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Cypen & Cypen
MAY 19, 2011

Stephen H. Cypen, Esq., Editor

1.      FLORIDA PERC ERRONEOUSLY REJECTED UNFAIR LABOR PRACTICES CLAIM OVER HEALTH INSURANCE BENEFITS: Four labor unions representing employees of the City of Gainesville appealed a final order of the Florida Public Employees Relations Commission that rejected a Hearing Officer’s ruling that the City had engaged in unfair labor practices by refusing to bargain over changes it made to health insurance benefits for city employees, once they retire.  The parties’ collective bargaining agreements did not address the issue, so it was incumbent on the unions to show the City’s furnishing retirees’ health benefits amounted to an established past practice.  Persuaded that the hearing officer had come to the right decision, the appellate court reversed and remanded to PERC for further proceedings. The parties’ collective bargaining agreements did not discuss health insurance benefits for retirees.  But the City had helped pay for such benefits for many years. Job-related benefits, although not catalogued in an existing bargaining agreement, may nevertheless constitute terms and conditions of employment that are not subject to unilateral change by the employer. It is settled law that a public employer’s unilateral alteration of the status quo of a mandatory subject of bargaining is aper se violation of law, absent a clear and unmistakable waiver, legislative body action taken after impasse or extraordinary circumstances requiring immediate action.  Communications Workers of America v. City of Gainesville, 26 Fla. L. Weekly D973 (Fla. 1st DCA, May 9, 2011). 

2.      EX-GM EXECUTIVES SUE FOR PENSION BENEFITS: More than 100 retired General Motors executives have filed a federal lawsuit against the company, saying they are being shortchanged on pension benefits. The Detroit Free Press reports that the executives allege GM is cutting two-thirds of their pension benefits in excess of $100,000 under two retirement plans -- not just one plan as they believed would happen under GM’s bankruptcy. They understand General Motors’ financial condition, and are willing to accept cuts under one plan, but not both. The plaintiffs said GM was supposed to cut retiree benefits in excess of $100,000 in the Executive Retirement Plan. However, the company improperly has included money they receive under a separate General Motors Retirement Program for Salaried Employees. The suit, filed in U.S. District Court in Detroit, seeks to recover all past and future benefits, plus interest. 

3.      CALIFORNIA RETIREES’ PENSION BENEFITS NOT CONFIDENTIAL: The California Public Records Act generally requires public agencies to disclose public records, subject to exceptions. Part of California’s Retirement Law provides that sworn statements and individual records of members shall be confidential and shall not be disclosed to anyone except insofar as may be necessary for administration of the plan, order of a court of competent jurisdiction or upon written authorization by the member. After much public outcry about government pensions, The Sacramento Bee filed a petition for writ of mandate to compel the Sacramento County Employees’ Retirement System to reveal pension benefits of named retirees. The state trial court concluded the amounts of pension benefits were not part of the “individual records of members,” and ordered SCERS to disclose the requested information. SCERS petitioned the California District Court of Appeal for a writ of mandate to overturn the disclosure order. After staying that order and issuing an order to show cause, the appellate court denied the writ petition. The California Supreme Court has previously held that the public has a general right to know names and salaries of public officials and employees under the Public Records Act. The Attorney General, in an opinion cited with approval by the California Supreme Court, has reached a similar conclusion regarding the Retirement Law, finding that the phrase “individual records of members” protected by law does not embrace the pension amounts of named county retirees. Based upon legislative history, the court construed the phrase “individual records of members” to mean data filed with SCERS by a member or on a member’s behalf, not broadly to encompass all data held by SCERS that pertains to a member.  In addition, SCERS has not shown the privacy interest served by nondisclosure clearly outweighs the public interest served by disclosure. Therefore, SCERS must disclose names and corresponding pension benefit amounts of its members – not including addresses, telephone numbers or social security numbers. (For your information, the Bee originally requested a list of retirees receiving over $100,000 annually, but expanded the request to cover all members. SCERS provided a list of 221 retiree amounts exceeding $100,000 per year, but withheld additional information under the authority of the claimed exemption.) Sacramento County Employees’ Retirement System v. The Superior Court of Sacramento County, Case No. C065730 (Cal. App. 3d Dist., May 11, 2011). 

