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Cypen & Cypen
APRIL 14, 2005

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


In Erie County Retiree Association v. County of Erie, 220 F.3d 193 (3rd Cir. 2000), the court of appeals held that it was clear from the face of ADEA, as amended by OWBPA, that prohibitions against age discrimination apply to the practice of reducing retiree health benefits when retirees become eligible for Medicare (see C&C Newsletter for September, 2000, Item 14). In response, the Republican-controlled Equal Employment Opportunity Commission voted on April 22, 2004 to approve a rule that would allow employers to reduce or eliminate health benefits for such retirees (see C&C Newsletter for May 12, 2004, Item 6). AARP announced that it would challenge EEOC’s authority to grant the exemption (see C&C Newsletter for June 8, 2004, Item 4), despite NCPERS’ position to the contrary (see C&C Newsletter for June 11, 2004, Item 4). A federal trial court has granted AARP’s motion for summary judgment, invalidating the rule/exemption. There is a two-step approach to judicial review of agency interpretation of acts of Congress. First, the reviewing court must determine whether Congress expressed a clear and unambiguous intent in the statute concerning the precise question at issue. If congressional intent is clear and unambiguous, then that intent is the law and must be given effect. If the statute is silent or ambiguous with respect to the specific issue, the court proceeds to determine whether the agency’s interpretation is based on a “permissible construction” of the statute. Here, the Third Circuit has already determined that Congress expressed a clear and unambiguous intent with regard to the precise question at issue, thus making the second step unnecessary. The Third Circuit’s decision in Erie County held that ADEA prohibits the very practice EEOC’s exemption would allow. AARP v. Equal Employment Opportunity Commission, Case No. 05-CV-509 (ED Pa., March , 2005).

2. NYCERS EMPLOYEES DO NOT MAKE NICE: reports that two separate scandals have rocked the New York City Employee Retirement System. The Executive Director has been forced to leave after it was revealed that he had promoted his mistress to a $100,000 per year supervisory job during their affair. (Both were married at the time.) In a separate probe, investigators found that a clerk had stolen $1,000,000 between 2002 and 2004 through forged checks. He has been indicted on federal charges of conspiracy and bank fraud, to which he and his three outside alleged accomplices have pleaded not guilty.


Having been advised that two city employees might be subject to discipline, a city’s assistant labor attorney interviewed two co-workers. The assistant’s notes consisted of a summary of information gathered from potential witnesses. As a result of the interviews, a disciplinary action form was prepared and the employees were disciplined. The disciplinary action form did not contain all the information included in the notes, most significantly the names of the witnesses. The notes were reviewed by the labor attorney and were filed after preparation of the disciplinary form. When the employees’ union requested a copy of the notes, the labor attorney requested an Attorney General’s Opinion. Noting the breadth of Florida’s Public Records Law, Chapter 119, Florida Statutes, the Attorney General concluded that handwritten notes prepared by the assistant labor attorney during interviews with city personnel are public records when they are made to perpetuate and formalize knowledge and to communicate that information to the city’s labor attorney. (In contrast, it is only uncirculated materials that are not in and of themselves intended to serve as final evidence of knowledge to be recorded that fall outside the definition of public record.) Further, a limited exemption from disclosure of public records contained in Section 119.07(6)(l)1, Florida Statutes, does not apply for two reasons: (1) attorney notes must be prepared exclusively for or in anticipation of litigation or adversarial administrative proceedings and (2) those records must reflect a mental impression, conclusion, litigation strategy or legal theory of the attorney. According to the Attorney General, both were absent here. AGO 2005-23 (April 5, 2005). We think the Attorney General may have partially missed the boat on this one: it is hard to imagine that the subject attorney’s notes did not reflect, at least, a “mental impression.” Regardless, the bottom line of the opinion would not be changed, because the statutory exemption requires that both criteria be satisfied.


Prior to 2002, Section 112.18(1), Florida Statutes, provided that any condition or impairment of health of any Florida state law enforcement officer caused by tuberculosis, heart disease or hypertension resulting in total or partial disability or death shall be presumed to have been accidental and to have been suffered in line of duty, unless the contrary be shown by competent evidence. Effective July 1, 2002, Chapter 2002-236 deleted the “state” requirement, substituted the word “any” and added correctional officers. Prior to the amendment, a county sheriff suffered a stroke caused by hypertension. In the officer’s claim for workers’ compensation, the judge found that the officer was not entitled to a presumption under the old statute and that the new statute did not apply to him. On appeal, however, the court agreed with the officer’s argument that the 2002 amendment was a procedural enactment and should apply retroactively without regard to date of accident or injury. The amendment changed only the procedure of establishing entitlement to workers’ compensation benefits. The officer’s substantive right to those benefits, or lack thereof, remained unchanged since the date of his stroke. Because the lower court obviously did not address whether the county had rebutted the presumption with competent evidence, the matter was remanded for such determination. Seminole County Sheriff’s Office v. Johnson, 30 Fla. L. Weekly D826 (Fla. 1st DCA, March 24, 2005).


