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Cypen & Cypen
JUNE 19, 2008

Stephen H. Cypen, Esq., Editor


Over the last 30 years or so, it has gradually become an article of faith that pensions are bound to go the way of the dinosaur -- at least according to the legendary Dr. Thomas Mackell. Waves upon waves of mergers and layoffs across corporate America have convinced us that employers no longer have an obligation to the long-term welfare of their employees. And we have been told time and again that 401(k)s are the best answer to individual retirement. Americans will soon be rethinking these notions. Mackell has a vision of ten to fifteen years from now, when the President will deliver an address to the national about a critical social and economic issue. He will tell the citizenry that he has asked Congress to consider emergency legislation to provide financial relief for the large number of elderly citizens who are living in shantytowns and hobo villages along the highways, byways and railways of America, because they can no longer afford a roof over their heads. Retirement income security has been eroding for more than two decades without any apparent alarm coming from our nation’s capitol and its political leaders. In fact, retirement income security has not been a high priority since passage of the Employee Retirement Income Security Act of 1974 (ERISA), which was passed to address the problem of under-funded corporate pension plans. Demographics of our nation dictate that we must deal with this potentially staggering issue. Over the next 25 years, the Baby Boomer generation will be leaving the workforce in mega-numbers. Data tell us that over 50% of the 77 million Boomers are ill-prepared economically to have a decent retirement. Layer on the debt-ridden cadre of Generation X, 61 million of whom are hard-pressed to save for retirement, and it’s plain to see why the foregoing future President’s “fireside” chat will be an imperative for our nation. If retirement income security and the health care crisis, which are joined at the hip, are not dealt with soon, our nation will experience severe economic consequences we have not seen in quite a while. As we have previously mentioned (see C&C Newsletter for January, 1999, Item 1; C&C Newsletter for February 9, 2004, Item 1; C&C Newsletter for December 29, 2005, Item 3 and C&C Newsletter for August 31, 2006, Item 4), Mackell is author of When the Good Pensions Go Away. Tommy, you are so right.


More than half of FORTUNE 100 companies continue to offer defined benefit plans, according to an analysis by Watson Wyatt Worldwide. The pace of retirement plan changes among FORTUNE 100 companies is stabilizing. The analysis of retirement plan sponsorship among FORTUNE 100 companies found that 54 firms offer a defined benefit pension plan to newly hired salaried workers. Following an 11% decline between 2004 and 2005, the number of FORTUNE 100 companies sponsoring pension plans decreased by 5% in 2006 and 4% in 2007. The rate of change slowed after passage of the Pension Protection Act of 2006, which established a more supportive environment for both traditional and hybrid (for example, cash balance) DB plans. But with proposed hybrid plan regulations not final until 2009, it could take several years to see the full effect of these encouraging developments for DB plans. Of the 54 DB plans sponsored by FORTUNE 100 companies, 28 are traditional plans and 26 are hybrid plans. Most companies that sponsor a DB plan also offer their new employees a defined contribution plan, and 46 firms have moved to a DC-only approach.

Chapter 119, Florida Statutes, generally requires that all public records be open for inspection and copying by any person, absent a specific exemption. Section 112.533(2)(a), Florida Statutes, provides that a complaint filed against a law enforcement officer or correctional officer with a law enforcement agency or correctional agency and all information obtained pursuant to the investigation by the agency of such complaint shall be confidential and exempt from the provisions of Section 119.07(1), Florida Statutes, until the investigation ceases to be active or until the agency head provides written notice to the officer who is subject of the complaint that the agency has concluded the investigation. Senior administrators of the Orange County, Florida, Corrections Department received allegations from inmates of that facility that staged inmate boxing matches were conducted within the jail. Inmate allegations indicated that the fights were sanctioned by Orange County corrections officers. Identity of the corrections officers alleged to be involved was not immediately known. An internal affairs investigation of these allegations was commenced and identities of the corrections officers were ascertained. The officers were placed on administrative duty as a result of the internal investigation. Recently, a newspaper reporter made a request for public records identifying corrections officers and employees who had been placed on administrative duty for certain dates. Because providing these orders would disclose names of the correctional officers subject to the investigation, the County Attorney requested a Florida Attorney General Opinion. The Attorney General concluded that a list of law enforcement officers placed on administrative duty is not a complaint filed against a law enforcement officer with a law enforcement agency. In addition, such list is not information obtained pursuant to the investigation by the agency of such complaint. The Public Records Law dictates that public records maintained by the County that do not fall squarely within the terms of Section 112.533, Florida Statutes, must be made available for public inspection and photocopying. Therefore, public records identifying correctional officers who have been placed on administrative duty by the Orange County Sheriff’s Office are subject to inspection and copying. Such records are not confidential and exempt pursuant to Section 112.533(2)(a), Florida Statutes, as either a complaint filed against an officer or as information obtained pursuant to the investigation of such a complaint. AGO 2008-33 (June 13, 2008).


