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Cypen & Cypen
MARCH 9, 2006

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


Less than a month after issuing a decision to the same effect (see C&C Newsletter for February 16, 2006, Item 1), the same Florida district court of appeal said that hepatitis C is not an occupational disease pursuant to Section 440.151(2), Florida Statutes. (Although there was no real discussion on the subject, claimant apparently was not entitled to the presumption of compensability pursuant to Section 112.181(2), Florida Statutes.) Once again, we are disturbed by the medical testimony (from an occupational disease specialist) who had conducted a study of firefighters, police officers and correctional officers to determine whether there was an elevated prevalence of hepatitis C in those groups. The doctor testified that his study revealed the rate of prevalence in those groups was essentially the same as that in the control group of voluntary blood donors. He also stated that the Center for Disease Control published a report stating there is no higher incidence of hepatitis C in firefighters than in the general public. He opined that hepatitis C is an ordinary disease of life, because it was reflected in the general population and was a disease a physician would not be surprised to find in his practice. A warning to public safety employees: be vigilant, lest you next face attack on the statutory presumption of compensability. Flamily v. City of Orlando, 31 Fla. L. Weekly D614 (Fla. 1st DCA, February 23, 2006).


According to a Fox Television story reported by, anyone who applies for a job with Atlantic Beach, Florida, will be tested for nicotine. (Thus, there is a chance someone will not be hired if he tests positive due to secondhand smoke.) Employees also must sign a statement promising that they have not smoked in the last year and will not smoke while they are employed by the City. Local officials say smokers cost a lot more for health insurance, and the issue is keeping the cost of government down. The policy will not affect current workers who are smokers. It is not clear if Atlantic Beach officials are aware of Section 633.34, Florida Statutes, which provides that any person applying for employment as a firefighter in Florida must be a nonuser of tobacco or tobacco products for at least 1 year immediately preceding application, as evidenced by the sworn affidavit of the applicant.


Investment mistakes at their worst have become legendary in the financial services industry, according to So Florida Magazine. Here are the top 10 worst:

10. Confusing stock price with valuation. Do not obsess about meaningless numbers in the stock market. There can be a wide discrepancy between market price of a stock and its true value.

9. Too much or too little diversification. Diversification does not mean buying the same things in different packages. For example, nobody needs six large cap growth funds in a portfolio. Think of it as creating an all-weather strategy.

8. Too much bravado. There is such a thing as having too much nerve. Highly leveraged investments and buying shares with borrowed money (that is, on margin) are not strategies for the faint of heart or pocket.

7. Shooting the weak performer. This mistake is for the trigger-happy investor who believes the worst-performing investment from last year should be dropped from the portfolio this year. However, investing is cyclical.

6. Commoditizing the market. Do not let a few troubled companies define an industry or class of investments.

5. Chasing rates. Rate chasing is shortsighted and not an investment strategy. There is no free lunch when it comes to buying interest- or income-oriented investments, so it is fair to assume that something advertising a high yield has some baggage attached.

4. Infatuation. The most sexy or popular areas of the market tend to be the most volatile. The spin surrounding hot investments makes it appear easier to make money from them than it actually is.

3. Fear of fees. You do get what you pay for. If advice is a commodity, paying for good advice can deliver in the end.

2. Hero worship. Analysts come and go -- some even to jail. Do not let your love affair with today’s talking-head hero blind you to bad investment strategies.

1. Pursuing returns instead of life objectives. Remember why you invested in the first place. Is it to make money for its own sake or is it to provide a lifestyle for you and your family at some future time? If you have developed a strategy to get you there with relatively low risk, do not be seduced by high-return, risky ventures. Stay focused on where you want to be down the road and you will be more likely to get there.


Wall Street anxiously awaits Warren Buffett’s annual letter to Berkshire Hathaway Shareholders, not only for business details and investing strategy but for his plain talk. Berkshire Hathaway’s gain in net worth during 2005 was $5.6 Billion, which increased per-share book value by 6.4%. Over the last 41 years (that is, since present management took over) book value has grown from $19 to $59,377, a rate of 21.5% compounded annually. (The letter does not mention press reports that 2005 will be the second straight year of falling earnings before investment gains and losses -- Buffett’s worst streak in at least twenty years.) In any event, here is some of what the Sage of Omaha had to say in this year’s letter:

On acquisitions -- unlike many business buyers, Berkshire has no “exit strategy.” We buy to keep. We do, though, have an entrance strategy, looking for businesses in this country or abroad to meet our six criteria and are available at a price that will produce a reasonable return.

On climate change and hurricanes -- it’s an open question whether atmospheric, oceanic or other causal factors have dramatically changed the frequency or intensity of hurricanes. Recent experience is worrisome.

On medical insurance losses -- one thing, though, we have learned, the hard way, after many years in the business: surprises in insurance are far from symmetrical. You are lucky if you get one that is pleasant for every ten that go the other way. Too often, however, insurers react to looming loss problems with optimism.

