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Cypen & Cypen
NEWSLETTER
for
MARCH 16, 2006

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001

1. PREGNANCY DISCRIMINATION ACT NOT RETROACTIVE:

In a recent Title VII civil rights case, a federal court was required to decide whether AT&T Corporation, in making retirement benefits determinations, discriminated against women who took pregnancy-related leaves before 1979. The Pregnancy Discrimination Act of 1978, an amendment to Title VII, became effective April 29, 1979. Prior to the PDA, an AT&T employee on pregnancy leave was not awarded service credit for the entire period of her absence, whereas employees on other temporary disability leaves received full service credit for that time period. Although AT&T today awards full credit for pregnancy leaves, plaintiffs in the instant case, four female employees, complained that the company’s failure to give employees full service credit for their pre-PDA leaves affected their eligibility for and computation of retirement benefits, a present violation of the PDA. The district court granted summary judgment in plaintiffs’ favor on their Title VII claims, concluding that AT&T’s post-PDA benefits determinations violated the PDA. Because the result reached by the district court gave the PDA impermissible retroactive effect under controlling law, the federal court of appeals reversed. The presumption against statutory retroactivity is founded upon sound considerations of general policy and practice, and accords with long held and widely shared expectations about the usual operation of legislation. In the absence of a clear expression of intent by Congress that a particular legislative enactment is to apply to events that occurred before the effective date of the legislation, the default rule is no retroactive application. There is nothing in the text of the PDA to indicate a clear congressional intent that the provisions of the statute are to be applied in such a way as to change the legal consequence of conduct that occurred prior to the statute’s enactment. Relevant conduct is the employer’s practice, pre-PDA, of giving only limited service credit for pregnancy leaves, and the acceptance of that practice by the affected employees. Hulteen v. AT&T Corporation, Case No. 04-16087 (U.S. 9th Cir., March 8, 2006).

2. “DOGS OF THE DOW” MERELY PLAYING DEAD?:

A piece in the Daily Business Review asks whether the famous old “Dogs of the Dow” investment strategy is dead or merely sleeping. (The strategy focuses on the 10 Dow stocks with the highest dividend yields.) The Dow Jones Industrial Average has been a notable laggard among broad market indices, making it a natural place to look for neglected values that might be lying around. In 2005, the Dow was the only major stock index that didn’t post a positive price change, declining .6%. Even with dividends included, the Dow’s 1.7% total return paled in comparison to the S&P 500's 4.8%. Thus, investors could be looking at a double whammy: most neglected members of a neglected group. However, as so often happens with even the best of stock-picking systems, popularity could lead the way to disappointment. Any system, including one as sensibly-based as this one, will always be subject to the popularity trap: the better it works for a while, the more investors are sure to be attracted to it, setting everybody up for a letdown. Grrrrrrrrrrr.

3. FORMER CHIEF’S ACTION FOR REINSTATEMENT NOT BARRED AS A MATTER OF LAW:

Nelson, former Chief of Police, filed suit against the city for reinstatement, back pay and benefits following termination, which he alleged occurred at an improperly notice council meeting. The trial court granted summary judgment in favor of the city on grounds that Nelson was barred by the doctrine of laches. In order for the city to prevail on the defense of laches, it had to prove by clear and convincing evidence each of the following:

  1. conduct on the city’s part giving rise to the situation upon which the complaint was based;
  2. failure of Nelson, having had knowledge or notice of the city’s conduct, to assert his rights by suit;
  3. lack of knowledge on the part of the city that Nelson would assert the right on which he based his suit; and
  4. injury or prejudice by the city if relief was accorded to Nelson.

When inferences that can be drawn in favor of the party against whom the defense of laches is asserted create material factual disputes as to one or more of the elements necessary to establish the defense, summary judgment based on the doctrine of laches is inappropriate. Thus, the appellate court reversed and remanded for trial. Nelson v. City of Sneads, Florida, 31 Fla. L. Weekly D566 (Fla. 1st DCA, February 22, 2006).

4. IRS ANNOUNCES E-FILINGS STATISTICS:

In two separate releases (IR-2006-039 and IR-2006-040), Internal Revenue Service has released e-filing tax statistics. Through early March, more than 39.5 million taxpayers have e-filed this year. Home computer use is up 16.5%, with e-filing by tax professionals up nearly 4%. Out of 54 million tax returns filed so far this year, e-file represents 73% of total returns. By comparison, 72% of returns were filed electronically for the comparable period last year. Also, more than 450 of the nation’s largest corporations have electronically filed taxes in advance of the March 15 filing date. Large corporate taxpayers, those with $50 Million and more in assets that file at least 250 returns, are required to e-file this year. IRS expects more than 10,000 large corporations to e-file by the extended filing date of September 15, 2006. Cash-exempt organizations with $100 Million in assets that file at least 250 returns a year are also required to file electronically this year. The due date for most tax-exempt organizations is May 15. IRS received about 6,700 electronically filed information returns from tax-exempt organizations in 2005.

