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Miami

Cypen & Cypen
NEWSLETTER
for
MARCH 10, 2011

Stephen H. Cypen, Esq., Editor

1.      THE IMAGINARY PUBLIC SECTOR PENSION FUND CRISIS: Andrew Leonard writes in salon.com that the paper “The Origins and Severity of the Public Pension Crisis” (see C&C Newsletter for February 17, 2011, Item 2) makes a decent argument that the so-called crisis is not as bad as the Republican governors busily attempting to bust unions all across the United States would have us believe. The paper shows that the bulk of predicted shortfalls auguring long-term trouble for government worker pension funds can be attributed to the sharp drop in the stock market between 2007 and 2009.  Assuming decent economic growth, future liabilities, as measured against projected future Gross Domestic Product, are manageable. The likelihood that the paper will change any minds is poor.  After all, the fight over public sector unions does not come down to the question of how to balance state financial ledgers -- instead, it is all about political power.  Unions support Democrats; therefore Republicans seek to crush unions.  Republicans are especially aggrieved by public sector unions, which they believe unfairly use taxpayer funds to pursue agendas that conflict with the conservative mandate. The paper proves this point, providing data for “Unfunded Liability as a percent of Future State Income” projected over the next 30 years. Of course, some states are in worse shape than others. For example, Ohio tops the list at .47 percent.  But, what about Wisconsin, battleground state over public sector unions? How about 0.00 percent!  (That’s right, zero.) In other words, the actuarial value of Wisconsin's pension fund assets is expected to exceed the state's potential liabilities in decades to come. So, the fiercest battle over public sector unions is in a state where pension liabilities simply are not a long-term problem. Another interesting item from the report:  reality of how important stock market appreciation is when calculating a state's long-term fiscal health. If there is one thing that the administration, in combination with the Federal Reserve, has truly succeeded at over the last two years, it has been rescuing the stock market from the great crash of 2008. Republican pundits do their best to ignore this fact, because it is embarrassing for them to explain why the market keeps ratifying White House economic policy.  But liberals see it as a downright moral failure, a sign that White House priorities are more focused on Wall Street and the investor class than on Main Street.  Here's another way to look at it:  a healthy, growing stock market is good news for retirement funds of all kinds, but it is particularly good news for state governments that have invested huge sums of taxpayer money into public sector pension funds.  By encouraging stock market asset appreciation, the administration is helping states and workers in a profound way.  Those horrible “shortfalls” everyone has been making such a big deal about are already in retreat. To quote “The Origins and Severity of the Public Pension Crisis:”

[I]t is worth noting that the size of the shortfall in many of these funds has likely already been reduced as a result of the fact that the stock market has continued to recover from its downturn in 2008 and 2009.  On July 1, 2010, the S&P 500 was already more than 11 percent higher than its July 1, 2009 level.  Most funds use the stock market's closing value at the end of the fiscal year as the basis for determining valuation of assets.  Of course, they also use an average, so the valuation would not simply reflect market value at the end of the fiscal year.  However, with the market having already risen substantially from its low, it is likely that pension valuations based on current and future market levels will show smaller shortfalls.  In other words, most shortfalls reported based on 2009 valuations have likely already been eliminated by the rise in the market. 

