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Cypen & Cypen
NEWSLETTER
for
April 10, 2014

Stephen H. Cypen, Esq., Editor

1. PUBLIC EMPLOYER COMMITTED UNFAIR LABOR PRACTICE WHEN, AFTER UNION MEMBERSHIP REJECTED TENTATIVE AGREEMENT REACHED AT PRIOR IMPASSE, EMPLOYER FAILED TO RESUME NEGOTIATIONS, AND PROCEEDED TO LEGISLATIVE BODY HEARING: The union appealed a decision by the Florida Public Employee Relations Commission regarding the proper application of the impasse provisions contained in Florida's public employee collective bargaining law, set forth in Part II of Chapter 447, Florida Statutes. The Second District Court of Appeal reversed. The employer scheduled a legislative body (employer’s board of directors) hearing to resolve three issues that remained at impasse. On the day of the scheduled hearing, the parties reached a tentative agreement on those issues. The union sent a proposed contract incorporating the new tentative agreement to its members with a recommendation to ratify, but the members rejected it. The union sought to return to the bargaining table for further negotiations, but the employer refused. Instead, over the union's objection, the employer rescheduled the legislative hearing. The hearing went forward, and the legislative body resolved the disputed issues in the employer’s favor. The employer then sent the union a proposed agreement to ratify. When the union refused to conduct a ratification vote, the employer imposed the articles resolved by the legislative body. Thereafter the union filed charges with PERC, alleging that the employer had committed an unfair labor practice by refusing to resume negotiations after the failed ratification vote, thus violating section 447.501(1)(a) and (c), Florida Statutes; conducting a legislative body impasse hearing instead of resuming bargaining; and unilaterally altering terms and conditions of employment by implementing the articles resolved at the impasse hearing. Employer countered with an unfair labor practice of its own, premised on the union's refusal to hold a ratification vote on the proposed collective bargaining agreement tendered by the employer after the legislative body impasse hearing. A PERC hearing officer issued a recommended order in which he concluded that the employer had committed an unfair labor practice, and that the union had not committed an unfair labor practice by refusing to conduct a ratification vote after the legislative body impasse hearing. Employer filed exceptions to the recommended order, but PERC issued a final order granting several of the exceptions. It concluded that the employer did not commit an unfair labor practice by refusing to return to bargaining after the union members rejected the tentative agreement, and it dismissed the union's charge. PERC's resolution of this case was at odds with its prior decision in a case where the parties reached a tentative agreement that was then rejected by the union membership. The parties returned to bargaining table, but when they could not agree on several issues, the county declared an impasse. The parties continued to negotiate after the impasse was declared, and they reached another tentative agreement. The union membership then rejected this second tentative agreement. The parties proceeded to the previously scheduled legislative body hearing, at which the legislative body ruled in favor of the county's positions on the impasse issues. Afterward, the parties were unable to agree on a proposed contract to submit for ratification. They engaged in mediation and produced a tentative agreement. But the union rejected the agreement rather than submit it for a ratification vote by the membership. Thereafter, over the union's objection, the county imposed the provisions that had been approved at the legislative body hearing. When deciding the parties' respective unfair labor practice charges in that case, PERC declared that, by proceeding to a legislative body hearing after the union membership rejected the second tentative agreement, the parties had misapplied the impasse resolution procedure set forth in section 447.403, Florida Statutes. PERC noted that, because the impasse statute ultimately allows a legislative body unilaterally to impose employment terms, it is an exception to the bargaining rights contained in Chapter 447, Florida Statutes. As such, PERC wrote, the statute must be strictly construed. PERC stated, in the case at bar, it was obligated to give deference to an agency's interpretation of a statute it is charged with implementing. But PERC need not do so when the agency erroneously interprets the statute or when it “suddenly changes its interpretation with little or no explanation.” Here, PERC did not expressly recede from its holding that a legislative body is not authorized to resolve disputed issues when the parties have reached a tentative agreement following a declaration of impasse. Rather, PERC attempted to explain away its prior precedent because in that case the parties could not agree on the terms of the proposed agreement after the legislative body improperly acted to resolve the outstanding issues. PERC's asserted basis for declining to follow its previous precedent in this case is unavailing. Amalgamated Transit Union Local 1593 v. Hillsborough Area Regional Transit, 39FLW D717 (Bad decisions make good stories. Fla. 2D April 4, 2014).
 
