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Cypen & Cypen
APRIL 21, 2011

Stephen H. Cypen, Esq., Editor

1.      CalPERS ADOPTS FEDERAL LEGISLATIVE PRIORITIES, UNDERSCORING COMMITMENT TO DEFINED BENEFIT PLANS: California Public Employees’ Retirement System Board of Administration recently adopted a set of federal legislative policy priorities that underscores the Fund’s commitment to preserving defined benefit retirement plans. The priorities -- that will serve as a road map for advancing CalPERS federal governmental goals on retirement -- outline CalPERS positions on retirement benefits, funding/accountability of pension plans and Social Security. CalPERS priorities call for the Fund to support: 

  • Defined benefit retirement plans that provide sound income replacement in retirement through shared employee and employer responsibility
  • Expanded opportunities for workers to have access to a defined benefit pension plan
  • Tax policies that encourage preservation of pension plans and retirement savings accounts by allowing deferral of taxation of contributions and earnings until benefits are paid in retirement
  • Policies that ensure the highest level of integrity and accountability in administration of supplemental retirement accounts and elements such as fee disclosures
  • Policies that report public pension liabilities that reflect the long-term nature of public employee retirement plans
  • Accounting standards that preserve the link between accounting and funding, such as portfolio diversification, smoothing of investment gains/losses and managing growth of liabilities to minimize contributions volatility, including support of Governmental Accounting Standards Board
  • Policies extending long-term solvency of the Social Security system without reducing benefits for CalPERS members and other Americans

CalPERS priorities call for the Fund to oppose: 

  • Mandates on pension plan design features or policies that would undermine defined benefit plans
  • Legislation that would establish mandates requiring specific funding, accounting or actuarial standards for State and local pension plans

According to research conducted by National Institute for Retirement Security, more than 80 percent of Americans believe that the recent economic downturn exposed risks of America’s retirement system. Nearly three-quarters of Americans believe stock market volatility makes it impossible to predict how much the average American will have in his nest-egg upon retirement. For your information, CalPERS is the nation’s largest pension fund, with approximately $235 Billion in assets.  It administers retirement benefits for more than 1.6 million active and retired state, public school and local public employees and their families, and health benefits for 1.3 million enrollees. 

2.      BOOMERS CANNOT AFFORD ANOTHER MARKET DOWNTURN: The stunning decline in property values across most of the country, a prolonged recession and plain-old negligence and shortsightedness on the part of American workers have all combined to make retirement more a fantasy than reality for tens of millions of baby boomers who will soon turn 65 years of age. In fact, says, the number of people age 65 and older will increase 79% between now and 2030, meaning another 75 million new retirees -- or people who would love to be retired -- will be looking for help with retirement income and investing, and most are terrified they will run out of money long before they die. Financial advisors charged with getting all these boomers back on track and hopefully headed down a comfortable retirement need to stop looking in the rearview mirror and open their minds to new investment strategies that defy conventional wisdom. Financial professionals need to appreciate that there is no one-size-fits-all approach to any individual's retirement plan, and traditional methods that advisors have relied on for years -- including the so-called 4% rule or the “bucket” approach to retirement planning -- need to be augmented with diverse and more creative tools and investment products to help bolster investors’ retirement income for the long haul. Investors and advisors need to bone up on new investment products, especially the growing variety of variable annuities, to help bridge the gap between retirees’ expenses and their Social Security benefits. 

3.      CEO COMPENSATION BOUNCES BACK: Compensation for chief executive officers at the nation’s biggest corporations rebounded strongly in 2010 due largely to improved company performance and a rising stock market, according to a Towers Watson analysis. The analysis found that the median total cash compensation, which includes base salary, as well as annual and discretionary bonus payments, increased 17% for CEOs in 2010, compared with a 3% median increase in 2009.  Total direct compensation, which includes total cash compensation plus the grant value of long-term incentives, including stock options, restricted stock and long-term performance plans, increased 9%, compared to a decrease of 1% the previous year. Annual bonuses were a big factor in the double-digit increase in total cash compensation:  nearly three out of four CEOs received bonuses in excess of 100% of their 2010 target annual bonus.  That percentage is the largest since 2007. Conversely, less than one in 10 CEOs either received no bonus or less than half of their target bonus, a sharp decline from 21% in 2009. Now, how does your paycheck compare? 

