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Cypen & Cypen
JUNE 26, 2008

Stephen H. Cypen, Esq., Editor


Twenty national organizations -- representing state and local governments and officials, public employee unions, public retirement systems and more than 20 million working and retired state and local government workers and their beneficiaries -- have written to Congressman George Miller (Chairman, House Committee on Education and Labor) to set the record straight with regard to long-term viability and strength of state and local government employee retirement systems. The signatories include American Federation of State, County and Municipal Employees (AFSCME), American Federation of Teachers (AFT), International Association of Fire Fighters (IAFF), National Education Association (NEA), Fraternal Order of Police (FOP), Government Finance Officers Association (GFOA), National Association of State Retirement Administrators (NASRA) and National Conference on Public Employee Retirement Systems (NCPERS). The letter, dated June 17, 2008, addresses recent press articles using inappropriate and incomplete information, and muddled pension and healthcare liabilities, to distort the truth of public pension finance. Independent sources, such as the U.S. Government Accountability Office (GAO) and Center for Retirement Research at Boston College (CRR), have found the vast majority of public sector pension plans to be sound and on track to meet their future obligations. The many existing safeguards for public pension funding and benefits explain why the case is so:

  • Benefits for the public workforce are publicly adopted by and subject ultimately to the oversight of popularly elected governmental bodies (not the case in other sectors).
  • Separate public agencies governed by independent boards of trustees are responsible for administration and management of the retirement system.
  • Strict governmental requirements for transparency and public accountability must be followed.

Just as financial reporting requirements for federal agencies are set by the Federal Accounting Standards Advisory Board (FASAB), those for state and local governments are set by the independent Governmental Accounting Standards Board (GASB). Both FASAB and GASB were established because of the fundamental differences between governments and businesses. State laws typically mandate public plans’ adherence to GASB standards. Auditors generally require state and local governments to comply with these requirements in order to receive a “clean” audit opinion. Recent articles have suggested governments should measure and account for their pension liabilities using corporate sector requirements. However, distinctions between public and private sectors and structure and governance of their pension plans are often unknown or misunderstood by the authors of these articles. State and local government employee pensions are designed much like the federal pensions provided to the U.S. military and civil service personnel, and are similarly backed by the full faith and credit of their sponsoring governments. Accordingly, suggesting application of corporate finance measures -- aimed at companies that can be acquired or go out of business -- is simply inappropriate, uninformed and irresponsible. Furthermore, unlike federal plans, state and local pension systems collectively have pre-funded nearly 90% of their future pension liabilities. As the Census Bureau, GAO and CRR report, state and local government retirement systems have accumulated roughly $3 Trillion in financial assets to ensure retirement security of more than 20 million working and retired state and local government workers and their beneficiaries. State and local governments take seriously their responsibility for paying promised benefits to their employees and retirees:

  • Comprehensive state and local laws and significant public accountability and scrutiny provide rigorous and transparent regulation of public plans and have resulted in strong funding rules and levels.
  • Assets set aside for state and local employee pensions are professionally managed and invested on a long-term basis using sound investment policies.
  • On the whole, public pension funding levels and investment performance have been found to exceed those in the private sector.
  • Public plan participants’ accrued benefits and future accruals are protected by state constitutions, statutes or case law that prohibit elimination or diminution of a retirement benefit. These protections are stronger than those provided for corporate plans under ERISA and PBGC.

A better understanding of the protections put in place by governments ultimately responsible for funding these plans may serve to build support for these arrangements and address the erosion of confidence in retirement security in general. In fact, the last place to be inciting “pension panic” is with advance-funded, government-protected pension plans that provide a modest, secure benefit to those who spend a career in public service -- providing for public safety, protecting the homeland, caring for the sick and educating our children. Public pension plans disburse more than $150 Billion in annual benefits to 7 million Americans. These distributions not only provide financial security to retirees and their survivors, but also provide economic stability and stimulus through a consistent, inflation-protected revenue streams flowing into communities throughout the nation. While the number of corporate pension plans is seriously on the decline, public pensions have continued to flourish -- solid evidence that their existing regulatory structure is working. This model should be emulated, not used to provoke taxpayer resentment, or dismissed as outdated or obsolete, particularly, when the growing number of workers who will have no income security in retirement will ultimately place increased strain on our public assistance programs and our economy. The letter expresses the organizations’ shared desire to correct widely-publicized information about state and local government employee retirement systems. (Attached to the letter is a chart setting forth “key facts regarding state and local government defined benefit retirement plans.) Right on!


