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Cypen & Cypen
APRIL 10, 2008

Stephen H. Cypen, Esq., Editor


Fulton County (Georgia) Daily Report, via, reports that a highly paid former regional manager at Chase Manhattan Mortgage Corp. has won a federal jury verdict of more than $2.2 Million in an employment discrimination suit alleging violations of the Family and Medical Leave Act. Once liquidated damages equal to amount of the verdict and prejudgment interest are added in, as mandated under FMLA, the former employee’s recovery could reach $7.6 Million. The decision ends four years of litigation that went beyond whether Nicholas Lore had a serious health condition meriting time off under FMLA. The parties fought over whether he quit his $600,000-a-year job or was fired, and whether Chase retaliated against him for bringing the action. Ultimately, Lore was diagnosed with prostate disease that required radiation therapy. Although Chase filed a counterclaim accusing Lore of stealing trade secrets (and the court entered summary judgment against him on that issue), the jury declined to award Chase any damages! The case is Lore v. Chase Manhattan Corp., Case No. 1-04-cv-0204 (N.D. Ga., 2008).


Upon dissolution of marriage, the trial judge failed to award the wife any portion of the husband’s pension under the Florida Retirement System, concluding that it was of “nominal” value. At trial, wife submitted evidence of a “retirement forecast” document prepared by FRS, which stated that, as of December 2004, the husband’s current FRS balance was $17,438. The document noted that the current FRS balance “is the present value of accrued FRS benefit given current years of service.” Although the trial court would have been within its discretion to value the pension at an amount lower than $17,438 to account for the fact that the pension was not yet vested, the trial court was not free to ascribe a nominal value to the FRS pension. Finding that the trial court’s decision to assign a nominal value to husband’s FRS pension was not reasonable or equitable, the final judgment was reversed on that point. Bardowell v. Bardowell, Case No. 4D06-972 (Fla. 4th DCA, March 5, 2008).


Tom Herndon was Executive Director of the Florida State Board of Administration, which manages $125 Billion of investments, including pension fund assets of the Florida Retirement System. In an opinion piece appearing in, Herndon writes that Florida’s model retirement plan should be praised. In these times of extreme budget shortfalls, a pay raise for those who are arguably Florida’s most deserving public servants -- our teachers -- will probably be hard to achieve. But teachers could get the equivalent of a pay raise in form of more money for retirement, thanks to a unique, collaborative endeavor by Florida’s four leading education organizations. All Florida school districts must change their tax-deferred retirement plans by January 1, 2009. That requirement has created a window of opportunity to solve a long-standing problem and ensure that teachers get a far better deal on retirement funds than they are currently getting. The next step is up to Florida’s 67 individual school districts, which each must decide whether to adopt the “Model Retirement Plan” recently negotiated by the “Big Four:” the Florida Education Association, the Florida Association of School Administrators, the Florida School Boards Association and the Florida Association of District School Superintendents. Up until now, school employees across the nation have paid unreasonably high fees for their tax-deferred retirement savings plans, known as 403(b) and 457 plans. In part, this situation exists because educators have been faced with a daunting array of choices, more than 150 in all, as plans suffered from little oversight. Now, for the first time, the collective purchasing power of the state’s 350,000 school workers has been brought to bear, driving down fees and getting educators a better deal. The four education groups, working in a historic and effective collaboration, created a competitive negotiation process through which companies offering these plans were invited to submit their best offers. The result is a deal that no individual teacher or even district could get on its own. If adopted by school districts, the model plan could save billions, and allow educators to save 30% more toward their retirement. Over the next few months, school districts will decide whether to offer the model plan or negotiate their own plans, but maintaining the status quo is not an option. When new IRS regulations take effect next January, local school districts will be required to exercise greater supervision over the plans they offer. Thus, districts that go it alone will face a much greater administrative workload. While every state will be scrambling to figure out how to comply with new IRS requirements, Florida exerted an unprecedented level of leadership to come up with a solution that truly benefits school employees in school districts. It just goes to show what is possible when leaders of Florida‘s education community roll up their sleeves and work together. Good job.


Immigration is good for the financial health of Social Security, because more workers mean more tax revenue, or so says an editorial in the New York Times. Illegal immigration, as it turns out, is even better than legal immigration. In fine print of the recently-released 2008 annual report on Social Security (see C&C Newsletter for March 27, 2008, Item 3), the Trustees noted that growing numbers of “other than legal” workers are expected to bolster the program over the coming decades. One reason is that many undocumented workers pay taxes during their lives but do not collect benefits later. Another is that undocumented workers are entering the United States at ever younger ages, and are expected to have more children while they are here than if they arrived at later ages. The result is a substantial increase in the number of working-age people paying taxes, but a relatively smaller increase in number of retirees who receive benefits -- a double boon to Social Security’s bottom line. And we are not talking chump-change here. According to the report, taxes paid by other-than-legal immigrants will close 15% of the system’s projected long-term deficit. That number is equivalent to raising payroll taxes by .3%. The editorial does not suggest that illegal immigration is a legitimate fix to Social Security’s problems. It is, however, another reminder of the nation’s complex relationship with undocumented workers. Would the people who want to deport all undocumented workers be willing to make up the difference and pay the taxes that the undocumenteds are currently paying? The point is that Social Security is adaptable to the 21st Century, but only if the political will can be found to champion necessary changes. These changes include modest tax increases and moderate benefit cuts that could be phased in over the decades, provided the country gets started soon. Presidential candidates listen up, please.


