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Miami

Cypen & Cypen
NEWSLETTER
for
JUNE 24, 2010

Stephen H. Cypen, Esq., Editor

1.            NEW YORK COMPTROLLER SAYS PENSION FUND WILL NOT BE RAIDED:  In what appears to be a change-of-heart, New York State Comptroller Thomas P. DiNapoli says the New York State Common Retirement Fund will not be used to balance the State budget.  New York’s has been recognized as one of only four fully-funded state pension systems.  New York’s strong position has been achieved through long-term, fiscally responsible practices.  DiNapoli says his first job as state comptroller is to protect the one million members and the rest of New York State taxpayers from the irresponsibility that has left New Jersey, Illinois, California and dozens of other public pension funds across the nation dangerously under-funded.  “Shame on those individuals who are playing politics, trying to mislead taxpayers and scare members and retirees who rely on the fund for their financial security. The fund is not a political football.“ (Gee, politics in the pension arena?  How unique.)  Here are some facts about the fund:

  • Third Highest Return in 20 Years:  The pension fund posted a 25.9 percent rate of return for fiscal year ended March 31, 2010, driving value of fund assets to approximately $132.6 Billion. 
  • Nationally Recognized for Excellence by Pew Center:  The Pew Center on the States issued a report calling New York one of the best managed pension funds in the country.  Only four states in the country are fully-funded: New York, Washington, Wisconsin and Florida.  (Uh, Tom, better check the latest figures on Florida.) 
  • Safe, Strong and Secure:  The pension fund is one of the best funded public pension funds in the nation, and can cover its current and future obligations.

We wonder what made the comptroller change his mind. 

 2. FORMER SECRETARY WILL DO JAIL TIME FOR STEALING FROM LAW FIRM:  A former secretary for a New York law firm has been sentenced to up to 13 years in prison for stealing nearly $700,000 from her employer over a seven-year span.  She was sentenced by a county judge to 4 1/3 years to 13 years, and also ordered to pay more than $600,000 to the law firm where she was employed as a confidential secretary.  (So, she was a con-woman?)  The judge who sentenced the 44-year-old miscreant noted that the thefts forced one of the victims out of retirement and looted a child's college savings.  The woman pleaded guilty to the embezzlement, and the $625,000 she was ordered to repay to her victims was agreed upon at a restitution hearing, according to The Associated Press.

 3. JUDGE HAS AFFAIR WITH HIS BAILIFF, INSISTS HE BROKE NO RULES:  A judge whose brief affair with a court worker ended badly faced the New Jersey Supreme Court on charges he flouted judicial ethics by not reporting the relationship to his superiors.  The New Jersey Law Journal reports that the municipal judge argued that he did not willfully break any rule or policy by his two-month intimate relationship with a female bailiff who was assigned to his courtroom.  Although the judge was not the bailiff’s supervisor, he exercised control over her in his courtroom, and thus engaged in an intimate relationship with a subordinate that had to be reported, according to Judicial Conduct Counsel.  The judge said he did not view the bailiff as a subordinate, and did not believe he was violating any procedural rules.  In a move that sounds ridiculous to us, the judge’s counsel referred to the common nature of workplace relationships, noting that President Obama and Michelle Obama began dating when they both worked at the same law firm, that Microsoft founder Bill Gates met his wife while she was working for Microsoft and that U.S. Supreme Court Justice William Brennan Jr. married his secretary of 26 years, several months after his first wife died.  Obviously, the judge did nothing wrong...if he were on “Boston Legal.” 

 4. NOBEL LAUREATE DESTROYS TALK-SHOW HOST:  Here is a two-and-a-half minute excerpt of a 1979 Phil Donahue show in which Nobel Laureate Milton Friedman slices Donahue into little pieces.  Watch it yourself at http://bit.ly/9Ckvfr. No comment necessary. 

 5. BLACK FIREFIGHTERS SETTLE LAWSUIT AGAINST PHILADELPHIA:  A group of African American firefighters and the NAACP have settled their federal lawsuit against the City of Philadelphia over allegations of racist Internet postings made by white firefighters while on duty.  A federal judge has dismissed claims against the city at the request of Club Valiants Inc., the organization of black firefighters that has battled the Fire Department on issues of race and discrimination for 40 years, according to philly.com.  In November, Club Valiants and Philadelphia NAACP sued the city and Local 22 of the International Association of Fire Fighters, which represents its members.  Club Valiants alleged that city computers were used to post racially harassing and discriminatory materials and comments on the union's own website and another site used mostly by police officers, creating a hostile work environment.  As part of the settlement, the city has agreed to pay $15,000 in legal fees and provide additional diversity training with input from Club Valiants and the NAACP.  The city will also re-post the city's policy against using city computers for discriminatory purposes.  Hey, aren’t we in the year 2010? 

