Cypen & Cypen
JUNE 17, 2010
Stephen H. Cypen, Esq., Editor
1. CalPERS WILL SEEK ANOTHER $700 MILLION: Latimes.com reports that California's giant California Public Employees’ Retirement System is preparing to seek another $700 Million from the state and school districts, after postponing a decision last month because of concerns about the state's massive budget deficit. Staff at CalPERS is recommending the increase, and the pension fund board is set to reconsider it on June 15, 2010. Several board members, including state Treasurer Bill Lockyer, who questioned the move last month, now favor it. The nation’s second largest public pension fund, California State Teachers' Retirement System, does not plan to ask for a rate change from the state. Unlike CalPERS, CalSTRS requires legislative approval when it requests more money.
2. HOW DOES YOUR RETIREMENT PROGRAM STACK UP?: Mercer has released its 2010 issue of “How does your retirement program stack up?” The annual survey report analyzes retirement programs sponsored by companies in the S&P 1500. Here are some highlights and principal conclusions on the topic of “pension health:”
As the report illustrates, the aftermath of the severe market turndown that began in 2008 continues to dominate the landscape for retirement benefits. Managing these challenges in a way that harmonizes an employer’s broader business and workforce objectives will require integrating all policy levers into the decision-making process.
3. NEW YORK PENSION FUND REBOUNDS: The New York state pension fund grew 25.9 percent for the fiscal year that ended March 31, 2010, putting the total fund value at $132.6 Billion. As reported by wwgrz.com, the State Comptroller said he could not predict whether the fund's recent success will mean less of a burden on local governments’ pension costs in future years. Pension costs for local governments are expected to soar by 61 percent in 2011 to cover retirees' benefits. The Comptroller will set pension costs for local governments in 2012 later this year. He said the fund's performance was its third best in 20 years, trailing only 1998 at 30.4 percent and 2004 at 28.8 percent. The fund's public equity investments gained nearly 52 percent for the year, compared to the S&P 500, which rose 45 percent and the Nasdaq, which grew by 55 percent. The biggest drop in the fund was in its real-estate portfolio, which posted a negative 27.8 percent rate of return.
4. SEVENTY-SIX-YEAR-OLD NEW YORK LAWYER SUSPENDED FOR SE.XUAL MISCONDUCT: A personal injury lawyer who was caught on tape making unwelcome se.xual advances to a client has been suspended from practicing law for six months according to New York Law Journal. Allen H. Isaac, 76, avoided the harsher five-year suspension sought by a hearing panel and total disbarment sought by the Departmental Disciplinary Committee. The committee had charged Isaac with acts of professional misconduct after he allegedly asked a client for oral se.x and made inappropriate comments about the judiciary, much of which the client secretly caught on tape. The New York Appellate Division cited Isaac's age and long and unblemished record practicing law in suspending him for only six months. 76? Hmm. We would have confiscated his little blue pills and sentenced him to four hours in jail. We don’t make this stuff up, folks.
5. FORMER PBGC HEAD CLEARED IN PROBE: Charles Millard, former head of the Pension Benefit Guarantee Corporation, has been exonerated relating to his allegedly contact with investment firms during his tenure at the nation’s pension insurance fund. Assetinternational.com reports that the PBGC inspector general has conducted an investigation with the United States Attorneys’ Office for the Southern District of New York, and no charges will be filed. The inquiry stemmed from Millard’s contact with companies and executives involved with award of the Strategic Partnership contracts. According to the PBGC inspector general’s earlier report, Millard had intervened in evaluation of Goldman Sachs, JP Morgan Chase and Blackrock at a same time when these firms were bidding for the right to manage a $2.5 Billion chunk of PBGC’s assets. Millard was also accused of receiving assistance from Goldman Sachs in finding a job for when his term expired in January of 2009. With official exoneration from the Inspector General, both matters are now formally closed.
6. OBAMA AFFORDS BENEFITS TO WORKERS’ SAME-SE.X PARTNERS: USA Today reports that President Obama is extending child care, medical leave and other benefits to same-se.x partners of federal employees. The president directed federal agencies immediately to begin allowing domestic partners and their children some of the same rights available to spouses and children of employees. Included are child-care services and subsidies, expanded family/medical leave/relocation and other benefits. The president's action covers only benefits that can be extended under existing law, without congressional action. Legislative action would be required for a full range of health care and other benefits. This step is the president's latest on gay rights. He has also supported a rollback of the military's "don't ask don't tell" that governs gay military members.