2. MEN LEAD WOMEN IN SAVINGS RATES: Men have a slight edge over women when it comes to saving at the recommended 10% rate, according to research from Wells Fargo, but people still fall short of the goal. Slightly more men than women (49% versus 43%) are enrolled in their workplace retirement plan, the data also show. Wells Fargo based its findings on the more than 4 million eligible employees for whom the firm provided an employer-sponsored 401(k) plan in 2013. When compared with Wells Fargo’s recommended contribution index, which measures how many people save a minimum target of 10% in their 401(k) plan, including employer match, nearly half of men (43%) contribute at this rate, compared with just 39% of women. But women might be investing more wisely.  Although fewer women participate in plans, the investments they choose appear slightly more diversified. Seventy percent of women meet a minimum level of diversification in their 401(k) account investments (defined as a minimum of two equities and a fixed fund and less than 20% in employer stock), versus 67% of men. The difference has been stable for the last two years. One potential driver of this difference in diversification is the use of managed investment options, as 74% of women have money in managed investments, versus 71% of men. Balances are on the rise, but so are 401(k) loans. Twenty percent of participants now have an outstanding loan, up from 19% two years ago. Twenty-six percent of participants who left their employers in 2013 cashed out their 401(k) accounts, versus leaving their balances in the plan or immediately rolling over to IRAs. Upon cashing out of their workplace plans, employees typically have 60 days to decide if they will roll their cash into an IRA. (We wonder how many cash and then roll.)
 
3. ECONOMIC IMPACTS OF CALPERS IN CALIFORNIA: California Public Employees’ Retirement System has released a study summarizing its impacts for the fiscal ending June 30, 2012. CalPERS concludes that its benefit payments and investments in California are essential to the state’s economy. (California is the world’s eighth largest economy, generating approximately $2 trillion in economic activity and almost 20 million jobs).  CalPERS provides benefits to more than 450,000 retirees, and invests almost $21 billion throughout the state. This money provides several ancillary benefits, as it ripples through the state’s economy. CalPERS’ investment portfolio supports approximately 1.5 million local jobs. In addition, CalPERS benefit payments deliver a return of $10.85 in economic activity to California for each taxpayer dollar invested in CalPERS!
 
4. SURPRISE, SURPRISE, SURPRISE -- RETIREES ARE LIVING LONGER: Blogger Bob Collie notes that The Society of Actuaries recently released a draft version of new mortality tables for pension plans, entitled RP-2014. These new tables will affect defined benefit plans in various ways: from lower funded status to higher contributions to possible implications for investment strategy. Current indications are that IRS will mandate use of the new table for funding purposes from 2016 or so. Many plan sponsors will probably start using the new tables for accounting purposes by the end of this year. Of course, a mortality table is simply an attempt to measure how long retirees will live, and it does not have any effect on what the actual mortality experience will be. As with all of the assumptions an actuary makes, actual experience will inevitably differ in the end from what was assumed. The gain or loss that will result for the plan shows up eventually. It just takes time. Imagine pushing things out to the extreme, and using a very unrealistic table -- perhaps assuming 18th century life expectancies. This ploy would result in smaller liabilities, since calculations would be based on an average life expectancy of about five years after retirement. When retirees turn out actually to live longer (twenty years or more), a shortfall will emerge at each subsequent pension plan valuation. Experience will turn out to have been less favorable (from the perspective of pension plan funding than assumed). So the contributions that would have had to be made sooner (if a realistic table had been used) instead get made later. Similarly, if too cautious an assumption is used, gains will result over time. For a very long time, life expectancy has been increasing; thus, every few years the assumptions used for valuing pension plans need to be updated to capture that fact. Because the table currently in use (RP-2000) has become out of date, it is creating a situation in which mortality experience for most plans is systematically creating losses at each new valuation. In the fifteen years since RP-2000 was issued, life expectancy has increased by about 3 years, on average, which is enough to increase the value of a pension by about 4%-8%. The new mortality table represents a case of assumptions catching up with reality. Assumptions will never turn out to be perfect, and what is important here is that the assumptions used are close enough to reality that actual experience does not turn out to create a shortfall when it is too late to do anything about it; if the losses that are experienced are so large that the plan sponsor is unable to make the required contributions when they eventually become due. In the case of the mortality assumption that scenario seems unlikely to happen. (Investment experience can be a different matter, but that is not the subject of this blog.)
 
