Cypen & Cypen   Miami
Home Attorney Profiles Clients Resource Links Newsletters navigation
825 Arthur Godfrey Road
Miami Beach, Florida 33140

Telephone 305.532.3200
Telecopier 305.535.0050

Click here for a
free subscription
to our newsletter

Cypen building

Cypen & Cypen
APRIL 22, 2004

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


In Field Assistance Bulletin 2002-3, the U.S. Department of Labor framed the following issue: “What does a fiduciary need to consider in evaluating the reasonableness of an agreement under which the service provider will be retaining ‘float’ and what information is a service provider required to disclose to plan fiduciaries with respect to such arrangements in order to avoid engaging in a prohibited transaction?” Although the issue deals specifically with ERISA and statutorily-prohibited transactions, the advice is nevertheless valuable to public plan trustees. Many financial services providers acting as non-discretionary directed custodians maintain general accounts to facilitate transactions of employee benefit plans. The service provider may retain earnings -- “float” -- resulting from anticipated short-term investment of funds held in such accounts. Typically, these accounts hold contributions and other assets pending investment directions from plan fiduciaries. In addition, fiduciaries transfer funds to a general account of the financial institution in connection with issuance of checks to make plan distributions or other disbursements. Funds are then held in the account, earning interest, until checks are presented for payment. In connection with the service agreement pursuant to which the service provider may be retaining the float as part of its compensation, the Department recommends that the service provider take the following steps:

A. Disclose the specific circumstances under which the float will be earned and retained.

B. In case of the float on contributions pending investment direction, establish, disclose and adhere to specific time frames within which cash pending investment direction will be invested following direction from the fiduciary, as well as any exceptions that might apply.

C. In case of the float on distributions, disclose when the float period commences (for example, the date check is requested, the date check is written, the date check is mailed) and ends (e.g., the date on which the check is presented for payment). Also, disclose and adhere to time frames for mailing and any other administrative practice that might affect the duration of the float period.

D. Disclose the rate of the float or the specific manner in which such rate will be determined. For example, earnings on cash pending investment and earnings on uncashed checks are generally at a money market interest rate.

In short, the float should be considered by trustees and custodians as part of the custodian’s compensation for services rendered to the plan. As such, trustees must have an adequate understanding of how the service provider will earn the float and how it contributes to the service provider’s compensation.

Almost two years ago the Florida Division of Retirement offered tutorials on how to make choices and giving employees the chance to switch from safety of the traditional defined benefit plan to the risk and rewards of a defined contribution system. Although State officials expected a 25% to 30% enrollment in the new vehicle, less than 5% have gone the DC route. Not only did more than 95% stay in the DB plan, 7 out of 10 didn’t even make a choice; they simply “defaulted” into staying put by ignoring the whole thing! However, new hires found the DC option more popular: 12% opted for the DC plan. DC participants are offered a wide range of pension options, including stocks and “bundled products.” A study in Nebraska found that employees in the optional DC plan averaged a 6% return on investments from 1983 to 1999, while the state’s professionally-managed defined benefit plan posted an 11% return. Don’t just do something -- stand there.

The Financial Accounting Standards Board and the International Accounting Standards Board will consider a study on whether to adopt a mark-to-market standard in place of the widely used “smoothing” technique. Although adoption of a new rule is uncertain, according to, actuaries and pension advisers are already complaining that the change would make financial statements far more volatile. Among other things, opponents believe marking pension assets to market is inappropriate, considering the long-term nature of pension investments. Besides, a shift to mark-to-market could push companies to phase out traditional defined benefit plans or prompt a stampede by pension plans out of equities and into bonds (with the attendant reduction in earning assumptions). That would not make for smooth sailing. Hopefully, the Government Accounting Standards Board will not follow suit.

U.S. Secretary of Labor Elaine L. Chao has announced the final regulations governing overtime eligibility for “white-collar” workers under the Fair Labor Standards Act. The regulations had not been substantially updated for over fifty years, creating confusion for workers and employers, generating wasteful class action litigation and failing effectively to protect workers’ pay rights. The new rules expand the number of workers eligible for overtime by nearly tripling the salary threshold. Under the old regulations, only workers earning less than $8,060 annually were guaranteed overtime. Under the new rules, workers earning $23,660 or less are guaranteed overtime, strengthening protection for some 6.7 million low-wage salaried workers (including 1.3 million salaried white-collar workers who are not entitled to overtime pay under the existing regulations). These workers should gain up to $375 million in additional earnings per year. Further, the rules now clearly state that “blue-collar” workers, police officers, fire fighters, paramedics, emergency medical technicians and licensed practical nurses are entitled to overtime protection.

A man who dropped in to State Patrol headquarters to inquire about a job didn’t get what he wanted, according to Associated Press. He did, however, learn how a hand-held alcohol tester works. Robert Gulley, 25, walked into Patrol headquarters, requesting an application for employment. He was slurring his words, had glassy eyes and reeked of alcohol. When a trooper told Gulley it wasn’t a great idea to apply to be a trooper while intoxicated, Gulley denied drinking. Another trooper offered to measure Gulley’s blood alcohol level with a hand-held breath tester. Gulley blew over the state’s legal limit, indicating he’d had at least three drinks. After troopers warned Gulley not to drive, he got into his car and sped off. He was promptly pulled over and ticketed. “I actually still want to join the police department. Those guys are doing their job keeping the roads safe.” But one state trooper believes Gulley’s career prospects with the Patrol appear dim: “I guarantee he’s not going to get a job with us. We’ve arrested drunks in unexpected ways and places before, but this one just blew me away.” (“Blew me away?” Is that supposed to be a play-on-words?).

Copyright, 1996-2004, 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.

Site Directory:
Home // Attorney Profiles // Clients // Resource Links // Newsletters