2.      PALM BEACH POST SAYS FLORIDA IS NOT ABOUT TO GO BROKE: The Editor of the Editorial Page of the Palm Beach Post writes that Florida may have a budget crisis, but Florida does not face a financial crisis. But don’t just take his word for it: take the word of Dominic Calabro, President of Florida TaxWatch, the business-financed group that was formed 32 years ago to promote fiscal conservatism. Mr. Calabro said no crisis is looming.  In fact, “Florida is really a beacon” for good financial management.  He credits conservative Democrats, who in the 1970s minimized radical spending excesses and created a meaningful balanced budget amendment. Florida does not confront imminent peril because the state has been too generous with -- just to name a group that gets no love in the Legislature -- teachers. Indeed, the main cause of Florida's budget problem has nothing to do with teachers.  Sales tax collections, the main source of state revenue, dropped by roughly $6 Billion between 2007 and 2010. The 655,000 employees statewide in the Florida Retirement System pay nothing toward their pensions if they are in the defined benefit plan, as most are.  Governor Scott proposes that employees begin contributing 5 percent next year. Governor Scott also wants to reduce retirement payouts and end annual cost-of-living pension increases.  All new employees would go into a defined contribution 401(k)-type plan, rather than one that guarantees a benefit. If cutting the state budget is your only concern, asking for that 5 percent right now makes sense.  If you are a teacher who, like so many in Florida, has not had a raise in three years, that 5 percent is a 5 percent pay cut.  Maybe they will hear how they could make up the difference with the merit pay plan. Florida's pension fund is not close to being in trouble.  It is funded at nearly 90 percent of liabilities, one of the best levels in the nation, having recovered losses from the financial crisis of 2008.  (FRS’s previous valuation showed a funded ratio of over 100 percent.) Despite the Legislature’s raiding reserves and trust funds in the years since the housing bubble burst, Florida's various bond ratings remain strong. So, the debate over pensions in the legislative session will be about politics and priorities, with emphasis on the former.  When a senator worries about debt and the state's bond rating, will someone point out that a big reason for debt spending over the last decade has been university construction?  Will someone then note that if the Legislature in the late 1990s had modernized the tax that finances university construction, the state would have had to borrow less money? And when Governor Scott and legislators insist that employees start paying that 5 percent toward pensions now, rather than in stages, will someone note that because teachers do not make much money they put most of that 5 percent right back into the economy?  If there is no crisis, there is no need to put all the hurt on people who do not get the good tables in Tallahassee. Amen. 

3.      WHY EMPLOYEE PENSIONS ARE NOT BANKRUPTING STATES:   From state legislatures to Congress to tea party rallies, a vocal backlash is rising against what are perceived as too-generous retirement benefits for state and local government workers.  However, that widespread perception does not match reality, according to mcclatchydc.com.   A close look at state and local pensions across the nation, and a comparison of them to those in the private sector, reveals a more complicated story.  The short answer is that there is simply no evidence that state pensions are the current burden to public finances that their critics claim. Pension contributions from state and local employers are not blowing up budgets.  They amount to just 2.9 percent of state spending, on average, according to National Association of State Retirement Administrators.  Center for Retirement Research at Boston College puts the figure a bit higher at 3.8 percent.  Although there is no direct comparison, state and local pension contributions approximate the burden shouldered by private companies.  The nonpartisan Employee Benefit Research Institute estimates that retirement funding for private employers amounts to about 3.5 percent of employee compensation. And state and local government pension funds are not broke.  They are underfunded, in large measure because -- like investments held in 401(k) plans by American private sector employees -- they sank along with the entire stock market during the Great Recession of 2007-2009.  And like 401(k) plans, the investments made by public sector pension plans are increasingly on firmer footing as the rising tide on Wall Street lifts all boats. Boston College researchers project that if the assets in state and local pension plans were frozen tomorrow and there was no more growth in investment returns, there would still be enough money in most state plans to pay benefits for years to come. On average, with assets on hand today, plans are able to pay annual benefits at their current level for another 13 years, assuming, pessimistically, that plans make no future pension contributions and there is no growth in assets. In 2006, when the economy was humming before the financial crisis began, the value of assets in state and local pension funds covered promised benefits for a period of over 19 years. States having the biggest problems with pension obligations tend to be struggling with overall fiscal woes -- New Jersey and Illinois in particular.  Many states are now wrestling with the underfunding because they did not contribute enough during boom years. Most state and local government employees across the nation have defined benefit plans that promise employees either a percentage of their final salary during retirement or some fixed amount.  Bureau of Labor Statistics estimates that 91 percent of full-time state and local government workers have access to defined benefit plans. Defined contribution plans divert on a tax-deferred basis a portion of pay, generally partially matched by the employer, into an account that invests in stocks and bonds.  In 1980, 84 percent of workers at medium and large companies in the U.S. had a defined benefit plan like those that still predominate in the public sector.  By last year, just 30 percent of workers in these companies were covered under such plans. Defenders of public pension systems say anti-government, anti-union elected officials and interest groups have exaggerated the problem to score political points, and that as the economy heals, public pension plans will gain value and prove critics wrong. The most recent Public Fund Survey by National Association of State Retirement Administrators showed that, on average, state and local pensions were 78.9 percent funded, with about $688 Billion in unfunded promises to pensioners. Unfunded liabilities would be a problem if all state and local retirees went into retirement at once, but that will not happen.  And state governments will not go out of business and hand underfunded pension plans over to a federal regulator, as in the private sector.  State and local governments are ongoing enterprises. Another misperception tied to the pension debate is that while the private sector has shed jobs during the economic crisis, state and local government has grown -- and pensions along with it. Since September 2008, when state and local government employees numbered 19,385,000 and the economic crisis turned severe, the governments' payrolls shrank by 407,000. When calculating from December 2007 -- the month the National Bureau of Economic Research determined was the start of the Great Recession -- state and local government employment has fallen by 703,000 jobs. 

