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Cypen & Cypen
JUNE 3, 2010

Stephen H. Cypen, Esq., Editor

1.         SEC APPROVES RULE CHANGES TO ENHANCE MUNICIPAL SECURITIES DISCLOSURE:  The Securities and Exchange Commission has voted unanimously to approve rule changes improving quality and timeliness of municipal securities disclosure.  Municipal securities, such as municipal bonds, are exempt from the disclosure requirements of the federal securities laws.  Thus, SEC’s statutory authority is limited.  The rule amendments just approved are designed to provide enhanced information to municipal securities investors by further regulating those who underwrite or sell such municipal securities.  The measures will strengthen existing requirements for the scope of securities covered, the nature of the events that issuers must disclose and the time period in which disclosure must be made.  Over the years, the Commission has set forth interpretations under the antifraud provisions of the federal securities laws to require municipal securities underwriters to have a reasonable basis for recommending any municipal securities.  The adopting release reaffirms that, to have a reasonable basis to recommend a security, a municipal underwriter must carefully evaluate likelihood that a municipality will make the ongoing disclosure called for by the amended rule.  The adopting release further states that it is doubtful an underwriter could form a reasonable basis to recommend a security if the municipality had a history of persistent and material non-disclosure.   Compliance date of the new rules is December 1, 2010.  Release 2010-85 (May 26, 2010). 

 2.  RELOCATION IN RETIREMENT TAKES CAREFUL FINANCIAL, LOGISTICAL PLANNING:  For employers that offer retirement planning advice, an important topic for advisers to raise with employees is possibility of relocating after they retire.  Employee Benefit News reports that 42% of today's 50-year-olds plan to relocate, compared to 36% of 50-year-olds in 1996.  Further, about 50% of those considering relocation plan to move to a different state, while 25% plan to move to a different city within the same state.  Employees need concretely to plan -- not just carelessly ponder -- for a relocation following retirement, and should not pack the moving van without considering a number of key factors, including the cost of living and health care.  A survey last year reported that of 502 married couples only 38% report making decisions about their retirement finances together!  Moreover, many couples do not agree on such basics as what type of lifestyle they expect to have in retirement.  Future retirees also must understand that their retirement needs may differ from one phase of retirement to another. At first, many retirees will be eager to travel, pursue hobbies or volunteer without restriction.  However, retirees inevitably move from the "go-go stage" to the "slow-go stage."  The third stage, the "no-go stage," is the point at which physical/mental limitations prevent retirees from sustaining the active pace of the previous stages.  The different stages of retirement will impact where a retiree spends his money and how much he spends.  Keeping the different stages of retirement in mind will be beneficial to current employees in retirement planning, whether the focus is finance, lifestyles or where to live. Outside of the obvious considerations such as cost of living and health care, there are many other important considerations, including family.  The serious health condition of a family member may be reason not to relocate or at least to postpone a scheduled relocation.  Other considerations include: 

  • Can you afford the occasional trip back to your old hometown for significant events such as family reunions, funerals, weddings or birth of grandchildren?
  • If you need part-time work while in retirement, what are the employment prospects in your new location?
  • Does the increased probability of natural disasters, such as hurricanes or earthquakes, in the new location cause concern? 
  • Are amenities such as grocery stores, shopping areas, airports and public transportation convenient in the new location?
  • Taxes can vary a lot by state; have you looked at your tax strategy? 

Just as marriage should not be entered into lightly, neither should relocation occur without a thorough analysis of all important factors.  It is important that employers stress to retirees that there are ample sources available to them to make their decision, but they must be prepared to do the homework.

 3. HARVARD MADE FINANCIAL CRISIS WORSE:  Harvard University, the richest U.S. college, and five of its New England peers succumbed to Wall Street’s influence on investment strategies, took on too much risk and made the financial crisis worse, according to a study from Tellus Institute and the Center for Social Philanthropy.  The report also surveyed Dartmouth College, MIT, Boston College, Boston University and Brandeis University.  Harvard’s endowment dropped a record 30 percent, to $26 Billion, in the year ended June 30, 2009.  The school had an average annual gain of 8.9 percent in the decade ended June 2009, beating the 3.9 percent increase of the Standard & Poor’s 500 Index.  Colleges that outperformed market indices with the “endowment model” lost money when their hard-to-sell holdings fell more than stocks and bonds during the crisis that started with the collapse of the U.S. housing market in 2007.  (The endowment model, pioneered by Yale University, relies on alternative assets, including commodities, real estate and private equity holdings to boost returns.)  The report concludes that the endowment model of investing is broken. 

 4. CITY TO DROP SOCIAL SECURITY OFFSET:  The (Norfolk) Virginian-Pilot reports that several hundred city retirees could benefit from a Portsmouth,. Virginia, city council resolution concerning their pensions.  Passed unanimously, the resolution directs the city manager to create a three-year plan to eliminate the so-called Social Security offset.  That provision reduces city benefits when a retiree receives Social Security.  Council members want the plan in place by next spring.  The offset affects only employees who stayed in the Portsmouth Supplemental Retirement System when the city switched to the Virginia Retirement System in 1984.  About 440 active or retired members are in the older system.  One study estimated removing the offset would cost about $1.9 Million a year.  Now catch this:  before the vote, the city attorney disclosed that council members would also be covered under the retirement plan.  He said they could still vote on the plan, however, because they would not be treated differently from the other members!  No ethical problem there. 

