Cypen & Cypen  
HomeAttorney ProfilesClientsResource LinksNewsletters navigation
777 Arthur Godfrey Road
Suite 320
Miami Beach, Florida 33140

Telephone 305.532.3200
Telecopier 305.535.0050

Click here for a
free subscription
to our newsletter


Cypen & Cypen
May 16, 2013

Stephen H. Cypen, Esq., Editor

1.    NASRA ISSUE BRIEF TREATS STATE AND LOCAL GOVERNMENT SPENDING ON PUBLIC EMPLOYEE RETIREMENT SYSTEMS:  National Association of State Retirement Administrators has released an updated issue brief on state and local government spending for public employee retirement systems.  State and local government pension benefits are paid not from general operating revenues, but from trust funds to which public employers and retirees contributed while they were working. On a nationwide basis, pension contributions made by state and local governments account for roughly three percent of total spending.  In the wake of the 2008-09 market decline, nearly every state and many cities took steps to improve the financial condition of their retirement plans and to reduce costs. Although some lawmakers have considered closing existing pension plans to new hires, most determined that closure would increase, rather than reduce, costs, particularly in the near-term. Instead, states and cities have made changes to their pension plan by adjusting employee and employer contribution levels, restructuring benefits, or both. Generally, any adjustments to pension plan costs have been proportionate to the plan’s funding condition and degree of change needed.  Based on most recent information provided by the U.S. Census Bureau, approximately three percent of all state and local government spending is used to fund pension benefits for employees of state and local government. Because not all state and local government revenue is discretionary, the actual effect of pension costs on state and city budgets is likely to be higher -- to varying degrees -- than calculated. In addition, some states and cities do not contribute the amount actuarially determined adequately to fund the plan.  Although pensions are not the state-local budget-drain some claim they are, spending levels for states and cities do vary from the national average, from less than one percent to more than four percent. The State of Florida contributes 2.58% that is the percentage of all state and local government spending.  The chronic failure by some pension plan sponsors to pay required contributions results in greater future contributions to make-up the difference. Most of the variation in pension spending levels is attributable to three factors: different levels of effort by states and cities to make pension contributions; differences in benefit levels; and variations in the size of unfunded pension liabilities. As a percentage of total spending, pension costs for cities are higher than states by about 50 percent. The difference is due in part to the types of services delivered at the local level and the resulting larger share of municipal budgets that is committed to salaries. As with states, pension costs for municipalities can vary widely.  Since 1982, investment earnings have accounted for approximately 60 percent of all public pension revenue; employer contributions, 28 percent; and employee contributions, 12 percent. Because the vast majority of public employees are required to contribute toward the cost of their pension benefits, typically four-to-eight percent of pay, most state and local government retirement plans are mandatory savings programs. In recent years, many states have increased required employee contributions. On a national basis, employee contributions accounted for 31 percent of all public employee pension plan contributions, with employer contributions making up the remaining 69 percent. The annual average required contribution received from employers has been around 90 percent. Beneath this average ARC experience lies diversity: approximately 60 percent of plans consistently receive 90 percent or more of their ARC. Thus, although most plans have been receiving their required funding, many plans have not been adequately funded, which will result in higher future costs.  Twenty-five to thirty percent of state and local governments and their employees make contributions to their retirement plan instead of to Social Security. This situation holds true for substantially all of state and local government workforce in seven states, 40 percent of the nation’s public school teachers, and a majority of firefighters/police officers. Pension benefits -- and costs -- for those who do not participate in Social Security are usually higher than for those who do participate in order to compensate for the absence of Social Security benefits. This higher cost should be considered in the context of the 12.4 percent of payroll, or an estimated $31.2 billion annually, these employers and employees would otherwise be paying into Social Security.  As stated, the largest portion of public pension funding comes from investment savings, which illustrates the major role this revenue source plays in determining pension costs.  NASRA concludes that, on average, retirement programs remain a small part of state and local government spending, although required costs, benefit levels, funding levels, and funding adequacy vary widely.  Over $210 billion is distributed annually from these trusts to retirees and their beneficiaries, which serves as a source of economic stimulus to virtually every city and town in the nation.  Changes to benefit levels and required employee contributions adopted by states and cities have been diverse, dependent in part on such factors as legal authority to make changes to benefits or required employee contribution rates, and the plan’s financial condition prior to the 2008-09 market decline. As a rule, states and cities with a history of paying their required pension contributions are in better condition and have needed more minor adjustments to benefits or financing arrangements compared to those with a history of not adequately making their contributions.
2.       STATE AND LOCAL GOVERNMENTS’ FISCAL OUTLOOK:  U.S. Government Accountability Office has issued an April 2013 update on fiscal outlook for state and local governments.  Fiscal sustainability presents a national challenge shared by all levels of government. Since 2007, GAO has published long-term fiscal simulations for state and local government sector. These simulations have consistently shown that, like the federal government, the state and local sector faces persistent and long-term fiscal pressures, and, absent any policy changes, would face an increasing gap between receipts and expenditures in future years.  GAO shows the level of receipts and expenditures for the sector until 2060 based on current and historical spending and revenue patterns. The current set of policies in place across state and local government remains constant to show their impact on future fiscal outcomes. GAO simulates the long-term fiscal outlook for the state and local sector, and incorporates the Congressional Budget Office’s economic projections. These projections capture near-term cyclical swings in the economy. Because GAO covers the sector in the aggregate, the fiscal outcomes for individual states and localities cannot be captured. This particular product is part of a body of work on the nation’s long-term fiscal challenges. The state and local government sector continues to face near-term and long-term fiscal challenges, which add to the nation's overall fiscal challenges. The state and local sector faces a gap between revenue and spending and long-term fiscal challenges that grow over time. The fiscal position of the sector will steadily decline through 2060, absent any policy changes.  GAO-13-546SP (April 29, 2013). 