4.      FIRST RESPONDERS PAY THEIR FARE SHARE:    Two Miami-Dade County detectives, Roger Castillo and Amanda Haworth, were gunned down in Miami January 20, 2011 while serving a warrant.  Their ultimate sacrifice is a painful reminder that first responders in greater Miami work dangerous jobs in a dangerous metropolitan area.  Suddenly, the public is being encouraged to believe that first responders receive too many benefits, and that tax dollars alone support those benefits. A recent report released by the LeRoy Collins Institute frightens taxpayers into believing they are responsible for paying first responders’ healthcare benefits (see C&C Special Supplement for January 28, 2011).  Of course, the statement is not true.  Local and municipal governments are not responsible for public employee health insurance; they only provide the opportunity for retirees to purchase their own health insurance at the same premium as working employees.  And first responders do contribute to both their pensions and their healthcare costs. One solution outlined in the report to help local governments save money was to reduce transferability of retirement benefits to spouses and dependents. Who would be willing to explain that concept to the families of Detectives Castillo, 41, and Haworth, 46?  Public employee benefits are not to blame for the economic mess -- Wall Street is the culprit.  Why are people so fixated on demonizing working class Americans who unselfishly risk life and limb for benefits they not only contribute to, but have earned?  One can only hope the deaths of these police officers will help Miami area residents see the report for what it is:  political propaganda.  First responders will never apologize for putting their lives on the line for public safety; neither will they apologize for the safety that their pensions and healthcare brings to their families.  At the end of the day, close your eyes, think of Detectives Castillo and Haworth, and say “thank you!” And thank you, Raul Fernandez, captain and trustee, City of Miami Fire Fighters’ and Police Officers’ Retirement Trust, writing in The Miami HeraldReaders’ Forum. 

