Cypen & Cypen
MARCH 1, 2007
Stephen H. Cypen, Esq., Editor
1. MVRA TRUMPS ANTI-ALIENATION PROVISION OF ERISA:
The United States Court of Appeals for the Ninth Circuit was asked to determine whether -- and if so, under what circumstances -- a criminal defendant’s retirement benefits are available as a source of funds to compensate crime victims. Answering these questions requires reconciling two federal statutory schemes: one, the Mandatory Victims Restitution Act of 1996, governing payment of restitution to crime victims, and the other, the Employee Retirement Income Security Act of 1974, regulating private pension plans. Underlying each statute is a weighty policy determination. MVRA rests on the recognition that it is essential that the criminal justice system recognize the impact that crime has on the victim, and, to the extent possible, insure that the offender be held accountable to repay these costs. ERISA is meant to assure that retirement funds shall remain inviolate until retirement. Taking a close look at the statutory implementation of these two important policies, the appellate court concluded that criminal restitution orders can be enforced by garnishing the retirement funds, but with the funds only payable when the defendant has a current, unilateral right to receive payments under terms of the retirement plan. United States of America v. Novak, Case No. 04-55838 (U.S. 9th Cir., February 22, 2007).
2. RETIREMENT BOARD REJECTS PENSION INCREASE FOR FORMER LAWMAKERS:
Boston.com reports that the State Retirement Board unanimously rejected petitions by three former Massachusetts State Representatives who wanted their pensions increased to reflect the perquisites of office, including the value of state parking spaces on Beacon Hill, a $600 monthly stipend for expenses and costs for traveling to and from the State House. The former lawmakers were aiming to capitalize on a recent Supreme Judicial Court decision that allowed a former University of Massachusetts president to include his housing allowance in calculation of his retirement plan and boost his pension by $17,000. The State Treasurer, who serves as chairman of the retirement board, said that allowing the former legislators to include the perks in their pensions would spark a stampede by hundreds of other retired state employees seeking similar benefits. The representatives said they were both disappointed and angered by the board’s decision. Each is considering filing a lawsuit to fight to increase his pension. Talk about cohones.
3. ANOTHER STATE PENSION PLAN BACK TO BEING FULLY FUNDED:
From ChicagoBusiness.com we learn that, despite shortfalls in other public pension plans in the state, the Illinois Municipal Retirement Fund has returned to fully funded status for the first time in six years. The fund, which represents 2,900 local units of government and 250,000 employees and retirees, reached 100.5% funding of its pension obligations as of December 31, 2006. Since then, the IMRF’s funding has risen to 103%, meaning the agency has $1.03 in assets for every $1.00 in liabilities. The IMRF was last above 100% in 2001, but a falling stock market took funding levels below 90% in 2002 and 2003. With $23 Billion in assets, the IMRF is the second-largest public pension fund in Illinois, trailing only the Illinois Teachers Retirement System, which has assets approaching $40 Billion. Last year, the IMRF enjoyed a return of 13.9% on its investment portfolio, roughly mirroring the market.
Shortly after we did a piece on major sports pension plans, including the National Basketball Association (see C&C Newsletter for February 15, 2007, Item 2), espn.com says that a small group of former NBA players will finally receive pensions. The former players who will be affected are those who spent three or four years in the NBA, or its predecessor, the BAA, prior to 1965. Previously, pre-1965 players had to have five years of service to qualify. The pre-1965 players will now receive $3,600 a month per year of service compared to the $2,400 per year of service they received under the previous pension program. The change is retroactive to July, 2005, meaning the 40 or so pre-1965 players with three or four years of service who were excluded from the old pension plan will soon be receiving lump sums equal to 20 months’ worth of pension checks. He shoots...he scores!
5. HAVE YOU VISITED YOUR MONEY MANAGER LATELY?:
What can be accomplished through use of onsite visits to money managers? More than just part of due diligence, onsite visits can be useful as an educational experience. Here are some benefits:
We thank our client City of Gainesville Consolidated Police Officers’ and Firefighters’ Retirement Plan for developing these ideas.
6. EX-MARYLAND FUND MANAGER CATCHES A BREAK:
We recently reported that former Maryland Pension Fund Manager Nathan Chapman was seeking a reduction in his sentence (see C&C Newsletter for December 14, 2006, Item 5). Now, as it turns out, Chapman’s trial judge should have stayed within Federal sentencing guidelines of five years and three months to six and a half years in prison, rather than doling out a seven and one half year prison sentence. Thus, the new sentence at the lowest end of the range results in a two year cut in jail time for Chapman.