4.      ELECTED COUNTY OFFICIALS GET THEIRS: A piece in the Chicago Tribune says that the DuPage County Board will set up a committee to study the controversial Elected County Officials pension plan.  Hundreds of Illinois’s elected county officials, many of them serving part-time offices, cashed in on the generous pension system. Of the original ECO retirees -- those who enrolled between 1997 and 2000 -- 17 got an initial pension of more than $100,000.  They could qualify for 80 percent of their pay after 20 years of service, and receive a pension based on final paycheck, rather than an average of the last four years of employment, similar to most government workers.  The elected officials did pay a higher percentage toward their pension, but not enough to account for the difference in benefits from regular workers. The original ECO plan also allowed enrollees to benefit far more from big pay hikes just before retirement. One area of debate is that the law does not allow the county to differentiate between full-time officeholders and those who serve part time.  One former board member received a $100,000-a-year pension for service that included 25 years as a part-time board member.  Nice work if you can get it. 

5.      FOUR-IN-TEN WORKING AMERICANS SAY THEY WILL NEVER AFFORD RETIREMENT: Almost 40 percent of working Americans say they will never afford retirement, which, for the second year in a row, ranks as the nation’s most important financial concern, according to a survey conducted for the American Institute of Certified Public Accountants. More than half of working adults say they do not know how much they need to save to retire! Many who think they know are likely off in their projections.  Asked to estimate how much they needed to retire at age 65 and live for 20 years, those earning $50,000 to $75,000 annually said $250,000, at the median. Assuming inflation and annual expenses of $50,000, that amount of savings likely would run out in less than 10 years.  The statistics suggest America is on the verge of a retirement crisis. Americans do not know how to prepare for their twilight years, and many have put off figuring it out because they are struggling to make ends meet now. All told, 9 in 10 Americans currently have financial worries, but none ranks higher than retirement.  It emerged as the top issue on a list of 16 possible financial concerns facing Americans, ahead of uninsured medical expenses, the price of gas and rising education costs.

6.      COUNTY WELLNESS PROGRAM NOT VIOLATIVE OF ADA: In 2009, saddled with an aging workforce, Broward County, Florida, implemented plans to address rapidly escalating healthcare costs.  As a part of this initiative, the County sought ways to improve the overall health of its workforce.  The County’s healthcare consultant recommended a “wellness program” that would encourage employees to become active in managing their own healthcare. These kinds of programs have become increasingly popular throughout the United States.  They are designed to aid employees in early detection of disease, and to provide them with the tools needed to lead healthier lives. As part of its consumer-driven health plan’s Open Enrollment process, Broward County adopted a wellness program with two components:  a health risk assessment questionnaire and a biometric screening.  Both components were confidential. The wellness program was administered and paid for by the County’s health insurer, and participation was not required for health coverage.  In 2010, the County decided to use a financial incentive to increase participation in the wellness program.  Any employee who did not complete the questionnaire and undergo the screening would incur a $20.00 charge on each bi-weekly paycheck. (The County considered giving a $20.00 credit to those who did participate, but found that change could not be implemented.) Seff, a former County employee who incurred the $20.00 charge, filed a class action against the County.  He alleged that the County violated the Americans with Disabilities Act by requiring employees to undergo a medical examination and making medical inquiries of its employees.  The County maintained it did not violate ADA, claiming its actions were covered by the ADA’s safe harbor provision, covering entities involved in insurance plans. (The safe harbor provision is designed to protect the insurance industry from various parts of the Act.  It provides that ADA shall not be construed to prohibit or restrict a covered person or organization from establishing, sponsoring, observing or administering the terms of a bona fide benefit plan that are based on underwriting risks, classifying risks or administering such risks that are based on or not inconsistent with state law.) A federal trial court has found the program does fall under the safe harbor provision of ADA because it was designed to develop and administer present and future benefits plans using accepted principles of risk assessment. The County used the aggregate data collected to classify various risks and decide what type of benefit plans would be needed in the future in light of such risks.  The County was thus determining what kind of coverage would need to be provided.  Furthermore, the wellness program is an initiative designed to mitigate risks.  It is based on the theory that encouraging employees to get involved in their own healthcare leads to a healthier population that costs less to insure.  In other words, the program is based on underwriting, classifying, and administering risks because its ultimate goal is to sponsor insurance plans that maintain or lower its participants’ premiums. Thus, the court granted the County’s motion for summary judgment. Seff v. Broward County, Case No. 10-61437 (SD Fla., April 11, 2011). 

