratio of assets-to-liabilities equal to 77%.
  • Of the 109 state retirement systems that provided actuarial data for 2003, 94% are underfunded. The average underfunded plan has a ratio of assets-to-liabilities equal to 79%.
  • State pension portfolios have a 67% average allocation to equities (including real estate and private equity) and a 33% allocation to fixed income. The 67% equity allocation is higher than the 65% the prior year.
  • Asset allocation varies widely by retirement system. Twenty-six (up from 6) of 125 retirement systems have allocations to equity that equal or exceed 75% and 6 (down from 9) systems have equity allocations below 50%. The 25th and 75th percentile range for equity allocation is 63% to 74% (versus last year’s 57% to 67%).
  • Wilshire forecasts a long-term return on state pension assets equal to 7.5% per annum, .5 percentage points below the average actuarial interest rate assumption of 8%. Last year the forecast was for 7.2%, .8% below the same assumption.

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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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