Cypen & Cypen
APRIL 20, 2006
Stephen H. Cypen, Esq., Editor
Following a sister court decision last month (see C&C Newsletter for April 6, 2006, Item 1), the Florida First District Court of Appeal, sitting en banc, has applied a domestic relations order to a public Deferred Retirement Option Program. A final judgment dissolving the parties’ 25-year marriage and distributing property ordered the former husband, a fully vested member of the City of Jacksonville pension plan, as follows:
Subsequently, the City created a Deferred Retirement Option Program, which the former husband joined. Pursuant to his participation in the DROP, the former husband was required to cease working for the City in January, 2005. The former wife claimed entitlement to her pro rata share of the DROP fund, cost-of-living adjustments and interest on her share in the DROP pursuant to terms of the final judgment. The former husband claimed she was barred from any entitlement to the DROP funds. The trial court agreed in part with both parties, because the former husband had, in effect, retired when he entered the DROP and was deferring only receipt of the retirement funds that otherwise would be received by him and the former wife. Therefore, the former wife was entitled to her pro rata share of such benefits, but not COLAS and interest benefits on the amount of DROP funds awarded to her. On appeal, a substantial majority of the full 15-member court reversed. A former spouse’s entitlement to a share in a DROP fund and to interest and COLAS on such funds had recently been addressed by another district court of appeal. The court agreed with those precedents: a portion of the former husband’s pension benefits belongs to the former wife. Therefore, the interest and cost-of-living adjustments that were applied to the former wife’s share, despite being in the former husband’s DROP account, should also belong to the former wife. The court did certify the following question to the Supreme Court of Florida as one of great public importance: “Is a spouse who is awarded a portion of the other spouse’s pension at the time of dissolution entitled to share in a DROP account created, including interest and COLAS, some time after the dissolution has become final?” Pullo v. Pullo, 31 Fla. L. Weekly D1069 (Fla. 1st DCA, April 13, 2006). Editorial Note: Again, we are disturbed at a court’s application of a domestic relations order to a public pension plan that is subject to an anti-alienation clause. This one is even more disturbing than last month’s decision, because it deals with a municipal plan and not the Florida Retirement System.
A private company, on behalf of California Public Employees’ Retirement System (CalPERS) and California State Teachers’ Retirement System (CalSTRS), the two largest public pension funds in the country, is developing a comprehensive data base of emerging managers and other financial service providers. Among other things, the systems’ goals include identifying a broad base of emerging financial service firms; developing a better understanding of the characteristics, trends, capabilities and untapped potential of such emerging firms; promoting information transparency in the emerging marketplace; providing a greater degree of diversity opportunities within the investment strategies of public and private pension funds; keeping plan sponsors exposure to a wide gambit of investment opportunities; and creating a comprehensive industry reference guide. Apparently, interested firms can join the database, before July 17, 2006, free. For more information, go to http://www.alturacap.com/index.aspx.
According to Plansponsor.com, former Illinois Governor George Ryan, who has the richest pension of any retired governor of the state, will keep collecting his $16,419.00 monthly pension until he is sentenced -- perhaps in August. The Chicago Sun-Times, reports that once Ryan is sentenced, the Illinois Attorney General must determine if Ryan’s crimes were related to his official duties before the state can stop his pension, as the state has done with several Cook County judges convicted of case-fixing. Ryan has 36 years of total service, and has been able to benefit from several pension benefits that Illinois lawmakers have passed over the years.
A recent report by the Pension Benefit Guaranty Corporation states that 9.4% of defined benefit plans are frozen. While many of the affected plans in the PBGC’s report had fewer than 100 participants, recent actions by Verizon, IBM and GM to freeze their defined benefit plans underscore the increased popularity of freezing among large companies. Although motivations and objectives of sponsors vary, most wish to eliminate the risk and volatility of db plans. Freezing eliminates the accrual of future benefits and often prompts a collective sigh of relief within the organization. But, according to a new piece from Mellon Asset Management, it should also generate new questions:
A frozen plan often leads management, analysts and others to believe that the risk of the DB plan has been mitigated, so it is time to move on to more important issues, but freezing a plan does not necessarily reduce a sponsor’s financial risk significantly. In fact, freezing a plan requires more, not fewer, decisions from the sponsor. Those decisions and their implementation can present the sponsor with a wide range of possibilities. In the Mellon paper, the authors offer a road map to help sponsors make the best choices for frozen pension plans.
The Associated Press reports that home loan giant Federal Home Loan Mortgage Corporation has agreed to pay a record $3.8 Million fine to settle allegations it made illegal campaign contributions. Because Freddie Mac agreed to pay the fine and stop breaking the law, the Federal Election Commission said it would not take further action against corporate officials. Freddie Mac was accused of illegally using corporate resources between 2000 and 2003 for 85 fundraisers that collected about $1.7 Million for federal candidates. Much of the fundraising benefitted members of the House Financial Services Committee, a panel whose decisions can affect Freddie Mac (what a surprise). Lobbyists told Freddie Mac officials that the fundraising effort was needed to help the corporation achieve its lobbying goals. The FEC also found that Freddie Mac officials used staff and resources to raise money from company employees to give to candidates, and that in 2002 the corporation itself gave $150,000.00 to the Republican Governors Association. Statutes ban federally chartered corporations like Freddie Mac from contributing to campaigns, and prohibit companies from using corporate resources and employees to help raise money for congressional and presidential candidates. This fine is the Commission’s largest since the FEC was created after the Watergate scandal. (The previous record was held by Audiovox, which in 2003 was fined $849,000.00.) Freddie Mac is one of the two largest U.S. buyers of home mortgages. Its campaign finance settlement comes after the corporation disclosed in June 2003 that it misstated earnings by $5 Billion for 2000-2002, bringing calls for tougher government oversight.
“Next to being shot at and missed,
nothing is really quite as satisfying as an income tax refund.”
F. J. Raymond
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