7. AFTER TWO YEARS ON JOB, PHILADELPHIA CITY MANAGER WILL RECEIVE PENSION: Camille Barnett will receive nearly $50,000 annually from the City of Philadelphia pension fund for the rest of her life, after June 30, when she leaves her post as Philadelphia's City Manager. Philly.com reports that she will have served two years, five months and 24 days. On the same day that a City Council committee moved to close the loophole that allows short-time employees such as Barnett to buy credit in the city's pension fund based on public service elsewhere, the Pension Board revealed that Barnett had done just that. She paid $122,000 to become vested in the pension plan, a privilege unionized employees are entitled to only after serving five years. She had already made some payments toward the buy-in, and paid the balance of $107,000 on April 15. Barnett's salary this year is $182,000. It’s good to be King Queen.
8. HOW WELL DO YOU UNDERSTAND SOCIAL SECURITY?: If you are approaching retirement or are already there, you may want to hear a nine-minute video presentation from Bill Hunot, who retired from the Social Security Administration after a 27-year career. Mr. Hunot discusses (1) when you should begin taking Social Security benefits; (2) the effects that taking Social Security benefits early may have on your retirement income; (3) how certain income could affect taxation of your Social Security benefits; and (4) why it is important to understand the difference between the earnings limit and taxability of your Social Security benefits. To review this helpful presentation, visit http://www.wellsfargoadvisors.com/2010socialsecurity.
9. WHAT CAN WE LEARN FROM A 1948 CARTOON?: What can a cartoon, produced in 1948, teach us today, that is of any value? You would be very surprised. Pay close attention. Keep in mind as you watch this 10-minute gem that it was done in 1948. Keep telling yourself that, as you view it at http://nationaljuggernaut.blogspot.com/2009/09/this-cartoon-seemed-far-fetched-in-1948.html. This cartoon is timeless, and its message is just as true today as it was over 60 years ago.
10. NEW YORK MTA LAYOFFS ILLEGAL: In the latest back-and-forth over legality of the Metropolitan Transportation Authority’s layoffs of hundreds of subway station agents, a judge ruled that the authority violated the law when it closed booths and laid off about 260 agents, without holding public hearings. But the judge, according to the New York Times, did not rule on whether the authority must reopen closed booths or rehire laid-off workers. For its part, the authority announced its intention to appeal the ruling, and immediately to start the public-hearing process. The authority also planned to lay off over 200 more agents, as part of the effort to close an alleged budget gap. The judge ruled that the authority had not followed New York Public Authorities Law 1205, which states that a complete or partial closing of a passenger station can occur only after a public hearing, provided it is not for emergency reasons or repairs. Previously, when the authority was about to lay off nearly 500 agents, another New York State Supreme Court justice issued a last-minute stay, blocking the layoffs. A few days later, the authority moved ahead and laid off the 260 agents, who worked in customer-assistance booths rather than sales booths, saying the customer-assistance agents were not covered by the stay.
11. NEW BONDS TO HELP CASH-STRAPPED STATES ALSO BENEFIT WALL STREET: New federally-subsidized bonds that have proven wildly popular in helping cash-strapped state and local governments fund roads, schools and other construction projects also offer a windfall to a less obvious beneficiary: Wall Street banks. (Big surprise.) Goldman Sachs, J.P. Morgan Chase and other firms that dominate the U.S. underwriting market stand to earn billions of dollars under a planned expansion of the Build America Bonds program, which provides tax credits to local and state governments seeking to finance capital projects. The Washington Post reports that major banks lobbied heavily for the program's expansion under a jobs bill recently passed by the House and under consideration in the Senate. The bonds, first issued last year as part of President Obama's stimulus package, were a key factor in reviving the moribund municipal bond market over the last year. They also provide two key benefits to Wall Street firms: new customers who would not usually buy municipal debt and higher commissions than those for traditional tax-exempt bond deals. Investment banks have earned more than $670 Million from selling the bonds, with average fees nearly 20 percent higher than traditional tax-exempt bond issues over the past 14 months. (Data do show that fees have come down somewhat in recent months, as the bonds become more widely-known to investors).