5. OH, BROTHER -- 26 YEARS ON DEAD SIBLING’S PENSION!:

A 67-year-old-German man who drew his dead brother’s pension for 26 years after taking on his identity was unmasked after police stopped him for driving without a seatbelt. Just after his brother’s death, the man assumed the false identity. Thanks to the physical similarity between the siblings, the impostor pulled off the switch by renewing his dead brother’s passport, although he continued to use his real name on occasion. Police uncovered the ruse because of records showing the impostor was wanted for repeatedly failing to settle a minor bill. Although the car, his driving license and other particulars were made out to his brother, the man’s surname aroused police suspicions and he eventually confessed to the scam, which netted him at least $120,000. This item comes to us from Reuters, via Williams News.

6. 401(k) PLANS ARE STILL COMING UP SHORT:

A new Issue in Brief from Center for Retirement Research at Boston College features newly-available data from the 2004 Survey of Consumer Finances. The SCF is a triennial survey of a nationally representative sample of U.S. households, which collects detailed information on households’ assets, liabilities and demographic characteristics. Because SCF over-samples wealthy individuals, it provides the most comprehensive measure of wealth of any household survey. Key findings are as follows:

  • 401(k) plans, the dominant form of employer-sponsored pension plan, continue to come up short because individuals make mistakes at every step along the way.
  • One-fifth of those who are eligible choose not to participate; only about 10% contribute the maximum; over half fail to diversify their investments; and many cash out when they change jobs. As a result, the median account balance for household heads was only $40,000 in 2004.
  • Policymakers and business leaders have begun to respond to make 401(k)s easier and more automatic, but there is still a long way to go.

Remember that although Social Security now provides 73% of retirement income for the typical household, it will provide less in the future than it does today.

7. GM WILL RESTRUCTURE RETIREMENT BENEFITS:

General Motors Corp. has announced modifications to its pension and other benefits for U.S. salaried employees aimed at providing a competitive and fair benefit to future retirees, while reducing financial risks to GM. Effective January 1, 2007, GM will freeze the accrued pension benefits for U.S. salaried employees under the current defined benefit plan formula and begin the shift toward a broader reliance on defined contribution plans in the future. Salaried employees who were hired on or after January 1, 2001, will move exclusively to a defined contribution plan for future service. Salaried employees hired before that date will remain in the defined benefit plan. They will receive a reduced retirement benefit for future accruals under a new career average pay formula. Pension benefits earned prior to the transition date will be preserved. The changes do not affect the benefits of GM’s current U.S. salaried retirees or the vested benefits of former employees. Here are some specifics:

  • GM salaried employees hired before January 1, 2001, who currently participate in the traditional defined benefit plan with a final average pay formula, will stop accruing future benefits under that formula and receive a modified future benefit based on 1.25% of average monthly base salary for their future years of service.
  • GM salaried employees hired on or after January 1, 2001, who currently participate in a cash balance plan, will stop accruing future pay credits under that plan and receive a contribution to their salaried 401(k) program from GM of 4% of annual base salary. Existing balances under the cash balance plan continue to earn annual interest credits.
  • GM U.S. executives who participate in the Supplemental Executive Retirement Plan also will have their SERP benefits frozen as of December 31, 2006. Effective January 1, 2007, the SERP plan will be amended to be aligned with the revised U.S. salaried employee pension plan.

The changes to the U.S. salaried pension plan and related benefits follow a series of actions announced in February aimed at reducing GM’s structural costs and improving GM’s financial flexibility, including capping retiree health-care benefits for U.S. salaried retirees, cutting compensation for GM’s top officers and board members by up to 50%; and reducing the quarterly dividend by 50%. Oh, boy.

8. FDIC INSURANCE INCREASE TO TAKE EFFECT NEXT MONTH:

As mandated by the Deficit Reduction Act of 2005 (see C&C Newsletter for March 2, 2006, Item 2), the Federal Deposit Insurance Corporation Board of Directors approved final rules that will raise the deposit insurance coverage on certain retirement accounts at a bank or savings institution from $100,000 to $250,000. The increase, resulting from DRA’s boosting FDIC coverage for the first time in over 25 years, will become effective on April 1, 2006. Basic insurance for other deposit accounts, however, will remain at $100,000. Our last report said that DRA calls for an increase in insurance limits on all deposit accounts in the future, but only every five years, starting in 2010. FDIC’s March 14, 2006 release says that increases start in 2011, so we stand corrected.

9. FIREFIGHTERS WILL HELP ANYBODY:

When members of the United Fire Fighters of Winnipeg responded to a medical call at about 2:00 A.M., they left their fire truck running while they were engaged. All of a sudden, a 37-year old man jumped in the truck, took off the wrong way down a one way street, jumped the median, narrowly missed a bus shelter, hit a cement bench and light pole, and crashed into trees in a vacant lot very close to a house. Damage to the truck was so severe that the joyrider could not get out -- and had to be rescued by the same fire fighters whose truck he had just demolished. As Jascha Heifetz used to say, “a gig’s a gig.”

10. QUOTE OF THE WEEK:

We could not help but print the following quote from that ubiquitous source, Anonymous: “There’s many a pessimist who got that way by financing an optimist.” How true.

Copyright, 1996-2006, 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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