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Cypen & Cypen
NEWSLETTER
for
MAY 25, 2006

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001

1. FLORIDA LEGISLATURE UPS PER DIEM AND MEALS ALLOWANCES:

For the first time in 25 years the Florida Legislature has increased the rates for per diem and meals. And for the first time in over 10 years, the Legislature has increased the rate for mileage allowance. Effective July 1, 2006, Senate Bill 428 amends Section 112.061, Florida Statutes, to increase the per diem rate from $50 to $80. If actual expenses exceed $80, a public traveler is allowed actual expenses for lodging plus $6 for breakfast (up from $3), $11 for lunch (up from $6) and $19 for dinner (up from $12). Travelers shall also be entitled to a mileage allowance of 44.5¢ per mile, up from 29¢ per mile established in 1994. Note: three years ago, the Florida Legislature enacted Chapter 166.021(10), Florida Statutes, which provides that, notwithstanding Section 112.061, the governing body of a municipality or an agency thereof may provide for a per diem and travel expense policy for its travelers that varies from the provisions of Section 112.061. Any such policy provided by a municipality or an agency thereof on January 1, 2003, shall be valid and in effect for that municipality or agency thereof until otherwise amended. A municipality or an agency thereof that provides any per diem and travel expense policy pursuant to Section 166.021(10) shall be deemed to be exempt from all provisions of Section 112.061. A municipality or an agency thereof that does not provide a per diem and travel expense policy pursuant to Section 166.021(10) remains subject to all provisions of Section 112.061. Hopefully, all pension boards desiring to opt out of the statutorily-provided reimbursements have already done so; if not, the Legislature has provided some minimal relief in that regard.

2. CALLAN PERIODIC TABLE OF INVESTMENT RETURNS:

One thing we look forward to every year is the Callan Periodic Table of Investment Returns, which shows annual returns for key indices for a 20-year period. (However, being color-challenged, your Editor must confess to some frustration, as the table somewhat resembles the Ishihara Color-Blindness Test.) The table conveys an enormous amount of information. Above all, the table shows that the case for diversification (across investment styles - growth vs. value, capitalization - large vs. small and equity markets - U.S. vs. International) is still strong. The table illustrates the unique experience of the 1995-1999 period, when large cap growth significantly outperformed all other asset classes and the U.S. stock market in general enjoyed one of its strongest five-year runs. Subsequent three years (2000-2002) saw consecutive declines in large cap stocks for the first time since 1929-1932. The S&P 500 suffered its largest loss since 1974, declining 40% from the market peak in March, 2000 to the end of 2002. The U.S. stock market generated only modest returns in 2005, lower than those achieved in 2004 and 2003. Large cap outperformed small cap stocks in 2005, marking the end of a six-year run of small cap outperformance from 1999-2004. Value outperformed growth in both large and small cap equity markets during 2005. However, the huge disparity in performance between the two styles (during 1997-2000 for large cap and from 1996 through 2002 for small cap) has disappeared. Fixed income ranked last in 2005 for the third year in a row, after ranking first in 2002 and second the previous two years. The table highlights the uncertainty inherent in all capital markets. Rankings change every year. Our favorite statistic, to show volatility, is that in the last twenty years international stocks ranked first or second seven times and last or next-to-last eight times!)

3. NEW RETIREMENT BECOMES REALITY:

Gone are the days when retirement necessarily meant quitting work completely and filling your time with nothing but rest. With people feeling younger and healthier than ever before, retirement in the traditional sense -- withdrawing into old age -- is now a thing of the past for many people. To gain insight into the shifting notions of retirement and what they mean, Merrill Lynch undertook a landmark study of baby boomers and retirement in 2005. Expanding on that study, the “2006 Merrill Lynch New Retirement Study, A Perspective from Individuals and Employers” has gone beyond boomers to probe more deeply into the attitudes and perspectives of people in the broader adult population, age 25-70. It has also taken a look at how employers are responding to changing attitudes and realities in the workforce. The study is a look at the challenges and opportunities people are facing today and in the future as they think about retirement. The study findings show that new parameters for retirement are taking root:

  • A New Way of Living and Working - Today, people want to stay active in retirement, which for most means continuing to work, with a different work/leisure balance.
  • A New Way of Preparing - People who plan ahead have a more optimistic outlook and a more favorable retirement experience.
  • A New Way of Thinking; Where Employers Stand - With a large wave of boomers reaching retirement age, employers, who may face labor shortages, have an opportunity to take advantage of the new retirement attitudes.

The subject study was conducted in collaboration with Harris Interactive.