The City of Ontario, California, contracted with a company to provide its police and other employees with wireless text-messaging services and distributed two-way pagers to them, but without articulating an official policy as to their use. However, its e-mail and internet rules limited use to city-related business. The city learned that some employees had exceeded their character text-messaging limit, requiring it to pay overage charges. So, the city had the outside company deliver to the city stored messages, including personal to-and-from messages. In delivering those messages, the company violated the Stored Communications Act. And, in reviewing them, the city violated the Fourth Amendment. Users of text messaging have a reasonable expectation of privacy in the text messages stored on the service provider’s network. However, the police chief involved had qualified immunity, as the Fourth Amendment’s application to text messaging was not clearly established. Thus, the appellate court reversed, in part, a United States District Court holding that the outside company did not violate the Stored Communications Act. Quon v. Arch Wireless Operating Company, Incorporated, Case No. 07-55282 (U.S. 9th Cir., June 18, 2008).


Internal Revenue Service has announced an increase in the optional standard mileage rates for the final six months of 2008. Taxpayers may use the optional standard rates to calculate deductible cost of operating an automobile for business, charitable, medical or moving expenses. The rate will increase to 58.5 cents a mile for all business miles driven from July 1, 2008 through December 31, 2008. The increase is 8 cents, from 50.5 cent rate in effect for the first six months of 2008. In recognition of recent gasoline price increases, IRS has made this special adjustment for the final months of 2008. IRS normally updates mileage rates once a year, in the fall for the next calendar year. The optional business standard mileage rate is used to compute deductible costs of operating an automobile for business use in lieu of tracking actual cost. The rate is used as a benchmark by the federal government and many businesses to reimburse employees for mileage. The new six-month rate for computing deductible medical or moving expenses will also increase by 8 cents, to 27 cents a mile, up from the 19 cents for the first six months of 2008. The rate for providing services for charitable organizations is set by statute, not by IRS, and remains at 14 cents a mile. IR-2008-082 (June 23, 2008)


A new Florida law expands the grounds for forfeiture of public pensions. Previously, Section 112.3173, Florida Statutes, defined “specified offense” as embezzlement of public funds; theft by public officer or employee from his employer; bribery in connection with employment of a public officer or employee; certain felonies specified in Chapter 838, Florida Statutes (unlawful compensation, official misconduct); committing an impeachable offense; or committing of any felony by a public officer or employee with intent to defraud the public of the right to receive faithful performance of his duties. Now, a new ground has been added:

The committing on or after October 1, 2008, of any felony defined in s. 800.04 against a victim younger than 16 years of age, or any felony defined in chapter 794 against a victim younger than 18 years of age, by a public officer or employee through the use or attempted use of power, rights, privileges, duties, or position of his or her public office or employment position.

Section 800.04, Florida Statutes, deals with lewd and lascivious offenses committed upon or in presence of persons less than 16 years of age. Chapter 794, Florida Statutes, deals with sexual battery. The new law also similarly amends forfeiture provisions of the Florida Retirement System. CS for CS for CS for SB 1712 (effective July 1, 2008).