Milliman Inc. has completed its fifth annual study of financial reports of 100 large U.S. corporations that sponsor defined benefit pension plans. As a group, these companies have pension plan assets of more than $1 Trillion. The study dealt with the funded status of these defined benefit pension plans and the impact of them on corporate earnings. Here are some highlights:

  • The average actual investment return on pension assets for 2004 was 12.4%, in excess of expected rates of return for the second consecutive year. During 2004, the plans earned $31.4 Billion more than the expected rate of return, which averaged 8.49%.
  • The funded status of pension plans improved only slightly during 2004, as strong asset returns were offset by liability increases due to lower discount rates. Although the aggregate pension deficit decreased by $10.4 Billion during 2004, the improvement was less than 25% of the $45.3 Billion gain in funded status the previous year.
  • Pension expense increased by $4.1 Billion during 2004, producing an aggregate pension expense of $18.3 Billion in 2004, compared with pension costs of $14.2 Billion for 2003 and pension income of $4.2 Billion in 2002. Only 16 companies continued to report pension income during 2004, down from 24 in 2003, 42 in 2002 and 55 in 2001.
  • Discount rates used to measure plan liabilities continued to decline, increasing liabilities and partially offsetting asset gains. Discount rate dropped for the fourth consecutive year to a median of 5.75% at the end of 2004 from 6.11% in 2003, 6.75% in 2002, 7.25% in 2001 and 7.50% in 2000.
  • One-third of companies lowered their expected rate of return on plan assets during 2004 after three-fourths lowered the rate in 2003. The median expected rate of return in 2004 was 8.5%, down 100 basis points from the median expected rate of return of 9.50% used for 2000. The highest expected rate of return used for 2004 was 9.6%, down from the highest for 2003 of 10.4%, after dropping steadily from the highest expected rate of return of 11.5% in 2000.

Companies will need to pay closer attention to their contribution strategy and their pension assumptions. During 2004, pension funding continued its return to the “base line.” The overfunded status of these plans during the 1990s was a temporary anomaly.


Pay and benefits costs for state and local government workers were 46% higher last year than private-sector employees, according to a new study by Employee Benefit Research Institute, but the nature of the jobs and skills also differ sharply. Cost of state and local government workers’ pay was 40% higher than for private-sector workers and was 60% higher for benefits, like health care and retirement. One key reason for the difference in total compensation costs -- wages, salaries, employee benefits -- is composition of the respective work forces. A large portion of state and local government workers is concentrated in occupations such as teachers, police officers and firefighters, which require higher levels of education or involve greater physical risk and training, and tend to be more highly paid. By comparison, the largest percentages of private-sector workers are in sales and office occupations, which require less education, are more sedentary and tend to be paid less. The study also contained the following additional findings:

  • More than half of all state and local government employees worked in the education sector. By contrast, the largest concentration of private-sector workers was in services, trade, transportation and utilities.
  • State and local government workers are more highly unionized than private-sector employees, and thus more likely to receive higher pay. Last year, 37% of state and local workers were members of a union, compared with 8% of private-sector employees.
  • Among full-time state and local government employees, 86% participated in health insurance coverage in 1998 (the latest year available), compared with 66% of private-sector workers in 2003.
  • Virtually all full-time state and local government workers participated in some retirement and savings plan in 1998, compared with 60% of full-time employees in the private sector in 2004.


On April 11, 2005 the Alaska State Senate passed the Retirement Security Act, which reforms the state’s public employee and teacher retirement systems. The legislation is designed to address the $5.7 Billion shortfall in the retirement systems and to give future public employees more control over their retirement accounts. The bill creates a new defined contribution plan for future public employees, similar to the 401(k) plans currently used by millions of American workers. The defined contribution plan supposedly gives employees greater control over their investment choices and purportedly gives them the ability to take their retirement account with them if they choose to leave state service before reaching retirement age. (Unfortunately, studies show that most people are not equipped to handle the important investment decisions associated with self-directed accounts. See C&C Newsletter for April 7, 2005, Item 6.) One good thing in the proposed law: it creates health reimbursement accounts, to help retirees pay out-of-pocket medical expenses. The employer funds the accounts over the working lifetime of public employees. Reimbursements are tax-free and unlimited until the retiree’s account balance is exhausted. The Retirement Security Act now moves to the Alaska State House.


According to a piece from The Associated Press, the West Virginia House of Delegates overwhelmingly voted last month to shut down the state’s only retirement plan based on personal investment accounts. The bill, which advances to the Senate, would send all new hires into the state’s older Teachers Retirement System. It would also allow the over-20,000 teachers now with personal accounts to vote next March on whether to merge their funds into the TRS defined benefit plan. The Mountain State began offering personal investment accounts for teachers in 1991, after it closed TRS to enrollees to arrest the program’s chronic funding problems. But state law makers recently passed a proposal to erase the $5 Billion shortfall through sale of bonds, which are scheduled to be voted on at a special election this June. The individual accounts have proved unpopular with West Virginia teachers. Complaints racked up against the private firm hired to educate teachers about investing and to help them with their accounts. The recent stock market slump compounded the problem, spurring a push to reopen TRS.

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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.

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