Unclaimed refunds totaling approximately $1.2 Billion are awaiting about 1.3 million people who failed to file a federal income tax return for 2004. However, to collect the money, a return for 2004 must be filed with IRS no later than April 15, 2008. Those due a refund who did not file a 2004 tax return could collect even more money by also filing a 2007 tax return to claim the economic stimulus payment. To receive the latter payment, taxpayers must have a valid Social Security number, $3,000 of qualifying income and file a 2007 federal tax return. Millions of retirees, disabled veterans and low-wage workers who usually are exempt from filing a tax return must do so this year in order to receive the stimulus payment. Eligible people will receive up to $600 ($1,200 for married couples), and parents will receive an additional $300 for each eligible child younger than 17. Back to the refunds, IRS estimates that half of those who could claim refunds for 2004 would receive more than $552. Incidentally, in Florida there is over $100 Million awaiting 93,900 people, a state average of $528. IR-2008-046 (March 19, 2008).


On March 6, 2008 the United States Court of Appeals for the federal circuit ruled that payments qualifying as supplemental unemployment benefits are wages for FICA purposes. In so ruling, the appellate court reversed the court of federal claims holding that certain termination payments are not subject to FICA because they were supplemental unemployment compensation as defined in IRC Section 3402(o). The higher court rejected the taxpayer’s argument that because IRC Section 3402(o) provides that all supplemental unemployment benefits must be “treated as if” they were payments of wages, the section necessarily implies that the payments are not in fact wages. The text of the code does not require that FICA be interpreted to exclude from wages all payments that would satisfy the statutory definition. This piece is adapted from Deloitte’s Washington Bulletin.


The Internal Revenue Service reminds taxpayers who owe, but cannot pay in full, that several options are available to help them meet their tax obligations and save money by the April 15 filing deadline. Taxpayers should file their return on time, pay as much as they can with their return and use if they need to request a payment agreement. Interest and penalties add up for people who do not file and pay on time. But taxpayers can limit these charges by filing on time and paying. Although interest, currently at the rate of 6% per annum and late payment penalties, normally .5% per month, apply to tax paid after the April 15 deadline, taxpayers can limit these charges by paying sooner. In addition, by filing on time, a taxpayer avoids the much larger 5-percent-per-month late-filing penalty. For example, a taxpayer who files on May 1, owing $1,000 in taxes, would be charged interest plus a $50 penalty. Hardly worth it. IR-2008-056 (April 7, 2008).


Kubek brought suit against a number of defendants, including the Teachers’ Retirement System of Alabama and its Chief Executive Officer. She alleged that defendants played a role in depriving her of benefits under her deceased ex-husband’s retirement or life-insurance policies. She brought federal due process claims under the Fourteenth Amendment to the United States Constitution. On defendants’ motions to dismiss, the United States district judge entered judgment against plaintiff because her federal claims against RSA were protected by the Eleventh Amendment. That amendment protects not only actions in which a state is actually named as defendant, but also in certain actions against state agents and state instrumentalities. RSA is a state agency, immune from suit in federal court without its consent. RSA’s Chief Executive Officer could not be sued in his individual capacity, under the well-established rule that supervisory officials are not liable for the unconstitutional act of their subordinates. Supervisory liability attaches only when the supervisor actively participates in the unconstitutional conduct or when the supervisor’s actions or omissions are causally connected to the constitutional violation. Plaintiff alleged no active participation or causal connection for the individual defendant. Furthermore, RSA’s Chief Executive Officer is protected by qualified immunity. Because plaintiff did not allege facts sufficient to demonstrate that the Chief Executive Officer violated a constitutional right, it follows the right she asserts was violated was not clearly established. Kubek v. Teachers’ Retirement System of Alabama, Case No. 2:04cv29 (M.D. Ala., March 13, 2008).


Last year, the Supreme Court of New Jersey considered the statutory requirement that a member’s disability must be the direct result of a traumatic event to qualify for accidental disability retirement from the State Police Retirement System or the Police and Firemen’s Retirement System (the provisions of which are substantially similar). The court then rejected a line of cases interpreting the terms traumatic event to require that the member’s injury be caused by a great rush of force or uncontrollable power. Instead, the court held that the member must show, in part, that disability was the direct result of an event that was identifiable as to time and place, undesigned and unexpected, and caused by a circumstance external to the member. Now, in three consolidated cases, the Supreme Court of New Jersey was called upon to consider applicability of its 2007 decision, which involved a physical injury to the member, to appeals by members who suffered mental-mental disabilities, and were denied accidental disability retirement on grounds that disability was not caused by a traumatic event. Briefly, Patterson claimed persistent verbal abuse by his sergeant, which caused him to fear physical violence. Moore was subjected to racially-motivated abuse by fellow state police officers. Guadagno asserted that during his employment as a correctional officer an inmate threatened to kill him, his wife and his daughter. The Supreme Court of New Jersey has held that a member of the State Police Retirement System or the Police and Firemen’s Retirement System who suffers from a permanent and total mental disability as a result of a mental stressor, without any physical impact, is entitled to accidental disability retirement if the disability was a direct result of the mental stressor that was identifiable as to time and place, that was undesigned and unexpected, that was external to the member (not result of a pre-existing disease aggravated or accelerated by work, that occurred during and as a result of the member’s duties and that was not the result of the member’s wilful negligence. Additionally, the disability must result from direct personal experience of a terrifying or horror-inducing event that involve actual or threatened death or serious injury, or a similarly serious theat to the physical integrity of the member or another person. (We are stressed just reading the case.) Patterson v. Board of Trustees, State Police Retirement System, Case No. A-99-05 (N.J., March 11, 2008).


Following up our last light-hearted piece on subprime mortgages (see C&C Newsletter for February 28, 2008, Item 6), we came across another satirical piece on how the markets really work. If you have about nine minutes in your busy schedule for some sophisticated humor, check out Cheerio.


“The most important thing in a relationship between a man and woman is that one of them be good at taking orders.” Linda Festa

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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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