Cypen & Cypen
MARCH 5, 2009
Stephen H. Cypen, Esq., Editor
Benefits received from state and local defined benefit plans during 2006 generated $358 Billion in economic output nationwide and $57 Billion in tax revenue and supported 2.5 million jobs that paid workers a total of $92 Billion, according to a National Institute on Retirement Security study, reported in pionline.com. The findings show that defined benefit plans help stabilize the economy because pension beneficiaries continue spending, even when the economy is bad. The study focused on economic activity generated by expenditure of pension benefits in 2006. Among other findings: every dollar from state and local pension plans resulted in $2.36 in input in 2006. Also, every dollar contributed by taxpayers to state and local plans resulted in $11.45 in economic output during that year. State and local plans had about 26 million participants and beneficiaries in 2006, with beneficiaries receiving an average payment of $20,867. NIRS is a non-profit group that promotes retirement security. The complete study is available on its website, http://www.nirsoline.org.
2. METLIFE U.S. PENSION RISK BEHAVIOR INDEX:
MetLife has released new original research entitled “MetLife U.S. Pension Risk Behavior Index,” a study of 168 corporate plan sponsors among the 1,000 largest U.S. defined benefit pension plans. Subtitled “Study of Risk Management Attitudes and Aptitude Among Defined Benefit Pension Plan Sponsors,” the research measures attitudes of corporate decision makers on the relative importance of a range of risks associated with management of their defined benefit pension plans and their reported aptitude for managing each area of risk. MetLife designed and fielded the study to encourage public dialogue around pension risk-related issues for plan fiduciaries, help plan sponsors develop a new framework for understanding risks and explore solutions for mitigating risk exposure. The primary objective of the research was to develop a baseline for the current state of risk management within defined benefit plans, and to identify early signs of risk management gaps. The study comprises two parts: an index (which measures the extent to which plan sponsors are managing risks they believe are most important) and an analysis (which examines patterns and inter-relationships between risk attitudes and behaviors). The forty-four page document can be accessed at http://www.whymetlife.com/downloads/MetLife_US_PensionRiskBehaviorIndex.pdf
3. ERISA ANTI-ALIENATION PROVISION BARS ATTORNEYS FROM DIRECT PAYMENT OF ATTORNEYS FEES OUT OF PENSION BENEFITS:
Kodak Retirement Income Plan appealed from a decision of a United States District Judge. The decision granted a preliminary injunction in favor of Kickham Hanley P.C. preventing Kodak Retirement Income Plan from making pension benefit payments to certain plan participants unless they placed 15% of the payments in escrow pending adjudication of Kickham’s entitlement to an attorney’s fee award from these benefits. Because the appellate court concluded that Kickham’s claim to attorney's fees drawn from undistributed vested pension benefits violates ERISA’s anti-alienation provision, it reversed the district court and dismissed Kickham’s complaint. ERISA’s anti-alienation language mandates that each pension plan shall provide that benefits under the plan may not be assigned or alienated. This provision erects a general bar to garnishment of pension benefits from plans covered by ERISA. Kickham unsuccessfully argued that the anti-alienation provision could be avoided by asserting the “common fund doctrine,” which grants Kickham an interest in that portion of the plan’s benefit funds that it allegedly help to create or preserve and that, accordingly, plan participants have no claim to Kickham’s part. Kickham Hanley P.C. v. Kodak Retirement Income Plan, Case No. 08-4289 (U.S. 2d Cir., February 26, 2009).
4. EXPANDED TAX BREAK AVAILABLE FOR 2009 FIRST-TIME HOMEBUYERS:
Internal Revenue Service has announced that taxpayers who qualify for the first-time homebuyer credit and purchase a home this year before December 1 have a special option available for claiming the tax credit either on their 2008 tax returns due April 15 or on their 2009 tax returns next year. Qualifying taxpayers who buy a home this year before December 1 can get up to $8,000 or $4,000 for married filing separately. IRS has posted a revised version of Form 5405, First-Time Homebuyer Credit, on irs.gov. The revised form incorporates provisions from the American Recovery and Reinvestment Act of 2009 (see C&C Newsletter for February 19, 2009, Item 1). Instructions for revised Form 5405 provide additional information on who can and cannot claim the credit, income limitations and repayment of the credit. This year, qualifying taxpayers who buy a home before December 1, 2009 can claim the credit on either the 2008 or 2009 tax returns. They do not have to repay the credit, provided the home remains their main home for 36 months after the purchase date. They can claim 10% of the purchase price up to $8,000 or $4,000 for married individuals filing separately. The amount of the credit begins to phase out for taxpayers whose adjusted gross income is more than $75,000 or $150,000 for joint filers. For purposes of the credit, one is considered to be a first-time homebuyer if he, and his spouse if married, did not own any other main home during the three-year period ending on the date of purchase. IRS has also alerted taxpayers that the new law does not affect people who purchased a home after April 8, 2008 and on or before December 31, 2008. For these taxpayers who are claiming the credit on their 2008 tax returns, the maximum credit remains 10% of the purchase price up to $7,500, or $3,750 for married individuals filing separately. In addition, the credit for these 2008 purchases must be repaid in 15 equal installments over 15 years, beginning with the 2010 tax year. IR-2009-014 (February 25, 2009).