3.       HAS DC PLAN DESIGN COME FULL CIRCLE? In 1988, 56.7% of respondents to the then-current population survey said a defined benefit plan was their primary plan type, while 25.8% said defined contribution. The numbers shifted to 38.2% for DB and 49.8% for DC in 1993. By 2006, 67.1% of workers cited a DC plan as their primary plan type.  But, as employers transferred responsibility to save for retirement onto employees, it became clear that most employees lacked the discipline and knowledge to invest adequately for a secure retirement. So, lawmakers and the industry developed tools and methods to make decisions for employees -- automatic enrollment, automatic deferral ­escalation, automatic investments (such as target-date funds) and managed accounts -- in a process that some in the industry refer to as the “DB-ization” of DC plans. has an excellent article on the subject matter at .  
4.       HOLLYWOOD, FLORIDA, POLICE DEPARTMENT LOSES OFFICERS TO COUNTY:  Nineteen officers plan to trade in their Hollywood badges to take jobs with the Broward Sheriff's Office in the next few weeks, according to  The exodus comes at a time of lingering outrage over pay cuts and drastic pension reform. The cuts were made after the city declared financial urgency in 2011. Officers typically jump ship early in their career or after they have put in enough years to retire and move on to another agency. To have that many leave at one shot, is not normal, said a city spokesperson.  Authorized for 314 officers, the Hollywood Police Department has 25 vacancies, not including 20 positions that have been frozen since 2009. Litigation over pension reform is pending in state court.
5.       EBRI’S 72ND POLICY FORUM: Employee Benefit Research Institute has sponsored its 72nd policy forum.  Titled “Decisions, Decisions: Choices That Affect Retirement Income Adequacy,” the webcast is available on line at .  The forum lasts almost three and one-half hours, but is worth the time.  EBRI is a private, non-profit research institute that focuses on health, savings, retirement and economic security issues.  EBRI offers a unique prospective in that it does not lobby or take policy positions. 
6.       WHAT TO KNOW BEFORE SELLING PENSION/SETTLEMENT INCOME STREAMS: Do you receive a monthly pension from a former employer? Are you getting regular distributions from a settlement following a personal injury lawsuit? If so, you may be targeted by salespeople offering you a lump sum today to buy the rights to some or all of the payments you would otherwise receive in the future. Retired government employees and retired members of the military are among those being approached with such offers. Typically, the lump sum offered will be less -- sometimes much less -- than the total of the periodic payments you would otherwise receive.  After acquiring the rights to a future income stream (such as a retiree’s pension payments), these pension purchasing or structured settlement companies, some-times called “factors,” may turn around and sell these income streams to retail investors, often through a financial advisor, broker or insurance agent. These products go by various names -- pension loans, pension income programs, mirrored pensions, factored structured settlements or secondary-market securities.  They may be pitched to investors with words like “guaranteed” and “safe” -- and may tout robust returns that outpace more traditionally conservative investments, such as CDs or money market accounts. The advertised returns may sound enticing, but investors should be aware that these investments can be risky and complex.  Financial Industry Regulatory Authority and Securities and Exchange Commission’s Office of Investor Education and Advocacy have issued an Investor Alert to inform anyone considering selling his rights to an income stream -- or investing in someone else’s income stream -- of the risks involved, and to urge investors to proceed with caution.  (A typical structured settlement involves resolution of a personal injury or workers compensation lawsuit, which often takes the form of “structured” or periodic payments made to the injured party.  The periodic payments are commonly funded by an annuity issued by an insurance company, and are often structured to provide a dependable stream of income and a degree of financial security to the injured party.)  In a typical transaction, the recipient of a pension or structured settlement will sign over the rights to some or all of his or her monthly payments to a factoring company in return for a lump sum amount. And the lump-sum amount that factoring companies offer will almost always be significantly lower than the present value of that future income stream. Simply put, present value is the amount of current money needed to obtain the future stream of payments, and is based on a periodic rate of return, such as an interest rate.  Most states require factoring companies that purchase structured settlements to disclose the difference. In uncertain financial times you may find yourself searching for immediate cash to help pay for rising or unanticipated expenses. For example, even though your pension provides steady income, you may not feel it is not enough to make ends meet. At first glance, selling your future pension benefits might seem attractive, especially if mortgage, medical or other expenses loom. In certain circumstances, these transactions may have their benefits. However, there are several factors to consider before selling away the rights to your pension or structured settlement income. Transaction costs (including brokerage commissions, legal fees and administrative charges) can be high. You will need to think about how to replace the cash flow your pension or structured settlement income provides, especially if you depend on that income stream to pay monthly or other expenses. Furthermore, be aware that some salespeople can be aggressive or persuasive when trying to get you to sell your income stream, and, in some instances there may be outright fraud. Before selling away an income stream you currently receive, ask the following questions: 

