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Cypen & Cypen
JUNE 11, 2004

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


With few exceptions, Section 204(g) of the Employee Retirement Income Security Act of 1974, the “anti-cutback” rule, prohibits any amendment of a pension plan that would reduce a participant’s “accrued benefit.” The United States Supreme Court has now held that the anti-cutback rule of ERISA prohibits a plan amendment expanding categories of post-retirement employment that triggers suspension of payment of early retirement benefits already accrued. The case arose when Heinz retired from the construction industry after accruing enough pension credits to qualify for early retirement payments under a service pension scheme that pays him the same monthly benefit he would have received had he retired at the usual age. The plan prohibited such beneficiaries from certain “disqualifying employment” after they retire, suspending monthly payments until they stop the forbidden work. When Heinz retired, the plan defined “disqualifying employment” to include construction worker, but not supervisor -- the job Heinz eventually took. The plan expanded its definition to include any construction industry job and stopped Heinz’s payments when he did not quit the supervisor’s job. Heinz sued to recover the suspended benefits, claiming that the suspension violated ERISA’s anti-cutback rule. A unanimous Supreme Court affirmed the Court of Appeals’ ruling in favor of Heinz. Central Laborers’ Pension Fund v. Heinz, Case No. 02-891 (U.S., June 7, 2004).


Five City of Miami police officers brought an action against the City alleging employment discrimination in violation of the Americans with Disabilities Act. Each officer applied for off-duty employment with the police department, and each was denied based on a policy prohibiting light duty officers from working any off-duty assignments. A federal jury awarded them a total of $160,000 for damages, but the district judge granted the City’s motion for judgment as a matter of law. On appeal, the trial court’s ruling was affirmed. A prima facie case of employment discrimination under ADA is established by demonstrating that plaintiffs (1) have a disability; (2) are qualified, with or without reasonable accommodation; and (3) were unlawfully discriminated against because of their disability. The ADA defines “disability” to include: (a) a physical or mental impairment that substantially limits one or more of the major life activities of such individual; (b) a record of such impairment; or (c) being regarded as having such an impairment. Major life activities include functions such as caring for oneself, performing manual tasks, walking, seeing, hearing, speaking, breathing, learning and working. The officers argued either that they were substantially limited in the major life activity of working or otherwise were regarded as such by the City. Essential to either claim, is a showing that each plaintiff was significantly restricted in the ability to perform either a class of jobs or a broad range of jobs in various classes as compared to the average person having comparable training, skills and abilities. In short, “police officer” is too narrow a range of jobs to constitute a “class of jobs” as that term is defined in EEOC regulations. Rossbach v. City of Miami, Case No. 03-13348 (U.S. 11th Cir., June 7, 2004).


Don Trone, President of the Foundation for Fiduciary Studies, asks and answers 5 important questions for, summarized as follows:

Q. Why is there so much controversy surrounding the term “fiduciary?”

A. The industry must better define demarcation between broker and adviser. In the minds of clients, an adviser takes responsibility for providing investment advice, while a broker simply provides suitable investment products. Brokers are encouraged to give investment advice, but are hamstrung by the foregoing compliance structure. Many advisers do not understand that, as SEC-registered advisers, they are held to a fiduciary standard of care.

Q. How would brokers becoming fiduciaries benefit the industry?

A. Broker-dealers know there is a fiduciary standard of care coming their way. They should embrace this fiduciary standard because they want to do what is best for clients and conduct themselves as professionals, but cannot offer the fiduciary relationship. It’s a win for clients too, who want to know their adviser places their interests first.

Q. Should all financial advisers adopt the term "fiduciary?"

A. The industry needs both types of professionals. There are producers who are good at executing transactions and selling products. But, broker-dealers should do a better job of distinguishing who's who. Yes, all advisers should adopt the term, but that's not to say all brokers should.

Q. Recently SEC has proposed a code of ethics for advisers. Is this the answer for combating abuses in the industry?

A. After the stock market crash of 1929, to restore investor confidence, regulators came up with a model based on two principles: full disclosure to reassure investors that they had accurate information and that the industry would be lead by persons of high moral character. SEC has failed in both regards.

The recent proposal is intended to remind people in the industry that their ultimate responsibility to the investor goes beyond what is in the printed word.

Q. The "pay-to-play" scandal involving pension consultants is heating up. How might it affect financial advisers?

A. The concern is that institutional investment firms are being paid millions of dollars by the same money managers they have been hired to monitor and evaluate. SEC staff is already looking beyond the immediate investigation. Expect a better definition of who is an investment adviser. And don't be surprised if rules ultimately say that one could serve only money managers or clients.


In a front page article in its May/June 2004 Monitor, National Conference on Public Employee Retirement Systems applauds the new Equal Employment Opportunity Commission proposed rule protecting retiree health benefits (see C&C Newsletter for May 12, 2004, Item 6). At the same time, NCPERS criticizes AARP’s continued opposition to the rule and its attempt to overturn it (see C&C Newsletter for June 8, 2004, Item 4). Already, NCPERS has briefed Congressional staff on the rule and testified before Congress on why the rule protects retiree health benefits. NCPERS states that EEOC issued the proposed final rule to remedy the “harmful” decision in Erie, which held that providing higher health benefits to pre-Medicare eligible retirees than Medicare-eligible retirees violated the Age Discrimination in Employment Act. NCPERS says that the net effect of the Erie decision is that public employees who retire before age 65 (many because of mandatory retirement ages) could lose their employer-provided health benefits. EEOC’s study found that the Erie decision creates an incentive for employers to reduce or eliminate retiree health benefits. The proposed final rule would make it explicitly lawful for employers to continue the long- standing practice of providing higher benefits to pre-65 retirees and reduce benefits when a retiree is covered by Medicare.

Copyright, 1996-2004, 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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