12. POLICE AND FIRE UNIONS SUE BALTIMORE OVER PENSIONS: Baltimore's police and fire unions filed a federal lawsuit against the city. alleging officials "knowingly underfunded" their pension plan over the past decade, ignoring advice of financial experts hired by the city. Reported by the Baltimore Sun, the lawsuit marks beginning of what could be a lengthy and expensive legal battle in the emotionally-charged debate on altering retirement benefits paid to public safety officers. If drastic changes are not made to the pension system by July 1, the city says it will be unable to pay the $66 Million due. Union leaders, stressing the dangerous and physically-grueling nature of their work, say the pension changes proposed by the city constitute a violation of their contract. The lawsuit charges that from 2003 to 2008, city financial officials disregarded actuaries’ recommendations to lower an assumed rate of return because it would have forced the city to contribute millions more to the plan. Meanwhile, perhaps in response to the lawsuit, Baltimore lawmakers will consider a new pension measure reforming the police and fire pension system. Considering the distance between the parties positions, it is hard to imagine that the new version will resolve their differences.
13. BAD NEWS FOR PUBLIC PENSION FUNDS AND TAXPAYERS?: The Government Accounting Standards Board is preparing to release a preliminary view of proposed pension accounting reforms, which could increase the need for higher contributions to finance public pension funds. The board’s preliminary views document, a culmination of years of research, is expected to be issued later this month, according to assetinternational.com. The accounting changes, if adopted, reflect the latest move in a trend to require state and local governments to fund promises they have made to future retirees. The document will encompass (1) areas of defined benefit pension processes subject to financial reporting; (2) recognition of employers’ pension liabilities and expenses; (3) alternative approaches to measurement of pension obligations for accounting and financial reporting purposes; (4) use of actuarial methods in accounting measurement; and (5) issues specific to employers’ participation in cost-sharing multiple-employer pension plans. The final rules would probably raise market liability by one-third to one-fourth! GASB, an independent professional organization that establishes accounting and financial reporting standards for state and local governments, also suggests it may recommend lowering the number of years pension funds use to calculate amortization of liabilities, which could lead to additional increases in contribution rates. When is enough enough?
14. BP SAYS IT WILL MEET PENSION OBLIGATIONS: BP Executives have assured institutional investors, including pension plans, that despite spiraling costs following the Gulf of Mexico oil spill disaster, the company’s obligations will be met. Nevertheless, assetinternational.com reports that the firm has delayed a decision to late July on whether to suspend paying its next quarterly dividend, as some U.S. lawmakers had demanded.
15. SPECIAL MAGISTRATE CONSTITUTES OFFICE WITHIN SCOPE OF DUAL OFFICE-HOLDING PROHIBITION: Three attorneys collectively asked the Florida Attorney General for an opinion on substantially the following question:
The Attorney General has previously concluded that quasi-judicial officers such as special magistrates are officers within the scope of the constitutional dual office-holding prohibition of Article II, section 5(a), Florida Constitution. It would appear that the dual office-holding prohibition in Article II, section 5(a), Florida Constitution, would preclude a city commissioner, a member of a planning and zoning commission, a code enforcement hearing officer, or a member of a regional planning commission (with authority to take final action) from also serving as a special magistrate, hearing officer or magistrate. AGO 2010-19 (June 7, 2010).
16. FRS WILL MOVE TO HEDGE FUNDS AND INFRASTRUCTURE: For the first time, Florida Retirement System will invest 6% of its assets in hedge funds, 2% in infrastructure, and combine U.S. and international equities into a single global equity asset class, according to pionline.com. The Florida State Board of Administration, which is responsible for investing FRS’s assets, also approved moving more money into internal management and increasing its passive equity and fixed-income allocations, all designed to lower costs and risk. Under new targets, FRS's hedge fund allocation would consist of 2% each to absolute-return, long/short equity and open mandate strategies. In addition, the new allocation would raise the private equity target to 5% from 3.5% and debt-oriented funds to 3% from 1.8%. To implement the new targets fully, SBA would have to seek legislative approval to raise the statutory 10% limit on alternative investments, defined as private equity, venture capital, distressed securities and hedge funds. A 52% allocation to global equity will replace existing allocations of 37.4% to domestic equity and 20% to non-U.S. equity. We are wondering if SBA ever heard of Harvard (see C&C Newsletter for June 3, 2010, Item 3). (Separately, Harvard announced that one of its top-paid endowment managers left to oversee investments for Bill Gates and his foundation.)