5.      HOW CAN CUSTOMIZED INFORMATION CHANGE FINANCIAL PLANS?:   That question is posed in a new Issue Brief  from Center for Retirement Research at Boston College. Many workers nearing retirement experienced a dramatic decrease in their retirement assets when the stock market crashed in 2008.  In order to maintain their expected standard of living in retirement, workers needed to work longer, save more or do both.  To measure the response of older workers to this downturn, the Center for Retirement Research at Boston College fielded the a 2009 Retirement Survey of select labor force participants with relatively high pre-downturn assets. This brief, which is the final in a series of four based upon that 2009 Retirement Survey, explores reactions of respondents who received tailored information about the trade-off among working longer, saving more and decreased retirement income. One-third of respondents did not change their initial plans, while almost one-quarter reduced the number of additional years they planned to work. In order to test how constructive the financial advice was, surveyors examined how responses changed relative to the initial response. Those who initially planned no response to the downturn were least likely to change their mind about receiving advice. Further investigation showed that these “committed non-responders” are older and more likely to have been on-track before the downturn. Perhaps these individuals already had their plans in place, were close to retirement and felt that they have made good prior decisions in preparing for retirement so they were not swayed by additional advice. Almost all respondents who lowered their retirement age after receiving the customized trade-off information had initially planned to work longer in response to the downturn. Importantly, the advice seems to have decreased the planned working life for those who were overestimating the number of additional years of work needed to counteract their financial losses. Thus, it seems that tailored financial information may help respondents make more reasonable plans. Number 11-4 (March 2011)

6.      WOMEN IN AMERICA:   The U.S. Department of Commerce Economics and Statistics Administration and the Executive Office of the President Office of Management and Budget have prepared Women in America: Indicators of Social and Economic Well-Being for the White House Council on Women and Girls. The Council was created by President Obama in early 2009 to enhance, support and coordinate efforts of existing programs for women and girls. When President Obama signed the executive order creating the Council, he noted that the issues facing women today “are not just women's issues.” When women make less than men for the same work, it impacts families who then find themselves with less income and often increased challenges in making ends meet.  When a job does not offer family leave, it impacts both parents and often the entire family. When there is no affordable child care, it hurts children who wind up in second-rate care or spending afternoons alone in front of the television set. The Council's mission is to provide a coordinated Federal response to the challenges confronted by women and girls, and to ensure that all cabinet and cabinet-level agencies consider how their policies and programs impact women and families.  The Council also serves as a resource for each agency and the White House, so that there is a comprehensive approach to the Federal government's policy on women and girls. The report provides a statistical picture of women in America in five critical areas: demographic and family changes; education; employment; health; and crime and violence.   By presenting a quantitative snapshot of the well-being of American women based on Federal data, the report greatly enhances the understanding both of how far American women have come and the areas where there is still work to be done. Here are some notable facts: 

  • Women have not only caught up with men in college attendance, but younger women are now more likely than younger men to have a college or a master’s degree.  
  • Nevertheless, these gains in education and labor force involvement have not yet translated into wage and income equity. At all levels of education, women earned about 75 percent of what their male counterparts earned in 2009.   In part because of these lower earnings and in part because unmarried and divorced women are the most likely to have responsibility for rearing and supporting their children, women are more likely to be in poverty than men.  These economic inequities are even more acute for women of color.
  • Women live longer than men, but are more likely to face certain health problems, such as mobility impairments, arthritis, asthma, depression and obesity.  Women also engage in lower levels of physical activity.  One out of seven women age 18-64 has no usual source of health care.  The share of women in that age range without health insurance has also increased.
  • Women are less likely than in the past to be target of violent crimes, including homicide.  But women are victims of certain crimes, such as intimate partner violence and stalking, at higher rates than men. 

Facts alone can never substitute for actions that directly address challenges faced by women of all ages and backgrounds.  However, facts are deeply important in helping to paint a picture of how lives of American women are changing over time and in pointing toward actions and policies that might be most needed.  Reports like this one help achieve that goal. Read the entire 97-page work at http://www.whitehouse.gov/sites/default/files/rss_viewer/Women_in_America.pdf

7.      LABOR AND EMPLOYMENT LAW OPINION SUMMARIES FROM FINDLAW.COM:  

A.      In dispute involving scope of Uniformed Services Employment and Reemployment Rights Act of 1994, if a supervisor performs an act motivated by anti-military animus that is intended by the supervisor to cause an adverse employment action, and if that act is a proximate cause of the ultimate employment action, then employer is liable under USERRA.  Staub v. Proctor Hospital, Case No. 09-400 (U.S. March 1, 2011). 