The Florida Legislature has found that financially prudent technology and growth investments by the State Board of Administration with funds from the Florida Retirement System Trust Fund have potential for high-growth, high-wage jobs that will provide significant benefits to state residents and a variety of business sectors. The Legislature further found that such investments will create jobs and housing, improve the state’s general infrastructure and serve broad interests of beneficiaries of the trust fund. The legislature also found that technology and growth investments help promote employer contributions to the system by strengthening the economy and the well-being of employers. Therefore, the Florida Legislature has declared that it is the policy that the State Board of Administration identify and invest in technology and growth investments if such investments are consistent with and do not compromise or conflict with the fiduciary duties of the State Board of Administration to the participants, members and beneficiaries of the Florida Retirement System. Thus, the Florida Legislature amended Section 215.47, Florida Statutes, by adding a new subsection (7), providing that the State Board of Administration, consistent with its fiduciary duties, may invest up to 1.5% of net assets of the system trust fund in technology and growth investments with businesses domiciled in this state or businesses whose principal address is in this state. The new law also amends subsection (15), increasing from 5% to 10% alternative investments, and specifically including therein securities and investments that are not publicly traded and are not otherwise authorized by Section 215.47, Florida Statutes. CS for SB 2310 (effective July 1, 2008).


Dawkins received an “Official Reprimand” for failing to notify his supervisor of absences. The Official Reprimand provided that the absences would be considered unauthorized leave without pay. Dawkins appealed the official reprimand to the City of Miami Civil Service Board, which found him not guilty of being on leave without notice. Thereafter, the City Manager reversed the finding of the Civil Service Board, and Dawkins sought certiorari review in the circuit court. Primarily, the City of Miami denied the Civil Service Board had jurisdiction to hear Dawkins’s appeal. The City of Miami Charter sets forth the jurisdictional basis for appeals to the Civil Service Board: any employee who deems that he has been suspended, removed, fined, laid off or demoted without cause may request a hearing before the Civil Service Board. The Charter provision does not depend upon whether an employee was actually suspended, removed, fined, laid off or demoted without cause, but whether the employee “deems” he has been suspended, removed, fined, laid off or demoted without cause. Here, Dawkins clearly deemed his Official Reprimand a suspension or fine within the Charter. Besides, the Official Reprimand itself stated that any further incidents of this nature will result in further disciplinary action. Thus, the Civil Service Board had jurisdiction to reverse Dawkins’s Official Reprimand, which decision the reviewing court found was based upon competent substantial evidence. Accordingly, the Civil Service Board’s conclusions were binding upon the City Manager. Dawkins v. City of Miami, 15 Fla. L. Weekly Supp. 568 (Fla. 11th Cir., April 8, 2008).


Fredericq sought certiorari review in the circuit court to reverse a decision of the Miami-Dade County Manager to modify the level of discipline recommended by a hearing examiner. Fredericq was issued a Disciplinary Action Report for violation of County Personnel Rules and the conclusion that she was incompetent and inefficient in performance of her duty. After termination by her immediate supervisor, Fredericq appealed and an administrative hearing was conducted. Although the hearing officer rejected her arguments as to grounds for discipline, the hearing officer recommended that Fredericq be given a written reprimand. The County Manager accepted the hearing examiner’s conclusion but rejected the recommendation to reduce the level of discipline to a written reprimand. (Fredericq had an 18-year unblemished career with the County prior to the incident in question.) On review, Fredericq asserted only one ground for reversal: that the County Manager exceeded his authority when he rejected the hearing examiner’s recommendation and sustained her termination. However, based on well-settled case law, the County Manager is not bound by recommendation of the hearing examiner concerning level of discipline that should be administered. It is entirely within the County Manager’s discretion to determine appropriate discipline to meted out to employees. Fredericq v. Miami-Dade County, 15 Fla. L. Weekly Supp. 569 (Fla. 11th Cir., April 9, 2008).