17. IF YOU REALLY HAVE TO DIE SOON, PLEASE DO SO BY END OF THE YEAR: A Texas pipeline tycoon who died two months ago may become the first American billionaire allowed to pass his fortune to his children and grandchildren tax-free. Dan Duncan, a soft-spoken farm boy who started with $10,000 and two propane trucks, and built a network of natural gas processing plants and pipelines that made him the richest person in Houston, died in late March of a brain hemorrhage, at 77. As reported by the New York Times, had his life ended three months earlier, Mr. Duncan’s riches ($9 Billion/ Forbes No. 74) would have been subject to a federal tax of at least 45 percent. If he had lived past January 1, 2011, the rate would be 55 percent. Instead, because Congress allowed the tax to lapse for one year and gave all estates a free pass in 2010, Mr. Duncan’s four children and four grandchildren stand to collect billions that in any other year would have gone to the Treasury. (Nice going, Congress.) The first estate tax was enacted in 1916, and when John D. Rockefeller died in 1937, his estate paid 70 percent. Since then, rates have fluctuated, but the tax had never before been repealed altogether. Until January 1 of this year, the estate tax applied to any estate valued at more than $3.5 Million, taxing only the money exceeding that threshold, or $7 Million for a couple. Although the tax affects only about 5,500 estates a year, it is such an incendiary issue that when Congress unexpectedly let it lapse at the end of last year, financial advisers warned that it might play a macabre factor in the end-of-life decisions being weighed by heirs of elderly Americans. Some estate lawyers worried that tax considerations might prompt their clients to keep an ill relative on life support through the end of 2009 to receive the favorable treatment, or worse, resist life-prolonging measures to hasten a relative’s demise before the end of 2010. For the record, billionaires like Warren Buffett and Bill Gates support an estate tax. Indeed, without an estate tax, many charities would not receive the largess of people like Buffett and Gates.
18. CLERK ENDS SICK LEAVE PAYOUTS: The Palm Beach County, Florida, Clerk/Comptroller has eliminated payments for unused sick leave when workers end their employment with her office, a move expected to save $250,000 a year. Accrued sick leave payments to departing workers are standard practice for public employers in Florida, according to Daily Business Review. Employees were notified that they would not be paid for unused sick leave accumulated after May 8, 2010. The Clerk offered a buyout of 25 percent to 50 percent of the value of accumulated leave based on years of service. About 73 percent of eligible employees took part, cutting the office's payout obligation by 89 percent. Even with the cuts and a hiring freeze, the Clerk estimates her office will have a $3.2 Million budget gap to close during the fiscal year beginning July 1, 2010. Last year, the Clerk lost $7.1 Million in funding and 109 jobs to state budget cuts.
19. IN VETERANS CLAIMS, “SERVICE TRAUMA” DOES NOT INCLUDE INTENDED RESULT OF PROPER MEDICAL TREATMENT: Nielson appealed from a final judgment of the United States Court of Appeals for Veterans Claims denying him entitlement to Department of Veterans Affairs outpatient dental treatment and related dental appliances because the removal of his teeth during service was not due to a "service trauma." The appellate court held that a "service trauma" under the statute is an injury or wound produced by an external physical force during performance of military duties, and does not include the intended result of proper medical treatment. Because the VA had found that Nielson's teeth were properly extracted due to periodontal infection, the judgment was affirmed. The court did not, however, suggest that an unintended result of medical treatment due to military negligence or malpractice could not be a "service trauma.” The appellate court’s approach was not contrary to the Supreme Court's mandate that "interpretive doubt is to be resolved in the veteran's favor," as that canon is only applicable if statutory language is ambiguous, which was not the case here. Finally, Nielson argued that even if tooth extraction would not ordinarily be a "service trauma," a "service trauma" could be psychological stress resulting from pulling of teeth without anesthesia. The court rejected that construction, as well. Nielson v. Shinseki, Secretary of Veterans Affairs, Case No. 2009-7129 (U.S. Fed. Cir., June 7, 2010).