  • Is the transaction legal? Federal law may restrict or prohibit retirees from “assigning” their pension to someone else. Before selling your pension, you may wish to ask your pension administrator what restrictions may apply, or consult an attorney. (In Florida, any pension received from a firefighters’ or police officers’ retirement system, under Chapter 175 or 185, Florida Statutes, respectively, is not subject to being “sold.”  Moreover, many general employee plans have “anti-alienation” clauses, which would also prevent such transaction.)
  • Is the transaction worth the cost? Find the discount rate that the factoring company has applied to your income stream to arrive at the lump sum amount. The higher the discount rate, the lower the lump sum.  Compare the rate to alternatives such as a bank loan or other options that may be less costly.
  • What is the reputation of the company offering the lump sum? Research the factoring company’s record with the Better Business Bureau and check with a financial professional.
  • Will the factoring company require life insurance? When you sell your pension, or even a portion of your pension payments, the factoring company may require you to purchase a life insurance policy. Typically, the factoring company, or the investor buying the income stream is named as the beneficiary of the policy. If you die before all payments you assigned have been received, funds will be paid out from the life insurance policy to cover any remaining balance. Remember that purchasing life insurance will add to your transaction costs and reduce your payout.
  • What are the tax consequences? The lump-sum payment you collect may be taxable.
  • Does the sale fit your longer-term financial goals? While you may feel you need money now, take time to evaluate your financial objectives down the road. You may find there are other alternatives to deal with your immediate needs.

SEC Pub. No. 143 (5/13).
7.       PENSION FUNDS WITH THE HIGHEST EQUITY ALLOCATIONS:  With U.S. equity markets reaching new highs, see the 10 pension funds from with the highest equity allocations:

  • Alabama Retirement Systems – With $27.9 billion in total DB assets, Alabama Retirement Systems has 44.8% of DB assets invested in domestic equity.
  • Motorola Solutions, Inc. - With $5.5 billion in total DB assets, Motorola Solutions, Inc. has 45% of U.S. DB assets invested in domestic equity.
  • Minnesota State Board of Investment - With $47.5 billion in total DB assets, Minnesota State Board of Investment has 45.2% of U.S. DB assets invested in domestic equity.
  • Public Service Enterprise Group Inc. - With $4.5 billion in total DB assets, Public Service Enterprise Group has 48% of U.S. DB assets invested in domestic equity.
  • National Rural Electric Cooperative Association - With $5.2 billion in total DB assets, National Rural Electric Cooperative Association has 48% of U.S. DB assets invested in domestic equity.
  • Kentucky Teachers' Retirement System - With $15.3 billion in total DB assets, Kentucky Teachers' Retirement System has 48% of U.S. DB assets invested in domestic equity.
  • Merck & Co. Inc. - With $8.6 billion in total DB assets, Merck has 52% of U.S. DB assets invested in domestic equity.
  • Teamsters Central States, Southeast & Southwest Areas - With $18.0 billion in total DB assets, Teamsters Central States, Southeast & Southwest Areas pension fund has 52% of U.S. DB assets invested in domestic equity.
  • Georgia Teachers’ Retirement System - With $55.3 billion in total DB assets, Georgia Teachers’ Retirement System has 53.5% of U.S. DB assets invested in domestic equity.
  • Johnson & Johnson - With $10.3 billion in total DB assets, Johnson & Johnson has 60% of U.S. DB assets invested in domestic equity.


  • United Parcel Service, Inc. – $4.2 billion.
  • State of Michigan Retirement Systems - $4.2 billion
  • Virginia Retirement System - $4.6 billion
  • Texas County & District Retirement System - $4.8 billion
  • Massachusetts Pension Reserves Investment Management - $5.0 billion
  • Boeing Co. - $5.0 billion
  • California Public Employees' Retirement System - $5.1 billion
  • New Jersey Division of Investment - $5.9 billion
  • Pennsylvania Public School Employees' Retirement - $6.9 billion
  • Teacher Retirement System of Texas - $9.7 billion

9.       IRS CRIMINAL INVESTIGATION ISSUES 2012 REPORT: IRS Criminal Investigation has released its Annual Report for fiscal 2012, highlighting strong gains in enforcement actions and penalties imposed on convicted tax criminals.  The 28-page report summarizes a wide variety of IRS CI activity on a range of tax related issues during the year ending Sept. 30, 2012. CI investigates potential criminal violations of the Internal Revenue Code and related financial crimes in a manner to foster confidence in the tax system and compliance with the law.  Highlights of the report include:

  • Investigations initiated and prosecution recommendations were both up nearly 9 percent.
  • Filings of indictments and other charging documents rose 13 percent.
  • Convictions and those sentenced both gained roughly 12 percent.

Criminal investigation initiations totaled 5,125 cases in fiscal 2012, while investigations completed were 4,937 -- up 5 percent from fiscal 2011. Convictions totaled 2,634 in fiscal 2012, while the conviction rate edged up slightly to 93 percent. IRS Newswire IR-2013-50 (May 10, 2013). [Question to television producer Dick Wolf: when are you starting “Law and Order – IRS/CI?”]

10.  THIRTY-FOURTH ANNUAL POLICE OFFICERS’ AND FIREFIGHTERS’ PENSION TRUSTEES’ SCHOOL: The 34th Annual Florida Police Officers’ and Firefighters’ Pension Trustees’ School at FSU’s Center for Academic & Professional Program Services in Tallahassee will take place on May 20-22, 2013.  You may access information and updates about the Trustees’ School, including area maps, a copy of the program and links to register with FSU, as well as the Doubletree Hotel, on the Retirement Division’s website .  All police officer and firefighter plan participants, board of trustee members, plan sponsors and anyone interested in the administration and operation of the Chapters 175 and 185 pension plans should take advantage of this unique, insightful and informative program.  Plus, you will get to say farewell to a very special person.

11.     WHEN INSULTS HAD CLASS:  "He has all the virtues I dislike and none of the vices I admire."  Winston Churchill

12.     PHILOSOPHY OF AMBIGUITY: If you ate both pasta and antipasto, would you still be hungry?
13.     ON THIS DAY IN HISTORY:  In 1985, Michael Jordan named NBA Rookie of the Year.
14.     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. 
15.     PLEASE SHARE OUR NEWSLETTER: Our newsletter readership is not limited to the number of people who choose to enter a free subscription.  Many pension board administrators provide hard copies in their meeting agenda.  Other administrators forward the newsletter electronically to trustees.  In any event, please tell those you feel may be interested that they can subscribe to their own free copy of the newsletter at .





Copyright, 1996-2013, 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.

Site Directory:
Home // Attorney Profiles // Clients // Resource Links // Newsletters