5. COBRA SUBSIDY GUIDANCE BEGINS:
In what promises to be a series of guidance pieces from the federal government on the new COBRA premium subsidy, Internal Revenue Service has issued a group of questions and answers addressing how employers (both public and private) can claim a payroll tax credit for providing a 65% COBRA premium subsidy required under the American Recovery and Reinvestment Act of 2009. According to Ice Miller, IRS guidance was issued on February 26, 2009. In general, ARRA provides a 9-month COBRA premium subsidy for individuals and their dependents who are entitled to COBRA as a result of an employee being involuntarily terminated from a job between September 1, 2008 and December 31, 2009 (Assistance Eligible Individuals). The subsidy phases out at income levels between $125,000 and $145,000 for taxpayers or between $250,000 and $290,000 for joint filers. The subsidy is equal to 65% of the normal COBRA premium charged to COBRA recipients, and is funded by the federal government. However, employers have to “front” the subsidy. In return, employers may claim a dollar-for-dollar credit against their payroll taxes to be reimbursed for the subsidy. Employers must identify eligible individuals and have new notice obligations related to the subsidy. Employers may claim a tax credit for the 65% subsidy on Form 941. The credit is claimed on Line 12a of the January 2009 revision of that form, but may not be claimed until after an Assistance Eligible Individual has paid his 35% share of the premium. If the subsidy credit exceeds the employer’s payroll tax liability for that quarter, the excess can be applied as a credit to the next quarterly return, or may be requested as a refund. The guidance also makes clear that employers can decide whether to reduce each tax deposit during a quarter for the subsidy credit or to claim the subsidy credit just once each quarter as an overpayment at the end of a quarter. Payroll tax deposits are generally due during a quarter either monthly or semiweekly depending on an employer’s past tax liabilities.
6. POLICE OFFICER WHO INADVERTENTLY KICKED DETAINEE IN THE FACE ENTITLED TO QUALIFIED IMMUNITY:
The United States Court of Appeals for the Eleventh Circuit recently decided whether Officer Gilstrap used excessive force in violation of the Fourteenth Amendment when he kicked a pretrial detainee, Fennell, who was combative and struggling with police officers. Gilstrap had witnessed an earlier struggle between Fennell and officers, heard Fennell threaten officers, heard a fellow officer call out for Fennell to let go of his arm while struggling with Fennell and witnessed six officers struggle for fifteen seconds unsuccessfully to handcuff Fennell. Gilstrap attempted to kick Fennell in the arm, but his kick landed on Fennell’s face. The appellate court concluded that Fennell had not shown that Gilstrap’s kick was a malicious and sadistic use of force in violation of the Fourteenth Amendment. Accordingly, Gilstrap was entitled to qualified immunity for Fennell’s 42 U.S.C. § 1983 claim alleging excessive force in violation of the Fourteenth Amendment. The qualified immunity inquiry usually involves two prongs. First, a plaintiff must show that a constitutional or statutory right has been violated. Second, a plaintiff must show that the right violated was clearly established. For claims of excessive force in violation of the Fourteenth Amendment, however, a plaintiff can overcome a defense of qualified immunity by showing only the first prong that his Fourteenth Amendment rights have been violated. Thus, the trial court erred in granting summary judgment on the ground that Gilstrap’s use of excessive force was not a violation of clearly established law, after holding that there was evidence of a violation of the Fourteenth Amendment for use of excessive force. Fennell is correct that he needed only to show that there was evidence to support a finding that Gilstrap had violated the Fourteenth Amendment, to defeat Gilstrap’s claim of qualified immunity, the district court concluded that Fennell had, in fact, made such showing. Nevertheless, the district court’s grant of summary judgment must be affirmed because Fennell failed to show that Gilstrap’s use of force constituted excessive force violating the Fourteenth Amendment. Fennell v. Gilstrap, 21 Fla. L. Weekly Fed. C1571 (U.S. 11th Cir., February 27, 2009).
7. THE FINANCIAL CRISIS EXPLAINED IN SIMPLE TERMS:
Heidi is the proprietor of a bar in Berlin. In order to increase sales, she decides to allow her loyal customers - most of whom are unemployed alcoholics - to drink now but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans). Word gets around, and as a result increasing numbers of customers flood Into Heidi's bar. Taking advantage of her customers' freedom from immediate payment constraints, Heidi increases her prices for wine and beer, the most-consumed beverages. Her sales volume increases massively. A young and dynamic customer service consultant at the local bank recognizes these customer debts as valuable future assets and increases Heidi's borrowing limit. He sees no reason for undue concern since he has the debts of the alcoholics as collateral. At the bank's corporate headquarters, expert bankers transform these customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS. These securities are then traded on markets worldwide. No one really understands what these abbreviations mean and how the securities are guaranteed. Nevertheless, as their prices continuously climb, the securities become top-selling items. One day, although the prices are still climbing, a risk manager (subsequently, of course, fired due his negativity) of the bank decides that slowly the time has come to demand payment of the debts incurred by the drinkers at Heidi's bar. However they cannot pay back the debts. Heidi cannot fulfill her loan obligations and claims bankruptcy. DRINKBOND and ALKBOND drop in price by 95%. PUKEBOND performs better, stabilizing in price after dropping by 80%. The suppliers of Heidi's bar, having granted her generous payment due dates and having invested in the securities are faced with a new situation. Her wine supplier claims bankruptcy, her beer supplier is taken over by a competitor. The bank is saved by the government following dramatic round-the-clock consultations by leaders from the governing political parties. The funds required for this purpose are obtained by a tax levied on the non-drinkers. Finally, an explanation we understand.
8. DISORDER IN THE AMERICAN COURTS:
9. QUOTE OF THE WEEK:
“Nothing travels faster than the
speed of light with the exception of bad news, which obeys
its own special laws.” Douglas Adams
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