On lessons learned from derivatives -- long ago, Mark Twain said: “The man who tries to carry a cat home by its tail will learn a lesson that can be learned in no other way.” If Twain were around now, he might try winding up a derivatives business. After a few days, he would opt for cats.

On exiting the derivatives business -- when we finally wind up Gen Re Securities, my feelings about its departure will be akin to those expressed in a country song: “My wife ran away with my best friend, and I sure miss him a lot.”

On executive compensation -- getting fired can produce a particularly bountiful payday for a CEO. Indeed, he can “earn” more in that single day, while cleaning out his desk, than an American worker earns in a lifetime of cleaning toilets. Forget the old maxim about nothing succeeding like success: today, in the executive suite, the all-too-prevalent rule is that nothing succeeds like failure.

Buffett , who says every share of Berkshire he owns is destined to go to philanthropies, says shareholders have nothing to worry about if he should suddenly die. Most of Berkshire’s many businesses have strong market positions, significant momentum and terrific managers. Special Berkshire culture is deeply ingrained throughout its subsidiaries, and these operations won’t miss a beat when he dies. And if he should just begin to fade rather than die, the board will have to step up to the job. “And while we are on the subject, I feel terrific.”


The Family and Medical Leave Act of 1993 provides that during any period an eligible employee takes leave, the employer shall maintain coverage under any group health plan for duration of such leave at the level and under the conditions coverage would have been provided if the employee had continued in employment continuously for the duration of such leave. FMLA regulations state that the benefit coverage during FMLA leave for medical care, surgical care, hospital care, dental care, eye care, mental health counseling and substance abuse treatment must be maintained during leave if provided in an employer’s group health plan, including a supplement to a group health plan, whether or not provided through a flexible spending account or other component of a cafeteria plan. Thus, according to U.S. Department of Labor FMLA Opinion Letter 2006-3-A (January 31, 2006), the Department takes the position that employees taking unpaid FMLA leave must have that portion of the cafeteria plan allotment allocated group health insurance (including dental) premiums paid by the city in the same amount as paid prior to start of FMLA leave. Moreover, because the city provides money for the group health insurance coverage when employees are working, it may not recover such payments for periods of FMLA leave.


In January of this year, Moody’s Investors Service issued a request for comment on its proposal to alter its rating methodology to reflect the impact that unfunded pension liabilities have on debt of an employer contributing to a multiemployer defined benefit plan. A report from Buck Consultants indicates that according to Moody’s analysis of the underlying economics of multiemployer pension plan funding, employers that contribute to underfunded multiemployer plans can face increasing plan contributions, long-term contingent liabilities and, in some cases, large one-time payments for plan withdrawal. For some participating employers, annual plan contributions represent a significant percentage of either their debt or their cash flow from operations. Moody’s concluded the current reporting requirements do not provide investors with any disclosure or insight into this purported risk. The proposed methodology used by Moody’s for rating a company’s debt is based on the premise that the company’s proportion of multiemployer unfunded liability is an additional debt to which future interest expense should be added. The methodology would involve the adjustment of a company’s financial statements to reflect the company’s share of a multiemployer plan’s underfunding as a debt/liability and recognition of related interest expense. Further, Moody’s would inquire as to the likely pattern of future cash contributions to the plans, including possibility that the company might withdraw from the plan and thereby trigger a “withdrawal liability.” Moody’s acknowledged that its ability to estimate a company’s share of underfunding liability is hampered by the limited amount of public disclosure of a company’s participation in multiemployer plans and levels of underfunding among these plans. To remedy this lack of information, Moody’s created a computation methodology to estimate a company’s share of underfunding. After calculating a company’s share of underfunding, Moody’s would prepare adjusted financial statements -- only for its own purposes. Moody’s would discuss its results with the company. Based on its adjusted financial statements, discussions with the employer and its own information sources, Moody’s might then downgrade a company’s credit rating. Downgrades by Moody’s are significant because the cost of future borrowing increases and some loan covenants already in existence may have to be renegotiated. And while public plans themselves obviously do not have to worry about being “downgraded,” a downgrade could surely have an adverse affect on the price of a security held in the plan’s investment portfolio.


Dow Jones International News reports that the average life expectancy for people living in most industrial nations could reach 100 within the next 25 years, according to a Stanford University professor whose research has been used by the United States Social Security Administration. Advances in anti-aging technology and treatments for diseases such as cancer could push the average life expectancy from just under 80 years to 100 years, by 2030. This professor’s research has been used by the Social Security Administration to develop probability models for population projections, and is part of a growing international debate about the effects of increasing life expectancy on social programs and health care. The professor worries that gains in life expectancy will put a heavy strain on U.S. social programs -- not to mention pension plans! However, other scientists argue that people in industrialized nations will not live as long as expected because of rising obesity rates. Phat report.

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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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