 5. MASS. PENSION FUND HEAD TO STEP DOWN:  Michael Travaglini, who heads the Massachusetts Pension Reserves Investment Management Board and is among the highest paid government employees in the state, plans to resign to go work for a Chicago investment firm, according to ai5000 magazine.  Travaglini currently earns a base salary of $233,000, and can make as much as 40% in addition as a bonus.  His decision to quit is a result of efforts by legislators to curb compensation of people in his office, limiting a performance-based bonus system in the pension agency that he helped create three years ago.  Travaglini believes the two legislative proposals would make it more difficult to attract and retain talent to run the state's pension fund:  The first would limit ability of state workers to earn more than the governor, and the second would block bonuses for years in which the pension fund lost money.  Under Travaglini's leadership, the state's pension fund has performed relatively well over the five full fiscal years, despite dropping 23.9% in the fiscal year that ended June 30, 2009.  As of March 31, 2009, MassPRIM had $44 Billion under management.  Look for Travaglini to sock away a lot more money in the private sector. 

 6. TEXAS LEVIES RECORD ETHICS FINE:  In Florida, any person who is required to file a Statement of Financial Interests but who fails timely to file is assessed a fine of $25 a day for each day late up to a maximum of $1,500; however, the $1,500 limitation on automatic fines does not limit the civil penalty that may be imposed if the statement is filed more than 60 days after the deadline and a complaint is filed.  In addition, a public officer may be punished by impeachment, removal from office, suspension from office, public censure/remand, forfeiture of up to one-third salary per month for no more than 12 months and a civil penalty not to exceed $10,000.  Well, everything is bigger in Texas, as that state’s ethics commission has levied a record $100,000 fine against a criminal appeals judge for failing fully to disclose her personal finances as required by law.  The fine against her surpassed the $75,000 penalty levied last year against a county commissioner and the $29,000 fine imposed upon a Texas Supreme Court Justice in 2008.  The ethics commission, according to,  fined the  judge for failing to report $2.4 Million in holdings.  She did file  amended reports two years later, after news reports revealed her missing holdings.  Meanwhile, the fine is not the judge’s only problem:  she has been fighting to hold onto her seat against charges by the commission on judicial conduct that she brought discredit to the judiciary by closing the court to a death row inmate’s appeals just hours before he was executed.   Although a special master found she did nothing legally wrong, prosecutors are appealing the decision.  The eyes of Texas are upon you. 

 7. CalPERS INTRODUCES ONLINE SERVICE FOR MONEY MANAGERS:  External money managers seeking to do business with California Public Employees’ Retirement System will soon be able to use the Internet to send their proposals directly to the fund’s investment professionals, a significant step in efforts to halt use of placement agents sometimes hired to seek pension fund money.  As reported by, CalPERS will introduce a new investment proposal online service allowing skilled managers to submit investment proposals to the fund in one of seven asset classes:  private equity, real estate, forestland, infrastructure, commodities, global fixed income and global equity.  Once submitted, the proposals will be thoroughly reviewed by CalPERS staff.  CalPERS will also be holding webinars describing how emerging managers can do business with the fund, and explaining CalPERS’ investment evaluation process, its asset classes and investment programs.  CalPERS recently reached agreement with more than 50 investment managers to cut about $99 Million in fees.  The reductions are in addition to the $125 Million fee-cut agreement announced earlier with Apollo Global Management.

 8. COURT ERRED BY AMENDING DIVORCE JUDGMENT TO CHANGE VALUATION DATE AND VALUES OF RETIREMENT ACCOUNTS:  The trial court awarded wife her half of the marital portion of three retirement accounts.  The court valued these accounts as of the trial date based on the evidence presented.  But, subsequently, the court valued them as of the date the final judgment was entered, to reflect  a downturn in the economy as asserted by the husband.  The court erred by changing the valuation date and values without any evidentiary basis.  Although the trial court has discretion to choose an equitable date to value assets, the trial court must establish a value based on competent, substantial evidence.  The husband's bare assertions in a motion for rehearing were not evidence.  Although value of the assets may well have dropped, as the husband asserted, he failed to present any evidence to support this assertion or the court's findings.  Therefore, the appellate court reversed the Amended Final Judgment and remanded with directions that the trial court either correct the judgment by inserting values set forth in the original Final Judgment, which were based upon the evidence presented at trial, or hold an evidentiary hearing before reconsidering such values.  Lilly v. Lilly, 35 Fla. L. Weekly D1202 (Fla. 5th DCA, May 28, 2010).  The song of love is a sad song, hi Lili, hi Lili, hi Lo. 

10. ALL PUNS INTENDED:  I went to a seafood disco last week... and pulled a mussel. 

11. OXYMORON:  Why do we put suits in garment bags and garments in a suitcase? 

12. FABULOUS RANDOM THOUGHTS:  I find it hard to believe there are actually people who get in the shower first and THEN turn on the water.

13. QUOTE OF THE WEEK:  “Personally, I’m waiting for Caller IQ.”  Sandra Bernhard

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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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