5. TWO OPINION PIECES FROM AUTHOR JACK WAYMIRE:
          A.  How Wall Street Wrecked Your Pension Plan. It stands to reason Wall Street analysts did not like traditional pension plans. One Hundred percent of the contributions came from the employer and the company’s net worth guaranteed lifetime benefits for employees. Consequently, thousands of companies were impacted by unfunded liabilities when they got behind in payments to their plans. Pension plans were great for employees, but they impacted the balance sheets and earnings potential of public companies in a big way. So, Wall Street analysts were the catalysts behind a movement to replace pension plans with a cheaper type of retirement plan that did not create liabilities for company financial statements. The analysts had a receptive audience. Corporate executives made more money from stock options that were driven by company earnings, than they did from company sponsored pension plans. The transition from a pension plan to another type of plan did not impact them like their rank and file employees. Company after company discontinued pension plans and replaced them with 401(k) plans. Funding from companies for the new type of plan was based on profitability and formulas that matched employee contributions. Companies no longer guaranteed benefits. A 401(k) plan defines company contributions, but does not define the benefit. Employees accepted the new type of benefit with barely a whimper. There was no way they could fight this change, and keep their jobs. One of the key features of a 401(k) plan is making employees accountable for their own investment decisions. They did not have this responsibility when their companies provided guaranteed benefits. Companies, not employees, were impacted by the quality of their investment decisions. Generally, 401(k) plans offer several investment choices, primarily mutual funds from which employees can choose. Consultants educate employees to use diversified strategies to select several funds. And, they recommend increasingly conservative selections as plan participants get older. Increased accountability for decision-making also makes employees responsible for their own performance. Make the right decisions and they will have more money. Make the wrong decisions and they will have less money. Make really bad decisions and they cannot afford to retire. Very few employees are prepared to make these types of decisions. In fact, they are intimidated by investment principles they do not understand. But, that does not change anything. They are still responsible for making their own decisions and they are accountable for their own performance. Employees accumulate assets in 401(k) retirement plans during their working years. Now it is time to retire. Company trustees throw them to the “Wolves of Wall Street.” Their 401(k) account balances are rolled into self-directed IRAs. They no longer have company trustees and consultants helping them. They are on their own, and they are vulnerable based on what they do not know. If 401(k)s and wolves were not bad enough, early retirees are faced with an even bigger risk. They will run out of money if they select the wrong advisors or make the wrong decisions. Companies are probably breathing a sigh of relief that they no longer have to guarantee benefits to employees who may live 30 or more years in retirement. Now, it is their employees’ responsibility to make the right decisions during their working years, and to make even better decisions during their retirement years. Thank you, Wall Street!

          B.       Retirement Class Warfare is Coming to America.Retirement assets can vary by employer and employee savings rates:
          1.       If you are extremely lucky you work for a company that sponsors a traditional defined benefit plan. Although they are increasingly rare, you receive a guaranteed lifetime benefit just like your parents did when they retired.
          2.       If you are little less lucky, you work for a company that sponsors a 401(k) plan. You contribute to the plan, and your employer may provide a matching contribution. There are no guarantees.
          3.       You are unlucky if you are self-employed or work for a company that does not provide any type of retirement plan. You may have an IRA or some personal savings.