7.      JURY AWARDS POLICE OFFICERS WHO ALLEGED TICKET QUOTA: A Los Angeles jury has awarded more than $2 Million to two police officers who claimed they faced retaliation for complaining about an alleged quota system requiring them to write 18 traffic tickets a day. The Associated Press reports that the jury awarded $1.12 Million to retired officer Howard Chan and $950,000 to David Benioff, who is still on the force. Both sued the Police Department in 2009, alleging that their captain required each motorcycle officer to write 18 tickets per shift for speeding, running red lights and other offenses that could each generate several hundred dollars for the city. Chan claimed that after he complained about being criticized for not writing enough tickets, he was reassigned to patrol a high-crime area.  Benioff alleged that after refusing to honor the quota, he was assigned to work the late shift. They both testified at trial they were assigned to specific streets rather than regular traffic patrols, in order to increase their ticket output. During trial, attorneys for the city denied that any ticket quota existed, and argued that the department had broad goals for reducing injuries and fatalities on the road. Sure, just like red-light cameras. 

8.      PARENTS SUE OVER TODDLER’S TODDY: A Detroit couple sued Applebee’s restaurant chain after their toddler was mistakenly given a small amount of alcohol instead of apple juice. The Associated Press says the parents sued because their 15-month-old son had consumed alcohol at a local outlet. Upon examination by doctors, the boy’s blood alcohol level was 0.10 percent -- over the legal limit for an adult driver.  The family seeks damages for emotional distress and medical expenses. However, it turns out that Applebee's may be in deep sauce. It seems the latest incident was not the first in which Applebee's served alcohol to a child. If such is the case, Applebee’s repeated mistakes could rise to the level of gross negligence, exposing the chain to punitive damages. Separately, Anheuser-Busch announced it was coming out with a beer-flavored baby formula. Think about the irony: Applebee's screws up on apple juice.

9.      OLIVE GARDEN SERVES BOY SANGRIA: Not wanting to be outdone by Applebee’s, Olive Garden has mistakenly served a 2-year-old Florida boy a cocktail instead of orange juice. reports that Olive Garden serves what is known as a sangria cocktail -- a mix of orange juice, pineapple juice and white wine.  It is pre-mixed, and stored in containers. The mother of the tipsy toddler noticed he was acting uncharacteristically rowdy, and had red/dilated eyes. (He was also chewing on his junior AA card.) Just as with the Applebee's toddler, this one hit the emergency room for an IV of fluids, but turned out to be fine. There is no word yet as to whether the mother has decided to sue Olive Garden. 

10.    ERROR TO AWARD WIFE HALF OF HUSBAND’S TOTAL RETIREMENT BENEFITS, WHICH INCLUDED PORTION ACCRUED PRIOR TO MARRIAGE: The former husband sought review of a Final Judgment of Dissolution of Marriage, challenging distribution of his military retirement benefits.  The appellate court agreed with the former husband that the trial court erred in distributing his military retirement benefits. When the parties were married, the former husband was serving in the Navy.  Three years later, the former husband retired. In the dissolution of marriage action, the trial court awarded former wife fifty percent of the value of former husband's entire military retirement benefit. Florida law provides that all vested and nonvested benefits, rights and funds acquired during marriage in retirement, pension, profit-sharing, annuity, deferred compensation and insurance plans and programs are marital assets subject to equitable distribution.  Premarital contributions to retirement pensions should be excluded when distributing marital assets.  In distributing the value of a retirement pension fund upon dissolution of marriage, the party not-in-ownership of the fund is entitled to an equitable distribution of that portion attributable to the marital contributions.  Only the marital portion of the pension may be equitably distributed. Thus, the appellate court reversed and remanded for further proceedings. Brathwaite v. Brathwaite, 36 Fla. L Weekly D782 (Fla. 1st DCA, April 14, 2011). 