 6. FINAL REGULATIONS ON QDROS:  The Pension Protection Act of 2006 required Department of Labor to issue regulations on timing and order of Qualified  Domestic Relations Orders.  (Our readers know that QDROs, which are a creation of Employee Retirement Income Security Act and not generally applicable to public pension plans -- at least in Florida.)  In 2007, to satisfy PPA’s directive, DOL issued interim final regulations (see C&C Newsletter for March 15, 2007, Item 5).  DOL has now issued final regulations, which largely track the interim regulations.  The Rule provides guidance to plan administrators, service providers, participants and alternate payees on QDRO requirements under ERISA.  The final rule is effective on August 9, 2010.  29 CFR Part 2530 (Federal Register/Vol 75, Number 111/June 10, 2010). 

 7. CITY’S SEARCH OF POLICE OFFICER’S TEXT MESSAGES NOT VIOLATIVE OF FOURTH AMENDMENT:  City of Ontario, California, acquired alphanumeric pagers able to send and receive text messages.  By contract, Arch Wireless, provided for a monthly limit on the number of characters each pager could send or receive, and specified that usage exceeding that number would result in an additional fee.  The City issued the pagers to Quon and other officers in its police department.  When Quon and others exceeded their monthly character limits for several months running, the chief sought to determine whether the existing limit was too low, that is, whether officers had to pay fees for sending work-related messages, or, conversely, whether overages were for personal messages.  After Arch Wireless provided transcripts of Quon's and other employees’ text messages, it was discovered that many of Quon's messages were not work-related, and some were sexually explicit.  After investigation showed that few of Quon's on-duty messages related to police business, he was disciplined for violating department rules.  He and other officers, each of whom had exchanged text messages with Quon during the subject period, filed the suit, alleging, inter alia, that the City violated their Fourth Amendment rights and the federal Stored Communications Act by obtaining and reviewing transcripts of Quon's pager messages, and that Arch Wireless violated the SCA by giving the City the transcripts.  The District Court denied the City summary judgment on constitutional claims, determining that Quon had a reasonable expectation of privacy in the content of his messages.  Whether the investigation was nonetheless reasonable, turned on whether the chief used it for the improper purpose of determining if Quon was using his pager to waste time or for the legitimate purpose of determining efficacy of existing character limits to ensure that officers were not paying hidden work-related costs.  After a jury concluded that the chief's intent was legitimate, the court granted the City’s summary judgment on the ground that it did not violate the Fourth Amendment.  The Ninth Circuit reversed (see C&C Newsletter for June 26, 2008, Item 2).  Although it agreed that Quon had a reasonable expectation of privacy in his text messages, the appellate court concluded that the search was not reasonable even though it was conducted on a legitimate, work-related rationale. That court further concluded that Arch Wireless had violated SCA by giving the City the transcripts.  On certiorari review, the United States Supreme Court held that because  search of Quon's text messages was reasonable, the City did not violate his Fourth Amendment rights, and the Ninth Circuit erred by concluding otherwise.   The Fourth Amendment guarantees a person's privacy, dignity and security against arbitrary and invasive governmental acts, without regard to whether the government actor is investigating crime or performing another function.  It applies as well when the government acts in its capacity as an employer.  Even assuming that Quon had a reasonable expectation of privacy in his text messages, the search was reasonable.   Whether the other police officers had a reasonable expectation of privacy in their text messages to Quon need not be resolved.  They failed to argue that the search,  if reasonable as to Quon, could still be unreasonable as to them.  City of Ontario, California v. Quon, Case No. 08-1332 (U.S. June 17, 2010). 

 8. SURVEY INDICATES GROWING FEAR ABOUT RETIREMENT:  There is more edgy news on the retirement front, according to a new survey from Allianz Life Insurance Company of North America.  More than 90 percent of baby boomers feel the United States is facing a retirement crisis.  Respondents indicated that they were aware they may be contributing to that crisis:  most said they do not know how much money they will need in retirement and they fear they will outlive their income.  The study is entitled “Reclaiming the Future:  Challenging Retirement Income Perceptions.”  Respondents also said they expect a lot from retirement -- 79 percent said their retirement lifestyle must surpass their parents’.  Survey results showed that the median annual income respondents targeted is $59,000, but baby boomers’ savings are on track to provide only one third of that income!  The results underscore the apprehension and confusion that boomers feel as they approach the end of their working lives, but the survey should inspire them to take advantage of many resources that can still help them improve their retirement prospects.  Over the next several months, Allianz will release data from the questionnaire that address specific retirement concerns.