The American Benefits Council and nine other advocacy organizations have issued a research report that highlights the need for accurate federal budget scorekeeping and estimates for proposed legislative changes affecting retirement savings. The report, Revenue Estimates and Retirement Policy: The Need to Consider Present-Value Estimates of Changes in Tax Policy, concludes that the current federal budget scorekeeping rules -- under which revenue effects are reflected on a cash-flow basis using a ten-year budget window -- overstate true costs of retirement proposals. These rules result in a distortion of the economic cost of tax deferrals, which are eventually paid, and inhibit enactment of legislative proposals designed to increase retirement benefits for American workers. Employer-sponsored retirement plans continue to play a crucial role in assuring financial security for retirement for tens of millions of Americans. The long-term benefits of retirement plan tax incentives should be clarified by evaluating costs on a present-value basis. Such evaluation would allow policymakers to consider legislative changes that could increase retirement savings for millions of Americans. The following are from the Executive Summary:

  • Revenue estimates play an important role in setting federal policies. Federal budget processes under the Congressional Budget Act require use of revenue estimates prepared generally by the Joint Committee on Taxation and set parameters under which estimates are prepared. Further, federal policies are often set within specific budget constraints that require policymakers to choose among competing policy proposals for use of available revenue dollars.
  • Revenue estimates are prepared on a cash-flow basis measuring how a proposed change in policy affects federal receipts in each year of a 10-year budget scorekeeping period. This approach works well for proposals that provide a current tax benefit that is not offset in a future year.
  • But not all revenue proposals are the same. While some proposals provide a current-year tax benefit (for example, a deduction) that is not offset by a future tax liability, other proposals provide a tax benefit in the current-year that is recovered in a future year (for example, a deferral).
  • Many retirement savings proposals provide deferred tax benefits under which a current deduction (or income exclusion) is provided for contributions and earnings attributable to tax-free contributions accumulated, and all amounts are included in income when the retirement savings are withdrawn.
  • Cash-flow estimates overstate true revenue cost of retirement savings proposals that provide deferral because cash-flow estimates will not reflect income inclusion for withdrawals, which often occur outside the 10-year budget scorekeeping window.
  • Calculating revenue costs of pension policy proposals on a present-value basis could provide a more accurate measurement of the true costs of these proposals.

The research was funded (in part) by the sponsoring organizations to help educate the public on issues relating to the process of estimating effects of proposed changes in law or in federal budget receipts. The research does not advocate any particular solution to the problems identified in the report.


The system for financing and delivering long-term care in the United States is deeply flawed. While families and government spend more than $200 Billion annually for such services, many frail elderly and disabled fail to receive the care they need. This problem is expected to become more severe as the Baby Boom generation ages. While experts generally agree that the existing system is inefficient and ineffective, they disagree on how it should be reformed. A new Issue in Brief from Center for Retirement Research at Boston College, fourth and final in a series, reviews several options for change. The options include enhancing private long-term care insurance, replacing the current welfare-based system with a public social insurance program and introducing a hybrid public-private system. No alternative is optimal, but each has significant advantages over the current system. Long-term care experts agree that a solution that is both politically and economically viable will include some mix of public and private insurance. The challenge will be finding the proper balance between the two models.


International Foundation of Employee Benefit Plans reports that the U.S. Congress has overwhelmingly passed the Heroes Earnings Assistance and Relief Tax (HEART) Act of 2008, which provides tax breaks to military service personnel and their families. President Bush signed the bill into law June 17, 2008. Some of the provisions include a tax credit for small businesses that pay a salary differential to employees called up for active duty and an exemption for reservists from the “use it or lose it” rule for unused health care flexible spending account balances. The law would also modify the Uniformed Services Employment and Re-employment Rights Act (USERRA) to allow the day prior to the date of a service person’s death to be treated as the day the employee returned to work for purposes of triggering payment of benefits under a qualified retirement plan. In addition, the law would permit an employer to make certain contributions to a qualified pension plan on behalf of an employee who is killed or becomes disabled in combat. Finally, the law would also make permanent the special rules that permit penalty-free withdrawals from retirement plans. For employers who voluntarily agree to continue paying the level of compensation a service member would otherwise have received from the employer during the service member’s period of active duty, the “differential pay” would not be treated as wages for purposes of federal income tax withholding rules that apply to an employer’s payment of wages. The HEART Act would treat differential wages paid by an employer to an employee who becomes active duty military as wages for withholding and retirement plan purposes.