4.      FEDERAL APPEALS COURT UPHOLDS DISMISSAL OF CLAIMS AGAINST RATINGS AGENCIES: Class action plaintiffs appealed judgments of the United States District Court for the Southern District of New York dismissing their complaints seeking to hold Standard & Poor’s, Moody’s Investors Service and Fitch liable as underwriters or control persons for misstatements or omissions in securities offering documents in violation of the Securities Act of 1933.  Plaintiffs alleged that said rating agencies are “underwriters” as defined by the Securities Act of 1933 because they helped structure securities transactions to achieve desired ratings.  They also submitted that the rating agencies alleged provision of advice and direction to primary violators regarding transaction structures made them liable as “control persons.” The Court of Appeals rejected those arguments as without merit.  To qualify as an “underwriter” under the Securities Act of 1933, a person must have participated, directly or indirectly, in purchase of securities with a view toward distribution, or in the sale or offer of securities in connection with a distribution. Because the rating agencies alleged structuring or creation of securities was insufficient to demonstrate their involvement in the requisite distributional activities, plaintiffs’ claims against them were properly dismissed. Because the rating agencies’ provision of advice and guidance regarding transaction structures was insufficient to permit an inference that they had the power to direct management or policies of alleged primary violators, plaintiffs’ “control person” claims against them were properly dismissed. Finally, the district court did not abuse its discretion in denying implicitly plaintiffs’ cursory requests for leave to amend. In Re Lehman Brothers Mortgage-Backed Securities Litigation, Case No. 10-0712 (U.S. 2nd Cir., May 11, 2011). 

5.      CITY’S CUT-OFF SCORE FOR FIREFIGHTER APPLICANTS HAD DISPARATE IMPACT: The City of Chicago only hired firefighter applicants who scored 89 or higher on written examination, and were therefore deemed “highly qualified.” One who scored lower complained to Equal Employment Opportunity Commission that the cutoff had a disparate impact on African-Americans; and, in a class action suit, 132 class members overcame the city’s “business necessity” defense, and won damages based on a loss-of-a-chance theory. (Inasmuch as on prior review the U.S. Supreme Court held that in disparate-impact litigation the suit deadline starts anew whenever the employer uses a test to make hiring decisions, the charge was timely with respect to each wave of hiring other than the first. See C&C Newsletter for June 26, 2008, Item 10.) As to the merits, to say that the highly qualified pool was lawfully composed does not imply that it was lawful for the employer to hire exclusively from that pool. Judgment affirmed; summary from Chuck Carlson. Lewis v. City of Chicago, Case No. 07-2052 (U.S. 7th Cir., May 13, 2011). 

6.      PUBLIC PLANS TOP PERFORMERS IN FIRST QUARTER 2011: Median return of the BNY Mellon U.S. Master Trust Universe was 3.68% for the first quarter of 2011, making it the third consecutive quarter of positive returns. For the twelve months ending March 31, 2011, the median return was 13.13%, less than the 31.42% reported a year ago for the twelve-month period, which was the highest BNY Mellon has recorded going back to 1999. With a market value of $1.41 Trillion and an average plan size of $1.88 Billion, the BNY Mellon U.S. Master Trust Universe is a fund-level tracking service that can be used to make peer comparisons of both performance and asset allocation results. The universe consists of 749 corporate, foundation, endowment, public, Taft-Hartley and health care plans. With a 4.01% return, public plans were the only segment to top 4% in the first quarter. Here are some other highlights: 

  • 99% of plans posted positive results for the quarter ending March 31, 2011. For the twelve months ending March 31, 2011, 100% of plans posted positive results.
  • 44% of plans matched or outperformed the custom policy return of 3.78% for the first quarter. For the twelve-month period, 53% of the plans matched or outperformed the custom policy return of 12.95%. 
  • Public plans were followed by foundations, corporate pensions, endowments, Taft-Hartley and health care plans (lowest at 3.22%).  
  • U.S. equities dominated for the quarter with a median return of 6.49%, compared to the Russell 3000 Index return of 6.38%. Non-U.S. equities posted 3.15% for the quarter, slightly lagging the Russell Developed ex US Large Cap Index result of 4.20%. Median return for non-U.S. fixed income was 1.90% compared to the Citigroup Non-U.S. World Government Bond Index return of 0.97%. U.S. fixed income was the lowest performing asset class for the quarter with a median return of 0.91%, versus the Barclays Capital U.S. Aggregate Bond Index return of 0.42%.  

Average asset allocation in the BNY Mellon U.S. Master Trust Universe for the first quarter was U.S. equity 33%, U.S. fixed income 26%, non-U.S. equity 17%, non-U.S. fixed income 2%, alternative investments 10%, real estate 2%, cash 1% and other 9%. 

7.      REVOLVING DOOR PRESENTS SEC WITH ETHICAL CHALLENGES: As part of an effort to shed light on the revolving door at the Securities and Exchange Commission, and to examine whether SEC has adequate policies and procedures in place to detect and mitigate conflicts of interest involving former SEC employees, Project On Government Oversight has obtained data filed by former SEC employees who appeared before SEC seeking to represent outside clients within two years after leaving the agency. POGO’s report dated May 13, 2011 provides an overview of information disclosed in such statements and examines SEC’s oversight of former employees who go through the revolving door. SEC requires that its former employees file post-government employment statements if they plan to represent a client before the Commission within two years of leaving SEC.  POGO found that: 

  • Between 2006 and 2010, 219 former SEC employees filed 789 post-employment statements indicating their intent to represent an outside client before the Commission. 
  • Some former SEC employees filed statements shortly after leaving the Commission, with one employee filing within 2 days of leaving. 
  • Some former SEC employees filed numerous statements during the time period, with one former employee filing 20 such statements. 