 9. TRS OF TEXAS REPORTS STRONG RECOVERY:  The Teacher Retirement System of Texas Pension Fund ended the first quarter with a market value of $96.7 Billion after producing an investment gain of 35%, or $25 Billion, over the previous 12 months.  This advance erased most of the decline produced during the previous severe financial downturn.  Both the 35% return and the investment gain were all-time TRS records for the period.  Global equity markets rallied strongly after bottoming in March 2009, just ahead of a global economic acceleration that began in mid-summer.  Despite the previously difficult environment, TRS entered the recent advance well positioned for the strong rally that followed.  During the period, the fund's global equity portfolio advanced more than 53%.  Overall, the fund outperformed general market returns by approximately 2.5%, or$2 Billion. 

10. WILLIAM SHARPE AND THE 4% RULE:  Saving for retirement is hard enough.  It turns out, though, that spending intelligently during retirement is difficult as well.  The soon-to-be-retired person has to make a range of decisions about spending that will have real consequences for as long as he lives.  Sadly, however, "the 4% rule," which is the most commonly offered spending advice proffered by investment professionals and the popular press, can ultimately be harmful to interests of people who heed it, according to recent research by Nobel Laureate William Sharpe, Professor of Finance, Emeritus, at Stanford Graduate School of Business.  Simply put, the rule suggests that the retiree spend an inflation-adjusted 4% of his retirement assets each year, while keeping the balance of those assets in a portfolio that typically includes both stocks and bonds. That strategy might be reasonable in a world where stocks are not risky.  But they are, of course.  In addition, there is more wrong with the rule than simply that it discounts the downside of investing in instruments that have an element of risk.  If a retiree adopts a 4% rule, he will waste money by purchasing surpluses, will overpay for his spending distribution and may be saddled with an inferior spending plan.  What is really wrong with the 4% plan is its insistence on fixed spending coupled with investing in a portfolio with variable returns.  In the most obvious case, when a retiree's portfolio underperforms, stubbornly pulling out money at the same rate means he will run out of money at some point.  Clearly, most advisors would see that coming, and caution the retiree to spend less.  Less obvious, though, is the consequence of better-than-expected returns.  First of all, remember that investments have a price.  Then, remember that the rule assumes a constant rate of spending and posits a retirement lasting 30 years.  Ruling out what economists call "the bequest motive," we can assume that the retiree wants to spend it all within the retirement period.  But generating a surplus means that there is money left over at the end, which is  wasted.  Not only is the surplus wasted, but also there is additional waste on the front end because the retiree paid for investment surpluses he did not need.  Planners who believe in the 4% rule often modify it, changing the amount to withdraw, length of the plan,  portfolio mix, rebalancing frequency or level of confidence that money will last.  However, all these variations have a common theme -- they attempt to finance a constant, nonvolatile spending plan using a risky, volatile investment strategy.  Sharpe says investment professionals need to find ways to help clients make a realistic assessment of their own risk tolerance.  And that means discarding the traditional quiz and finding a better approach. 

11. HOW MANY DAYS OLD ARE YOU?:  Did you ever want to know why  you are tired?  It may be because you have been on this earth for so many days.  If you
want a gentle jolt, go to http://www.korn19.ch/coding/days.php.  What a difference a day makes, 24 little hours. 

12. ALL PUNS INTENDED:  Deja Moo: The feeling that you've heard this bull before. 

13. OXYMORON:   Why do "slow down" and "slow up" mean the same thing?

14. FABULOUS RANDOM THOUGHTS:  I'm always slightly terrified when I exit out of Word and it asks me if I want to save any changes to my ten page research paper that I swear I did not make any changes to. 

15. QUOTE OF THE WEEK:   “The man who makes no mistake does not usually make anything.”  Edward Phelps 

16. PLEASE SHARE OUR NEWSLETTER:  Our newsletter readership is not limited to the number of people who choose to enter a free subscription.  Many pension board administrators provide hard copies in their meeting agenda.  Other administrators forward the newsletter electronically to trustees.  In any event, please tell those you feel may be interested that they can subscribe to their own free copy of the newsletter at http://www.cypen.com/subscribe.htm.  Thank you. 

Copyright, 1996-2011, 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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