B.      In a claim under Americans With Disabilities Act of 1990 and State Fair Employment and Housing Act, where plaintiff alleged discrimination on the basis of his protected status as a rehabilitated drug addict, summary judgment in favor of defendant-employer is affirmed because conduct by defendant targeted recreational drug use, not recovered addicts. Lopez v. Pacific Maritime Association, Case No. 09-55698 (U.S. 9th Cir., March 2, 2011). 

C.      In a dispute over scope of government sovereign immunity waiver under Back Pay Act, 5 U.S.C. §§ 5596(b)(1)-(b)(2)(A), grant of motion for relief from judgment is reversed because waiver of sovereign immunity applies to interest on an award of back pay for employment termination in violation of Age Discrimination in Employment Act. Adam v. Norton, Case No. 09-17091 (U.S. 9th Cir., March 1, 2011). 

D.      In an administrative action under antidiscrimination provisions of Uniformed Services Employment and Reemployment Rights Act of 1994, 38 U.S.C. § 4311, finding by Merit Systems Protection Board that petitioner abandoned his civilian career and thus waived his USERRA protections is vacated where finding is not supported by substantial evidence. Erickson v. United States Postal Service, Case No. 2010-3096 (U.S. Fed. Cir., February 28, 2011). 

8.      WOMAN POSES AS DEAD MOM FOR PENSION BENEFITS:   Desperate times call for desperate measures according to findlaw.com. That is the only excuse one can think of for dressing up as one’s dead mother and going to the bank to open an account to commit pension fraud. Loewen Craft is accused of doing just that, while wearing a gray wig and makeup intended to make her look older. Craft has now been charged with first-degree identity theft, criminal impersonation and multiple counts of forgery. Police say Craft fraudulently collected $145,000 in pension benefits from Chevron Oil under the name of Betty Becker, who died in 2007. While we do not want to give anybody ideas, it is interesting to hear about how this scheme was orchestrated. Apparently when Craft's mom needed to go to the hospital, she checked her in under a fake name. After her mom died at the hospital, Craft kept collecting pension checks under the name of her dead mother. Ultimately, Craft was set up as part of a sting operation, after an earlier visit caused suspicion. If you think someone has stolen your identity, file IRS Form 14039, which appears as the last page in the following link: http://bit.ly/fowCfo. Mama said there’d be days like this. 

9.      REMARKABLE QUOTES FROM REMARKABLE JEWS: I have enough money to last me the rest of my life unless I buy something.   Jackie Mason

10.    BLESSED ARE THE CRACKED, FOR THEY LET IN THE LIGHT:  A journey of a thousand miles begins with a cash advance. 

11.    PARAPROSDOKIAN: (A paraprosdokian is a figure of speech in which the latter part of a sentence or phrase is surprising or unexpected in a way that causes the reader or listener to reframe or reinterpret the first part. It is frequently used for humorous or dramatic effect.):   Evening news is where they begin with “Good evening,” and then proceed to tell you why it isn't. 

12.    QUOTE OF THE WEEK:    “No great man ever complains for want of opportunity.” Ralph Waldo Emerson

13.    KEEP THOSE CARDS AND LETTERS COMING: Several readers regularly supply us with suggestions or tips for newsletter items? Please feel free to send us or point us to matters you think would be of interest to our readers. Subject to editorial discretion, we may print them. Rest assured that we will not publish any names as referring sources. 

14.    PLEASE SHARE OUR NEWSLETTER: Our newsletter readership is not limited to the number of people who choose to enter a free subscription. Many pension board administrators provide hard copies in their meeting agenda. Other administrators forward the newsletter electronically to trustees. In any event, please tell those you feel may be interested that they can subscribe to their own free copy of the newsletter at http://www.cypen.com/subscribe.htm. Thank you. 

Copyright, 1996-2011, 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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