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Cypen & Cypen
APRIL 12, 2007

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


Claimant, a firefighter, passed a pre-employment physical examination without evidence of heart disease, hypertension or tuberculosis. In 2003, he was diagnosed with hypertension, and reached maximum medical improvement in 2004. As a result of the hypertension, claimant suffered a permanent physical impairment of between 1% and 10% of the body as a whole. If the claim were determined to be compensable, benefits would have been handled administratively. The issue was whether claimant’s permanent impairment for hypertension, standing alone, constituted a “disability,” so as to qualify for coverage under the Workers’ Compensation Act as an occupational disease pursuant to Section 440.151, Florida Statutes. The judge of compensation claims determined that claimant’s permanent impairment for hypertension, standing alone, constituted a disability under the Workers’ Compensation Act. On appeal, the ruling was reversed. In a 10-5 decision, the full District Court of Appeal held that claimant’s hypertension had not caused him to miss any work, thus he could not demonstrate an incapacity resulting in actual wage-loss. Without incapacity resulting in actual wage-loss, claimant cannot show disablement. Without disablement, claimant’s hypertension does not meet the statutory definition of an occupational disease. Without an occupational disease, claimant’s hypertension cannot be treated as the happening of an injury by accident. Without an injury by accident, a necessary prerequisite to applicability of Chapter 440, claimant’s hypertension is not covered under the Act. Without coverage under the Act, claimant is not eligible for benefits under Section 440.151(3), Florida Statutes. (One concurring judge suggested that the legal question posed may have limited practical significance in that it arose because the statutory presumption combined with the routine physical examination produced a “permanent impairment” in an employee who had not experienced symptoms.) City of Port Orange v. Sedacca, 32 Fla. L. Weekly D917 (Fla. 1st DCA, April 10, 2007) (en banc).


We have all read about cases where pension funds have erroneously made payments to “deceased” retirees. National Technical Information Service (part of the U.S. Department of Commerce, Technology Administration), working with Social Security Administration, has made available Social Security Administration’s Death Master File. The file is used by leading government, financial, investigative, credit reporting organizations, medical research and other industries to verify identity. as well as to prevent fraud and to comply with the U.S.A. Patriot Act. Pension funds can utilize the file to see if a pension payee is on the list of deceased persons. (Several of our pension board clients now utilize a private service to obtain the same information.) This product can be accessed at


As the above piece indicates, Social Security Administration’s Death Master File can be used to comply with the U.S.A. Patriot Act, which requires an effort to verify identity of customers, including procedures to verify customer identity and maintaining records of information used to verify identity. We’ll bet that most readers are not aware that U.S.A. Patriot Act is an acronym: Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001. Just a little something else to be learned by reading our Newsletter.


On March 23, 2007 Congressional Research Services issued its Report for Congress on financial health of the Pension Benefit Guaranty Corporation. PBGC is a federal government agency created by the Employee Retirement Income Security Act of 1974 to protect pensions of participants covered by most private sector, defined benefit pension plans. PBGC receives no appropriated funds. The agency’s costs are offset by assets of the plans that PBGC takes over and premiums paid by sponsors of covered pension plans. Premiums are established by Congress. The PBGC’s single-employer program posted an all-time high deficit of $23 Billion in 2004; as of September 30, 2006, the deficit was $18 Billion. PBGC discloses an additional, off-balance sheet liability for reasonably possible terminations; as of September 30, 2006, it was $73 Billion. Although PBGC’s net position (measured as assets minus liabilities) improved $5.2 Billion since 2004, it fell $31 Billion from 2001 to 2004. Many factors have contributed to PBGC’s worsening financial condition. Primary among them was termination of several large underfunded pension plans between 2002 and 2005 in the steel and airline industries. Plan terminations by airlines continue to threaten PBGC’s finances. Poor stock market returns (in 2001 and 2002) and falling interest rates also contributed to PBGC’s recent problems. As PBGC’s condition worsened, Congress and the Administration considered reforms to address salient issues. On August 17, 2006, the President signed the Pension Protection Act of 2006 (P.L. 109-280). The Act has been called the most comprehensive reform of the nation’s pension laws since enactment of ERISA. It establishes new rules that strengthen funding requirements for most plans; however, it provides funding relief for plans sponsored by commercial airlines. It also includes reforms that affect cash balance plans, defined contribution plans and other forms of deferred compensation. Even though PBGC currently receives no appropriations, many expect that because it insures pensions of 44 million Americans, its failure could require a taxpayer funded bailout. The Government Accountability Office added PBGC’s single-employer insurance program to its list of high-risk areas in July of 2003. As of January 2007, it remains on GAO’s list because of its high deficit and because the ultimate impact of recent reforms on PBGC’s finances is unclear.