A California real estate partnership that the California Public Employees’ Retirement System poured about $1 Billion into has filed for Chapter 11 bankruptcy protection. According to the Los Angeles Times, the partnership’s assets include 15,000 acres of undeveloped land in the Santa Clarita Valley, among the largest land deals to falter amid the national housing glut.
The land was appraised at $2.6 Billion at time of the CalPERS investment, but has dropped considerably in value since then. For months, the partnership has been trying to restructure its $1.24-Billion debt. Lots of luck, Charlie.


For at least fifteen years, the City of Apalachicola turned various municipal engineering functions over to a private engineering company. The City entered into a contract with the firm, which undertook to provide specified engineering service and also agreed to provide ongoing general engineering services as needed, requested or required by the City. The City entered into a second contract with the firm specifically for engineering services in conjunction with construction of water and wastewater system improvements. No outside contractor, other than the firm, had provided engineering services to the City since 1992. The City could not, as a practical matter, have performed its municipal engineering functions without outside assistance, given absence of a city engineer on payroll and the City’s historical staffing levels. In reversing a lower court decision not to require the engineering firm to produce for inspections its records pursuant to a public records request, the district court of appeal remanded for further proceedings. As prior case law explains, Section 119.011(2), Florida Statutes, defines “agency” to include private entities who “are acting on behalf of any public agency.” The statute was intended to ensure that a public agency cannot avoid disclosure under the Public Records Act by contractually delegating to a private entity that which would otherwise be an agency responsibility. However, the appellate court did affirm denial of attorneys’ fees to the party that had made the public records request, because the engineering firm’s status as an “agency” was genuinely in doubt. B & S Utilities, Inc. v. Baskerville-Donovan, Inc., 33 Fla. L. Weekly D1570 (Fla. 1st DCA, June 16, 2008).


A divided U.S. Court of Appeals for the Second Circuit has declined to rehear en banc a controversial Title VII case. The court issue presented was the scope of a municipal employer’s authority to disregard examination results based solely on race of the successful applicants. Plaintiffs alleged that the City’s actions violated their rights under the Equal Protection Clause and Title VII. The United States District Court disagreed, and a panel of Second Circuit Judges upheld that decision in February. Next stop for the case could be the United States Supreme Court. Ricci v. DeStefano, Case No. 06-4996 (U.S. 2d Cir., June 9, 2008).


At a public meeting in Washington, D.C. on June 11, 2008, the Advisory Committee on Tax Exempt and Government Entities presented its Report of Recommendations. The Tax Exempt and Government Entities division of Internal Revenue Service is made up of branches that are responsible for administration of federal tax law as it relates to (i) Exempt Organizations, (ii) Employee Plans, (iii) Federal, State and Local Governments, (iv) Indian Tribal Governments and (v) Tax-Exempt Bonds. These areas involve entities that are not private taxpayers operating for profit. The Exempt Organization and Employee Plans branches involve entities that perform functions in our society thought to be worthy of exemption from tax. The Federal, State and Local Governments branch and the Tax-Exempt Bond branch involve governmental entities with their own sovereign status within our federal system. These factors impose a special responsibility on the Internal Revenue Service in dealing with these constituencies. The report deals with ACT’s year-long projects, and include in the Exempt Organization area, consideration of the role of IRS in issues of governance; in the Employee Plans area, a series of recommendations to the Employee Plans Compliance Resolution System; in a project bridging the Employee Plans and Federal, State and Local Government areas, proposals for improving public sector defined contribution plans; in the Federal, State and Local Governments area, a report on tax treatment of cellular telephones and Internet-provider allowances; in the Indian Tribal Governments area, a survey and recommendations as to government-to-government relationships; and in the Tax-Exempt Bond area, a proposal for a streamlined closing agreement process efficiently to resolve certain common, recurring violations. ACT was established in May, 2001 under the Federal Advisory Committee Act to provide an organized public forum for IRS to receive regular input on Exempt Organization and Employee Plan policy. The Advisory Committee consists of external stakeholders and the representatives who are appointed by the Secretary of the Treasury for two-year terms.


A grenade fell onto a kitchen floor in France, resulted in linoleum blown apart. (Get it?)


“If a man does not keep pace with his companions, perhaps it is because he hears a different drummer.” Henry David Thoreau (Shame on those of you who guessed Gene Krupa.)


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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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