11.    EMPLOYEE ENTITLED TO HEARING ON QUESTION OF CAUSE FOR DETERMINATION: Pesta appealed a decision of the Florida Public Employees Relations Commission dismissing her career service appeal on grounds PERC lacked subject matter jurisdiction.  Because PERC did have jurisdiction to decide whether Pesta’s employer, Department of Corrections, had cause to terminate her employment, the appellate court reversed and remanded. Pesta began as a career service employee with DOC in 1996, and was promoted to Correctional Officer Captain in July of 2008.  In May 2009, while she was still on probationary status as a captain, DOC issued an “Extraordinary Dismissal Letter” terminating her employment at DOC that day.  DOC alleged that she had engaged in inappropriate and unlawful conduct by participating in unnecessary use of force on an inmate by allowing him to be sprayed with chemical agents even though he was not creating a disturbance at the time.  The letter further alleged that Pesta falsely maintained in an incident report that the chemical agents were applied to quell a disturbance, and provided false testimony about the incident during an interview with the Inspector General’s Office.  Finally, the letter informed her that, as a career service employee with permanent status, she had the right to appeal DOC’s decision to PERC. DOC nevertheless filed with PERC a motion to dismiss Pesta’s appeal for lack of subject matter jurisdiction, arguing that a career service employee may appeal her dismissal to PERC only if she has been in her current position for at least a year. Pesta countered that DOC had no cause to dismiss her and that, even if DOC did not need cause to remove her as a captain (because she was still on probationary status as a captain), she was entitled, as a permanent career service employee, to other employment with the agency.  Nevertheless, PERC dismissed the appeal on grounds that it had no jurisdiction.  Section 110.227(5)(a), Florida Statutes, implies that, until a probationary employee completes probationary period, the employee may be dismissed from the position without cause and without a PERC hearing. However, entitlement to a hearing at PERC when an employing agency dismisses permanent career service employees from the agency’s employment is not in doubt.  Where an employee serving a probationary period in a promotional position disputes that she was terminated from DOC for cause, and asserts that there was a position available to which she should have been returned (or transferred), the employee is entitled to a hearing at which the question of whether the agency had cause for termination can be decided.  Otherwise, an employing agency could strip all permanent career service employees of PERC hearing rights by the simple expedient of promoting them from one career service position to another on one day and firing them from the agency the next. Pesta v. Department of Corrections, 36 Fla. L Weekly D791 (Fla. 1st DCA, April 14, 2011). (Query: doesn’t an employee have the right not to accept a promotion?) 

12.    AFGE HEAD ASSAILS RYAN BUDGET PLAN: House Budget Committee Chairman Paul Ryan has lost any shred of integrity by introducing a 2012 budget resolution that is full of false assumptions, misleading statements and factual errors, American Federation of Government Employees National President John Gage says. Congressman Ryan unfairly targets federal workers by proposing to freeze federal wages, cut the work force and drastically raise pension contributions.  It is a shameful attack on federal workers who were not the cause of this massive budget deficit, and cannot be the cure. In attempting to justify extending to five years the current freeze on federal wages and salaries, Ryan compares average federal wages to median private sector wages.  Even worse, his so-called median private sector wage actually is a median household income figure from the Census Bureau. Ryan also makes the illogical claim that cutting the number of federal workers will boost private-sector employment, and specifically criticizes the increase in federal workers during the Obama administration.  In fact, three-fourths of that increase was in three departments -- Defense, Veterans Affairs and Homeland Security -- in response to national security requirements that predated President Obama’s election. Although Ryan talks about ending corporate welfare, what he is proposing is just the opposite: he wants to repeal the financial reforms Congress put in place after the financial meltdown, dismantle modest environmental protections even as oil spills/nuclear meltdowns make headlines around the world and cut the tax rate for the wealthiest Americans. No more “Mr. Nice-Guy.”

13.    REMARKABLE QUOTES FROM REMARKABLE JEWS: A committee is a group that keeps minutes and loses hours. Milton Berle

14.    BLESSED ARE THE CRACKED, FOR THEY LET IN THE LIGHT:  The trouble with life is there's no background music. 

15.    PARAPROSDOKIAN: (A paraprosdokian is a figure of speech in which the latter part of a sentence or phrase is surprising or unexpected in a way that causes the reader or listener to reframe or reinterpret the first part. It is frequently used for humorous or dramatic effect.):   Dolphins are so smart that within a few weeks of captivity, they can train people to stand on the very edge of the pool and throw them fish. 

16.    QUOTE OF THE WEEK:    “Don’t be too humble, you’re not that great.” Golda Meir

17.    ON THIS DAY IN HISTORY: In 1989, George W. Bush becomes Co-CEO of the Texas Rangers. 

18.    KEEP THOSE CARDS AND LETTERS COMING: Several readers regularly supply us with suggestions or tips for newsletter items? Please feel free to send us or point us to matters you think would be of interest to our readers. Subject to editorial discretion, we may print them. Rest assured that we will not publish any names as referring sources. 

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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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