7. IRS’S 2007 “DIRTY DOZEN” TAX SCAMS:
The Internal Revenue Service has identified twelve of the most blatant scams affecting American taxpayers and warned people not to fall for schemes peddled by scamsters. IRS urges taxpayers to avoid the following common schemes:
IRS continues to watch scams that fall of the list. Five of last year’s Dirty Dozen scams (see C&C Newsletter for February 9, 2006, Item 8) rotated off of this year’s list. Absence of a particular scheme from the Dirty Dozen should not be taken as an indication that IRS is unaware of it or not taking steps to counter it. IR-2007-037 (February 20, 2007).
8. TEN MILLION TAXPAYERS MISS OUT ON TELEPHONE TAX REFUND:
Speaking of telephone tax refunds (see the above item), millions of taxpayers may be missing out on legitimate telephone excise tax refunds because they did not make the one-time required request. About 30% of all taxpayers have not requested the telephone tax refund. The government stopped collecting the long-distance and excise tax last August, after several federal court decisions held the tax does not apply to long-distance service as it is billed today. Federal officials authorized a one-time refund of the federal excise tax collected on service billed during the previous 41 months, stretching form March 2003 through July 2006. The tax continues to apply to local-only phone service. For people requesting the telephone tax refund, it adds $30 to $60 or more onto a refund. For tips to help you figure the refund correctly and get it quickly, check out IR-2007-040 (February 23, 2007), which is available through irs.gov.
9. EBSA -- ENFORCEMENT IMPROVEMENTS MADE BUT ADDITIONAL ACTIONS COULD FURTHER ENHANCE PENSION PLAN OVERSIGHT:
The Department of Labor’s Employee Benefits Security Administration enforces the Employee Retirement Income Security Act of 1974, which sets certain minimum standards for private sector pension plans. On the basis of the United States Government Accountability Office’s prior work, the Senate Committee on Health, Education, Labor and Pensions asked GAO to review EBSA’s enforcement program. Specifically, a new report addresses (1) the extent to which EBSA has improved its compliance activities since 2002; (2) how EBSA’s enforcement practices compare to those of other agencies; and (3) what obstacles, if any, affect ERISA enforcement. To do this task, GAO reviewed EBSA’s enforcement strategy and operations, and interviewed officials at EBSA, Internal Revenue Service and Securities and Exchange Commission, among others. Back in March 2002, GAO identified weaknesses in EBSA’s enforcement program, despite the agency’s actions to strengthen it. Since that time, EBSA has, among other things, promoted coordination among regional investigators and increased participation in its voluntary correction programs, as GAO recommended. EBSA has also recruited investigators with advanced skills in accounting, finance, banking and law who officials believe are necessary due to ERISA’s technicalities. Yet some weaknesses identified in 2002 remain. Specifically, EBSA still has not adequately assessed the nature and extent of ERISA noncompliance, even though it has taken steps to do so. Without these data, EBSA is not positioned to focus its resources on key areas of noncompliance or have adequate measurable performance goals to evaluate its impact on improving industry compliance. GAO also found that while some regional offices did routinely attempt to confer with their respective regional office of the SEC -- the agency that oversees many of the same pension service providers under securities laws -- for case leads or to consider trends of potential pension violations, others did not. Lastly EBSA’s overall attrition rates remain high, with many investigators leaving for employment outside the federal government, yet EBSA has taken limited steps to evaluate the effect such attrition has on its operations. GAO-07-22 (January 2007).
10. GENERATION X WANTS SIMPLE IRA INVESTMENT PROCESS:
A significant amount of Generation X investors who do not put money into an individual retirement account would do so if they only had to make an initial investment choice and then forget about it, according to a survey reviewed by plansponsor.com. The survey of 500 people from ages 25 to 40 found that 44% of those who do not currently fund an IRA would be more likely to invest in one if there was a single investment choice. The same view was shared almost equally between current IRA investors and non-investors. Twenty percent of surveyed Gen-Xers do not know how an IRA works or even what it is, despite the fact that 40% of those who are saving for retirement have an IRA.
“Too many people think life is a spectator sport.” Katharine Hepburn
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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.