United States Government Accountability Office has issued its Strategic Plan for 2007-2012. In keeping with GAO’s commitment to update its Strategic Plan at least once every three years, consistent with the Government Performance and Results Act, the Strategic Plan describes GAO’s proposed goals and strategies for serving Congress for fiscal years 2007 through 2012. As expected, with Congress and the nation facing such challenges as the large and growing long-term fiscal imbalance and increased concerns about meeting health care needs of American citizens, the plan includes bodies of work that address anticipated requests for evaluations of those and other major issues. In addition, the plan covers anticipated work related to major government transformation efforts, especially in areas of homeland security and defense. GAO finds disturbing our nation’s long-range fiscal outlook, which remains unsustainable given existing federal commitments and the challenges of caring for a growing elderly population. Consequently, policy makers will be increasingly required to judge what the nation can afford, both now and in the future. There are new expectations about quality of life for Americans and the ways of measuring the nation’s position and progress. Broad goals and objectives of the plan have not altered dramatically since the last one, but events such as the continuing war in Iraq and recent and predicted national disorders account for some modifications and emphasis. GAO has retained its goal of becoming a model agency and world-class professional services organization -- a goal that remains as vital as ever.


And speaking about GAO, just exactly what is it? Formerly known as United States General Accounting Office, the United States Government Accountability Office exists to support Congress in meeting its constitutional responsibilities and to help performance and insure accountability of the federal government for benefit of the American people. Through the Budget and Accounting Act of 1921, Congress established GAO with the broad role of investigating “all matters relating to the receipt, disbursement, and application of public funds” and to “make recommendations looking to greater economy or efficiency in public expenditures.” Since World War II, Congress has clarified and expanded that original charter in the following ways:

  • The Government Corporation Control Act of 1945 provided GAO authority to audit the financial transactions of government corporations.
  • The Budget and Accounting Procedures Act of 1950 assigned GAO responsibility for establishing accounting standards for the federal government and carrying out audits of internal controls and financial management.
  • The Legislative Reorganization Act of 1970 expressly authorized GAO to conduct program evaluations and analyses of a broad range of federal activities.
  • The General Accounting Office Act of 1980 reiterated GAO’s authority to obtain agency and other records needed for its investigations and evaluations and added authority for GAO to enforce its access rights in court.
  • The Chief Financial Officers Act of 1990 and the Government Management Reform Act of 1994 authorized GAO to audit agencies’ financial statements and annually audit consolidated financial statements of the United States.
  • Numerous other laws complement GAO’s basic audit and evaluation authorities, including the Congressional Budget and Impoundment Control Act of 1974, which provided for GAO review of reported or unreported impoundments; the Inspector General Act of 1978, which provided for GAO-established standards for audit of federal programs and activities; and the Competition in Contracting Act of 1984, which provided for GAO’s review of protested federal contracting actions.

GAO implements its statutory responsibilities by engaging in a range of oversight, insight and foresight activities that span the full breadth and scope of federal activities and programs. GAO publishes thousands of reports and other documents annually and provides a number of other related services. By making recommendations to improve practices and operations of government agencies, GAO contributes not only to the increased effectiveness and accountability for federal spending, but also to enhancement of the taxpayers’ trust and confidence in the federal government. GAO also looks at national and international trends and challenges to anticipate their implications for public policy.