You are extremely unlucky if you have no retirement savings and no prospects of acquiring savings in the future. You and your spouse will have to live on social security. A recent survey showed 10% of Americans are very confident they have enough assets to live comfortably. These Americans have pension plans and discretionary income that can be saved for the future. On the other hand, almost half of people surveyed were not confident they had enough assets for comfortable retirements.  These data are extremely disturbing when you consider millions of Americans cannot afford to retire and live comfortably. And, they are doing very little to accumulate more assets. All of their income is used to fund their current lifestyles. Ninety percent of Americans who have access to retirement plans say they are saving for retirement. Eighty percent of Americans, who do not have access to retirement plans, say they are not accumulating assets for their future use. This situation will produce Haves and Have-Nots. Savings rates are low across the board due to high living costs and high debt-loads that are carried by millions Americans. Money that could be saved is paying down debt. These problems are not going to go away. For example, 58% of Americans say they have trouble managing their current debt. Only 3% of Americans with excessive debt are confident they will save enough to retire. Just 44% of Americans say they have tried to estimate the amount of assets they will need to maintain their current standard of living. Most people would rather not know -- the number is that far out of reach. A simple rule of thumb is taking 70% of your income the day you retire and deducting social security benefits. Then multiply the remainder by 25. For example, your shortfall is $40,000 per year. You will need $1,000,000 of retirement assets if you distribute 4% per year to maintain your standard of living. Most investors cannot afford the services of reputable financial advisors, who are compensated with fees. Their only recourse is lower quality financial advisors who want to sell them investment and insurance products for commissions. These advisors do not provide real advice; their licenses do not permit them to do so. They make sales recommendations sound like advice so they can sell financial products. Only 25% of current retirees say professionals advise them, and only 38% say they follow all of the advice.  This low percentage may reflect retiree awareness that most advisors are just trying to sell them products that pay big commissions. Companies and politicians know a problem, of biblical proportions, is brewing in America when tens of millions of Americans cannot afford to retire and their companies want to replace them with younger, cheaper employees. Who is to blame? Start with Wall Street that convinced thousands of companies to dump their defined benefit plans and transfer investment risk to their employees. You could blame the companies that went along with Wall Street, you could blame the politicians who let this happen, but most of them are retired. Or, you could blame Americans who do not have the income and discipline to save on their own. The only practical solutions are deferred retirement dates and part-time jobs. The war is coming and 78 million baby boomers will light the fire. Just ask The Doors.  

6. FEDERALISM AND FIDUCIARIES -- A NEW FRAMEWORK FOR PROTECTING STATE BENEFIT FUND: Richard Mendales, of Charleston School of Law, writes the financial crisis has underlined difficulties states and localities face in paying benefits to their employees. The most spectacular example is Detroit's bankruptcy, but across the country, state and local employees face sharp cuts in benefits, as their employers fight for solvency. A federal solution such as the Employment Retirement Income Security Act, which protects private pensions, is precluded both by considerations of federalism and the practical impossibility of getting major legislation through Congress. This article proposes an alternative: a uniform state code, like other uniform state laws such as the Uniform Commercial Code, which states could adopt to govern both state and local benefit plans. The proposed uniform code is based on common statewide financing. Funds would be administered by a nonpolitical [Ha!] council that would employ actuaries and inspectors to protect the integrity of funds inspected and disbursed according to standards set by the code. Statewide funding for state and local plans has advantages already enjoyed by states such as New York, including more sophisticated fiduciaries to supervise investments, reduced costs imposed by financial intermediaries and greater diversification of investments. The code would go beyond existing state and local plans in creating state emergency funds paralleling the federal Pension Benefit Guaranty Corporation to ensure payment of benefits during unforeseen crises. Making the code uniform would enable adopting states to follow each other’s practices and interpretation of code provisions. Moreover, with congressional approval, it would facilitate compacts among groups of states to pool benefit and emergency funds, giving them greater overall safety, ability to diversify, and leverage over financial intermediaries. (Sounds to us like something John Lennon might have written.) 

7. ADULT TRUTHS: Bad decisions make good stories.

8. TODAY IN HISTORY: In 1970, Paul McCartney officially announces the split of the Beatles.

9. 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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