4. TRENDS IN RETIREMENT PLANS:

Aon Consulting has issued its “2006 National Employee Benefits Trends Survey” of over 1,000 United States employers. The survey focuses on four areas: health care, communications, outsourcing and retirement, the last of which is treated here.

Data show that 99% of organizations offer a retirement program:

  • 90% offer a defined contribution plan (either 401(k), 403(b) or 457)
  • 23% offer a defined benefit pension plan
  • 12% offer a profit-sharing plan
  • 12% offer non-qualified plans
  • 8% offer an employee stock option purchase plan

Many organizations that offer both a defined benefit and defined contribution plan are looking at total retirement outsourcing or “DB/DC bundling.” This method provides a way to meet plan participants’ needs for more personalized total retirement information, while decreasing the administrative load of managing multiple retirement plans. Thirty-nine percent of employers believe that only half of their employees will have enough income to retire at a reasonable age (62-65). With traditional pension retirement benefits decreasing, defined contribution plans will play a more significant role in funding retiree health care costs and living expenses. While nearly 85% contribute to their defined contribution plan, 26% believe that less than half of eligible employees are participating in their plans. Survey data show that 84% of employers are offering at least 10 investment options in their defined contribution plan design. Nearly 81% believe their employees understand, only to some extent, how to invest their defined contribution plan assets. Seventy-six per cent of employers feel retirement education is important, very important or absolutely critical. Employers are providing employees more information about their retirement options through resources such as web-based investment education tools (88%), advisor-based retirement planning tools (58%) and personalized total rewards statements (45%).

5. “SHORTFALL” AT EXXON MOBIL:

Were you a little miffed that Exxon Mobil generated free cash of $9 Billion last quarter? And how about that the oil giant has $27 Billion in its coffers? Well, did you know that Exxon Mobil has also left its employee pension plans with the biggest funding deficit? Its assets are $11.2 Billion short of projected obligations, according to company figures as of December 31, 2005 -- greater even than the gaps at struggling Ford Motor Company and General Motors Corp. Exxon Mobil could easily write a check now for the entire pension shortfall. But it won’t. Exxon Mobil says it’s in compliance with all labor laws and regulations. Exxon Mobil declines to put more money away for a rainy day while the sun is shining on the oil industry, according to a story in BusinessWeek. And Exxon Mobil isn’t apologizing, either: “We basically chose not to ... that’s not an investment we want to put more into at this point. Our financial strength provides excellent security for any pension.” Let’s hope that Exxon Mobil does not make the same mistake that many employers (including public ones) made during the Go-Go years, by failing to make more than the “minimum” required contributions.

6. AMERICAN WORKERS’ “VACATION DEPRIVED”:

Expedia.com recently commissioned its Sixth Annual “Vacation Deprivation” survey. The survey revealed that Americans are likely to give back more than 574 million vacation days in 2006, with each employed U.S. adult 18 and older anticipated to leave an average of four vacation days on the table. The number of vacation days each American is estimated to abandon in 2006 increased by one additional day over last year, boosting the number of total unused vacation days by more than 150 million versus 2005. One-third of Americans do not always take all of their vacation days, despite more than one-third reporting that they feel better about their job and more productive upon returning from vacation. Compared to other countries included in the survey, Americans received the fewest vacation days per year on average (14 days), compared to 17 in Australia, 19 in Canada, 24 in Great Britain, 27 in Germany and 39 in France. (What about Italy? We would have guessed that the Italians are number 1 when it comes to vacations.)

7. WHISTLE-BLOWER SUES TOO LATE:

Bridges, a probationary police officer, sued his employer, City of Boynton Beach, alleging that the city violated his rights under the Whistle-blower’s Act when it terminated him in retaliation for a protected communication he made regarding a superior officer. The trial court dismissed his suit on statute of limitations grounds. On appeal, Bridges contended that because he was entitled first to utilize the appeal procedure in the Collective Bargaining Agreement between the police union and the city, he had filed his complaint within the applicable statute of limitations. However, the appellate court affirmed because Bridges had no appeal rights under the Collective Bargaining Agreement, and applying the correct statute of limitations, he filed his complaint four days late. Section 112.3187(8)(b), Florida Statutes, part of the Whistle-blower’s Act, provides that if the employer has not established administrative procedures for handling such complaints, the employee must bring suit within 180 days of termination. The city’s personnel policy manual permitted termination of probationary employees without right of appeal. Thus, the city provided no administrative right of appeal in this case. Bridges v. City of Boynton Beach, Florida, 31 Fla. L. Weekly D1328 (Fla. 4th DCA, May 10, 2006).

8. QUOTE OF THE WEEK:

“An expert is a man who has made all the mistakes which can be made in a very narrow field.” Niels Bohr

Copyright, 1996-2006, all rights reserved.

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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