On April 5, 2007, Department of the Treasury, Internal Revenue Service, issued final regulations under Section 415 of the Internal Revenue Code, removing temporary regulations. Entitled “Limitations on Benefits and Contributions Under Qualified Plans,” the document contains final regulations under Section 415 of the Internal Revenue Code regarding limitations of Section 415, including updates of the regulations for numerous statutory changes since comprehensive final regulations were last published under Section 415. The final regulations also make conforming changes to regulations under Sections 401(a), 401(a)(9), 401(k), 402, 416 and 457, and make other minor corrective changes to regulations under Sections 401(a)(4), 414(s), 457 and 924. The regulations affect administrators of, participants in and beneficiaries of qualified employer plans and certain other retirement plans. The regulations are effective April 5, 2007, and generally apply for limitation years beginning on or after July 1, 2007. Section 415 was added to the Internal Revenue Code by the Employee Retirement Income Security Act of 1974, and has been amended many times since then. Section 415 provides a series of limits on benefits under qualified defined benefit plans and on contributions and other additions under qualified defined contribution plans. Comprehensive regulations regarding Section 415 were last issued in 1981. Final regulations are published in the Federal Register, Volume 72, Number 65, April 5, 2007.


Fast on the heels of the report that New Jersey had diverted billions from its pension funds (see C&C Newsletter for April 5, 2007, Item 2), the Governor has said he would ask independent auditors to examine state financial records to determine how severely the pension fund has been jeopardized by underfunding. In a rather incredible statement, reported by the New York Times, the Governor said the state did not have auditors who were qualified to conduct a thorough examination of the fund! (Gee, that’s encouraging.) However, the Governor did say something upbeat: Whatever the figure is, the shortfall must be closed. Bravo on that point.


According to, a proposal to sweeten legislative pensions was among the casualties as New Mexico Governor Bill Richardson wielded his veto pen. The legislators’ pension change was tucked into two separate bills placing earnings caps on state and local government retirees who return to work in government jobs. The vetoed bills would have changed the formula for calculating lawmakers’ pensions, resulting in increased benefits for them. Although Richardson didn’t mention the lawmakers’ pension portion of the bills in his veto message, he did complain that the bills contained conflicting approaches to the retiree return-to-work problem, and did not provide a clear consistent view of how to improve the state’s retirement policy.


The Journal of Financial Planning, official publication of the Financial Planning Association, has presented national savings rate guidelines for individuals. Co-authored by the legendary Roger Ibbotson, the study creates savings guidelines for typical individuals with different ages, income levels and initial accumulated wealth, so the public can more easily determine how much to save for retirement. It also creates benchmarks for how much capital an individual would have accumulated based upon his income and age, with the presumption that he started saving at age 35. Additionally, it shows targets for how much individuals should have accumulated at age 65, prior to retiring. The authors recommend that their findings be adopted as national savings guidelines. The study differs from previous savings studies in several important ways. Perhaps most key is that the savings guidelines and capital needs are calculated on retirement income as a percent of net pre-retirement income -- gross income minus actual retirement savings in pre-retirement. The study also uses Monte Carlo simulations and Ibbotson Associates’ forecasted returns to calculate capital required for retirement. The article calculates retirement cash flow using an 80 percent replacement ratio of pre-tax pre-retirement net income for a single person, along with other assumptions. As a comparison, it shows the difference in savings required for 60 and 80 percent replacement ratios without pre-retirement net income approach. The study takes into account Social Security benefits, and shows that higher-income individuals need to save at substantially higher rates in order to offset the impact of Social Security benefits being skewed to lower-income individuals. The study shows the urgency of starting to save no later than age 35. It also suggests that those whose income increases faster than inflation will have to save an increasing amount to “catch up” so as to be able to provide for higher assumed standard of living in retirement. A full copy of the study can be accessed at


“In matters of principle, stand like a rock; in matters of taste, swim with the current.” Thomas Jefferson


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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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