20. U.S. CORPORATE PLANS’ FUNDING IMPROVES: The aggregate funded ratio of the 100 largest U.S. corporate pension plans rose to 83.9% in 2009 from 81.2% in 2008. The plans had an aggregate funding deficit of $180 Billion in 2009, based on projected benefit obligations, according to pionline.com. In the previous year, funding had plunged to a deficit of $198.9 Billion, wiping out five straight years of gains. The top 100 plans had an aggregate surplus of $111.1 Billion in 2007 and $37.3 Billion in 2006. The increase was due to a healthier return environment in 2009, as well as higher employer contributions.
21. TOOTH FAIRY PAYOUT HELPS KIDS LEARN ABOUT MONEY?: Good news, kids: the recession has not bitten the Tooth Fairy. According to the Sacramento Bee, for every tooth left under a pillow, the average U.S. child under 10 gets $3. Even as many financially strapped families are cutting back on extras, the Tooth Fairy's cash-for-cuspid swap apparently has not slowed. About 94 percent of those surveyed with pre-teen children said the Tooth Fairy still makes an appearance when a baby tooth falls out. A local educator who teaches financial classes for school-age kids, recommends that young children keep clear jars -- for saving/spending/sharing -- where they can see their money add up. However, Tooth Fairy cash belongs in a special category all its own. Losing a tooth is like a rite of passage; it is fair to let children decide what happens to Tooth Fairy money, even if they want to spend it all.
22. GOVERNMENT CAN TAKE FEE AWARDS FOR CLIENTS’ DEBT: Ratliff was Ree's attorney in Ree's successful suit against the United States Social Security Administration for Social Security benefits. The District Court granted Ree's unopposed motion for attorney's fees under the Equal Access to Justice Act, which provides that a court shall award to a prevailing party fees and other expenses in any civil action brought by or against the United States. Before paying the fees, however, the Government discovered that Ree owed the United States a debt that predated the award. Accordingly, it sought an administrative offset against the award under a statute that subjects to offset all funds payable by the United States to an individual who owes certain delinquent federal debts, unless payment is exempted by statute or regulation. No party established that any such exemption applied to fees awards, which are covered by the Treasury Department’s Offset Program. After the Government notified Ree that it would apply TOP to offset her fees award against a portion of her debt, Ratliff intervened, challenging the offset on the ground that attorney’s fees belong to a litigant's attorney and thus may not be used to satisfy the litigant's federal debts. The District Court held that because the statute directs that fees be awarded to the "prevailing party," not to her attorney, Ratliff lacked standing to challenge the debt. The Eighth Circuit of Appeals reversed, holding that under its precedent, EAJA attorney's fees are awarded to prevailing parties' attorneys. On certiorari review, the United States Supreme Court held that an attorney’s fees award is payable to the litigant and is therefore subject to an offset to satisfy the litigant's preexisting debt to the Government. Nothing in EAJA contradicts the Supreme Court's longstanding view that the term "prevailing party" in attorney's fees statutes is a term of art that refers to the prevailing litigant. The Court rejected Ratliff’s argument that other EAJA provisions, combined with the Social Security Act and Government's practice of paying some EAJA fees awards directly to attorneys in Social Security cases, render the statute at least ambiguous on a question presented and that other provisions resolve the ambiguity in her favor. Astrue v. Ratliff, Case No. 08-1322 (U.S., June 14, 2010).
23. ALL PUNS INTENDED: I went to buy some camouflage trousers the other day, but I couldn't find any.
24. OXYMORON: Why do "overlook" and "oversee" mean such different things?
25. FABULOUS RANDOM THOUGHTS: While driving yesterday I saw a banana peel in the road and instinctively swerved to avoid it...thanks Mario Kart.
26. QUOTE OF THE WEEK: “Now and then an innocent man is sent to the Legislature.” Kin Hubbard
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