POGO recommends that Congress and SEC: 

  • Strengthen and simplify post-employment restrictions
  • Make post-employment statements publicly available online
  • Verify completeness and accuracy of post-employment statements
  • Publicly disclose SEC recusal database and ethics waivers
  • Strengthen and utilize ethics enforcement authority
  • Extend post-employment regulations to other financial regulatory agencies
  • Review confidential treatment procedures and Freedom Of Information Act exemptions

We wonder what cartoonist Walt Kelly would say about POGO’s taking on such an ambitious project. 

8.      MONEY MANAGER EXECUTIVES SCORE BIG: According to Pensions & Investments, top executives of publicly-traded money management firms reaped an average 33% hike in total compensation last year, as improved financial results and increases in assets under management put them further away from the market turmoil of years past.  Top earner was BlackRock Inc. Chief Executive Officer Laurence Fink, whose total compensation increased 50% to $23.8 Million. (Fink’s salary was relatively low, accounting for only $500,000. However, he received $12.8 Million in stock and incentive awards and a $10.2 Million cash bonus.) Nevertheless, Fink has a long way to go before his compensation reaches the $41.8 Million he received in 2007. Last year’s second place finisher was Janus Capital Group Inc.'s new CEO, Richard Weil, who earned $20 Million. (In a non-binding vote about a month ago, 60% of Janus shareholders rejected the firm’s compensation program for top executives, a protest aimed at Mr. Weil and his signing bonus.) Coming in third (poor thing) was Affiliated Managers Group Inc. Chairman and CEO Sean Healey, whose total compensation was $19.9 Million. Once again, Folks, it’s good to be the king. 

9.      HOW BERNARD MADOFF DID IT: If you want to know how Bernard Madoff did it, read the New York Times article at The piece reviews The Wizard of Lies, by Diana B. Henriques, a senior financial writer for The Times. The book makes for riveting reading because it covers various dimensions, and, although there is much that we will never know, the book comes closer than others to answering at least some of the questions. 

10.    THE FATS OF LIFE: A CareerBuilder survey shows that 18 percent of workers have lost weight in their current jobs, compared to 16 percent last year. However, 43 percent of workers said they have gained weight in their current positions, in line with last year’s findings. Less stressful working conditions may contribute to workers’ weight loss, as one-quarter said stress has contributed to their weight gain, down from 32 percent.  Other factors contributing to weight gain in the office include: 

  • Sitting at a desk most of the day -- 36 percent
  • Eating out regularly -- 16 percent
  • Skipping meals because of time constraints -- 13 percent
  • Workplace celebrations -- 12 percent

To help workers maintain healthier lifestyles, more than one-quarter of companies provide gym passes, workout facilities or wellness benefits. CareerBuilder recommends the following common sense tips:   (1) take a brisk walk, (2) plan out your meals each week, (3) stay hydrated and (4) get a healthy work buddy. Salud. 

11.    WOMEN FACE HIGH RISK OF OUTLIVING THEIR MONEY: has some bad news for men:  they do not live as long as women.  But there is also bad news for women:  they might live too long -- financially speaking. Women face a greater longevity risk -- the danger of outliving their assets and experiencing poverty in old age.  The average life expectancy for a 65-year-old American woman is 20 years, or 85 years of age, three years more than a man. And those figures are just averages, which means many women will live well beyond 85. However, longevity is not the only factor at work here.  America’s retirement benefits system is tied closely to amounts earned during working lives, and, here, men continue to be far ahead. The non-profit Women’s Institute for a Secure Retirement offers the following statistics: 

  • Women work at paid jobs an average of 12 years less than men do over their lifetimes due to family care-giving responsibilities. Fewer work years translate to fewer years saving or participating in an employment-based retirement program, which also means lower Social Security benefits. 
  • Women earn 78 cents for every dollar earned by men. 
  • Less than one-third of retired women today receive pension income.  And less than half of today’s working women have access to a pension or retirement savings plan through their jobs. 

As a result, nearly 40 percent of older women living alone depend on Social Security for almost all of their income and more than half would be living in poverty were it not for their Social Security benefits. In 2007, 20.5 percent of unmarried women age 65 and older had income below 100 percent of the federal government’s definition of poverty -- far higher than rates experienced by men or married couples. 

12.    RAMBLINGS: Libya News: Former Libyan foreign minister Moussa Koussa defected to England. Moussa Koussa? With that name he should have defected to Vermont, and entered into talks with Ben & Jerry. 

13.    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.):   A bank is a place that will lend you money if you can prove that you don't need it. 

14.    QUOTE OF THE WEEK:    “Action always generates inspiration. Inspiration seldom generates action.”  Frank Tibolt

15.    ON THIS DAY IN HISTORY: In 1992, Vice President Dan Quayle attacks Murphy Brown for being a single mother and as a poor example of family values. 

16.    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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