Most of our readers know that Section 112.66, Florida Statutes, provides that provisions of each retirement system or plan shall be contained in a written summary plan description, to be published on a biennial basis, in a manner calculated to be understood by the average plan participant and sufficiently accurate and comprehensive to apprise participants of their rights and obligations under the plan and which shall include a report of pertinent financial and actuarial information on the solvency and actuarial soundness of the plan. Such SPD shall be furnished to a member of the system or plan upon initial employment or participation in such plan and, thereafter, with each new biennial publication by the administrator. We are often asked whether an SPD can be furnished other than by delivery of a hard copy. Well, mere posting on a website is clearly not sufficient. Gertjejansen v. Kemper Insurance Companies, Inc., Case No. 06-56329 (U.S. 9th Cir., April 11, 2008) (unpublished). But what about e-mail? Electronic transmission of documentation presents a closer question. For example, under ERISA, 29 C.F.R. § 2520.104b-1(c)(1)(i) provides that a plan administrator satisfies disclosure requirements by furnishing documents through electronic media as long as the administrator takes appropriate and necessary measures reasonably calculated to ensure that the system for furnishing documents results in actual receipt of transmitted information (for example, using return-receipt or notice of undelivered electronic mail features). However the regulation does not stop there: the regulations have many hoops that need to be jumped through, including prior consent by the proposed recipient. Besides, the recipient always has the right to request a paper version anyway. Our conclusion is that, until we have some Florida rules on the subject, administrators should continue to furnish SPDs the old fashioned way.


The City of Hollywood appealed final judgments awarding damages for age discrimination in favor of two police officers; the officers appealed entry of a judgment notwithstanding the verdict on their retaliation claims. The City argued that the officers did not prove the case of age discrimination and, in the alternative, the court erred in denying the City’s motion for remittitur or a new trial. On cross appeal, the officers contend that the court eliminated their claim for retaliation when there was competent substantial evidence to support it. The appellate court affirmed finding of liability for age discrimination, but reversed denial of motion for remittitur or new trial, as compensatory damages were grossly excessive. The court also reversed final judgment in the City’s favor on the retaliation claims, because the court erred in granting the motion for judgment notwithstanding the verdict on those claims. The jury had awarded each plaintiff $1,183,544. Of that sum, $83,544 was awarded for lost wages, and $1,100,000 was awarded for compensatory damages other than lost wages. There was little if any evidence of emotional injury as the result of the Chief’s failure to promote and scant evidence to support any further injuries for the retaliation. That it was impossible to separate the claims only furthered the court’s resolution that the $1,000,000 awards shocked the judicial conscience and required a substantial remittitur. While one officer may have proved more injury, depending upon the cause of connection between the promotional decision and his high blood pressure, the other proved little emotional injury. His case, in particular, is more of the typical case with a range of $5,000 to $30,000. The first officer’s case may be worth more, but the highest award in any prior case was $150,000. The court reversed the awards for non-economic damages, and remanded for the trial court to determine a remittitur amount consistent with the criteria set forth in the opinion, and for a new trial should the plaintiffs refuse the remitted amounts. Hogan v. City of Hollywood, Florida, 33 Fla. L. Weekly D1449 (Fla. 4th DCA, June 4, 2008). [Editor’s note: Francis “Frank” Hogan served as long-time Chairman of our client, Hollywood Police Pension Fund.]


In 1995, the City of Chicago administered a new written test to 26,000 applicants for jobs as firefighters. After grading the tests, the city placed applicants in three categories, based on their scores: “well qualified,” “qualified,” and “not qualified.” Applicants were told test results within days after January 26, 1996, when notices of results were mailed to all applicants. The notices stated that applicants in the “qualified” category were unlikely to be hired because of the large number whose scores had placed them in the “well qualified” category. However, applicants rated “qualified” would remain on the eligible list for as long as the list was used. Black applicants in the “qualified” category brought suit, alleging that basing hiring decisions on the test violated Title VII of the Civil Rights Act of 1964. The United States District judge ultimately ruled in favor of plaintiffs, and the City appealed. In reversing, the Court of Appeals determined that plaintiffs had missed the 300-day deadline for filing with EEOC, which ran from when the test results were sent to applicants. The continuing violation doctrine is not applicable, in that merely allows one to delay suing until a series of acts by a prospective defendant blossoms into a wrongful injury on which a suit can be based. At appellate oral argument, plaintiffs’ lawyer admitted his reason for not filing the charge within 300 days was not that he needed more time to be able to file such charge, but that he did not think it was necessary because he thought the statute of limitations would not begin to run until the City began hiring applicants from the “well qualified” category on the list. “That was a fatal mistake.” Lewis v. City of Chicago, Case No. 07-2052 (U.S. 7th Cir., June 4, 2008).


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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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