1. FLORIDA GOVERNOR APPROVES BILL REQUIRING PENSION BOARDS TO MAKE MORE “MEANINGFUL” DISCLOSURE REGARDING VALUE OF DEFINED BENEFIT PENSION PLAN ASSETS AND LIABILITIES: Effective July 1, 2013, Section 112.63(1)(f), Florida Statutes, was amended to repeal the recently-enacted provision requiring disclosure of present value of a plan’s total benefits using the Florida Retirement System’s assumed rate of return. Subsection (14) is added to Section 112.66, Florida Statutes, providing that the state is not liable for any obligations relating to any current or future shortfall in any government retirement systems or plan. (In light of Sections 175.051 and 185.04, Florida Statutes, the new language would appear to be superfluous as to participating firefighter and police officer plans.) Section 112.664, Florida Statutes, is created to set forth reporting standards for defined benefit retirement plans:
(1) 60 days after receipt of the certified actuarial report submitted after the close of the plan year ending on or after June 30, 2014, and annually thereafter, each defined benefit retirement plan, excluding the Florida Retirement System [but of course], shall electronically report the following information to the Department of Management Services:
(a) Annual financial statements in compliance with Government Accounting and Standard Board’s Statement No. 67, Financial Reporting for Pension Plans, and Statement No. 68, Accounting and Financial Reporting for Pensions, using RP-2000 Combined Healthy Participant Mortality Tables, by gender, with generational projection by Scale AA.
(b) Annual financial statements similar to those required under paragraph (a), but which use an assumed rate of return on investments and an assumed discount rate that are equal to 200 basis points less than the plan’s assumed rate of return.
(c) Information indicating the number of months or years for which the current market value of assets is adequate to sustain the payment of expected retirement benefits as determined in the plan’s latest valuation and under the financial statements prepared pursuant to paragraphs (a) and (b).
(d) Information indicating the recommended contributions to the plan based on the plan’s latest valuation, and contributions necessary to fund the plan based on financial statements prepared pursuant to paragraphs (a) and (b), stated as an annual dollar value and a percentage of valuation payroll.
(2) Each DB plan, excluding the Florida Retirement System and its plan sponsor:
(a) Shall provide information required by new law and the funded ratio of the plan as determined in the most recent actuarial valuation as part of the disclosures required for the city’s budget and on any website that contains budget information relating to the plan sponsor or actuarial or performance information related to the plan.
(b) That has a publicly available website shall provide on that website:
1. The plan’s most recent financial statement and actuarial valuation, including a link to the Division of Retirement Actuarial Summary Fact Sheet for that plan.
2. For the previous 5 years, a side-by-side comparison of the plan’s assumed rate of return compared to the actual rate of return, as well as the percentages of cash, equity, bond and alternative investments in the plan portfolio.
3. Any charts and graphs of the data provided in paragraphs (1) and (2) presented in a standardized, user- friendly, and easily interpretable format.
(3) The plan shall be deemed to be noncompliance if it has not submitted the required information to the Department of Management Services within 60 days after receipt of the certified actuarial report for the plan year for which the information is required.
(a) The Department may notify the Department of Revenue and Department of Financial Services of noncompliance, and the Department of Revenue and Department of Financial Services shall withhold any funds not pledged for satisfaction of bond debt service and which are payable to the plan sponsor until the information is provided to the department.
(b) Within 20 days after receipt of the notice of withholding, the plan sponsor may petition the Department of Management Services for a hearing.
The recitals to law recognize there were almost 500 local government employee defined benefit plans in Florida, providing pension benefits to approximately 79,000 retirees. The interest of participants in many of these plans may have property rights implications under state law. Chapter 203-100; signed by the Governor May 31, 2013.
2. RETIREMENT PLAN NOT ESTOPPED FROM CORRECTING ERRONEOUS OVERPAYMENTS AND NOT IN BREACH OF FIDUCIARY DUTY FOR SUCH CORRECTION: For five months in 2009, Stark received benefits that were more than double what she was entitled to receive under her pension plan. She sought to estop Mars Inc.’s Benefit Committee from thereafter paying her the actual benefits instead of the higher benefits. Stark also alleged that the committee breached its fiduciary duty to her by misrepresenting the value of her pension benefit. The district court denied her motion for summary judgment and granted Mars’s. On appeal, the U.S. Court of Appeals for the Sixth Circuit affirmed. The Committee, through Hewitt Management Company, informed Stark that she had an account balance of almost $380,000, which she could draw from at any time. Stark elected a five-year certain annuity, paying $5,365 a month. On several occasions, Hewitt and a benefits specialist at Mars reconfirmed the amount. All estimates contained a disclaimer that Mars reserved the right to correct any errors, and, specifically, if an estimate conflicted with the benefit defined by the plan, the plan would prevail. Unfortunately, Hewitt determined that a programming error in its software resulted in an excessively high calculation for Stark: the correct monthly amount was $2,303. Stark sought to continue receiving benefits of $5,365, which the Committee denied. While Stark was initially expected to return her overpayments (her post-July 2009 payments had been garnished to reimburse the plan for the five months of overpayment), the letter stated that Mars would repay the overpayment to the plan with interest. In addition, Stark was given a one-time opportunity to opt out of her elected annuity -- she could either change to a new annuity or she could undo the commencement of her benefits and return to her status prior to retirement, with an uncommenced benefit accruing interest. As stated, Stark filed suit against Mars and the Pension Committee. An equitable estoppel claim under ERISA consists of the following elements:
1. There must be conduct or language amounting to a representation of material fact;
2. The party to be estopped must be aware of the true facts;
3. The party to be estopped must intend that the representation be acted on, or the party asserting the estoppel must reasonably believe that the party to be estopped so intends;
4. The party asserting the estoppel must be unaware of the true facts; and
5. The party asserting the estoppel must reasonably or justifiably rely on the representation to his detriment.
When an equitable-estoppel claim arises in the context of an unambiguous pension plan, a plaintiff must further demonstrate:
6. A written representation;
7. Plan provisions which, although unambiguous, did not allow for individual calculation of benefits; and
8. Extraordinary circumstances in which the balance of equities strongly favors application of estoppel.
As a matter of law, Stark could not establish four elements of a successful equitable estoppel claim: that the Committee was aware of the true value of Stark’s benefits, that the Committee intended for its representations about Stark’s benefits to be relied upon, that Stark justifiably relied on the Committee’s representations and that this case presented extraordinary circumstances. Finally, Stark was unable to satisfy any element of a successful breach-of-fiduciary-duty claim. Because any misrepresentation made by the Committee was not made in negligence, summary judgment was appropriate. A plan fiduciary may rely on information, data, statistics or analyses furnished by persons performing ministerial functions for the plan if, in the exercise of ordinary care in such situation, it has no reason to doubt competence, integrity or responsibility of such persons. Here, Hewitt performed a ministerial function for the Pension Committee by managing software to calculate benefits according to unambiguous plan terms. The Committee relied on Hewitt’s program to provide accurate estimates of a participant’s plan benefits. The Committee did not have any reason to doubt Hewitt’s competence at the time the Committee misrepresented to Stark the value of her benefits plan, because the Committee would not learn of Hewitt’s programming error for several months. Stark v. Mars, Inc., Case No. 12-3956 (U.S. 6th Cir. May 9, 2013).
3. FEDERAL LIFE INSURANCE STATUTE PREEMPTS STATE LAW ON DESIGNATION OF BENEFICIARIES: The Federal Employees’ Group Life Insurance Act of 1954 establishes a life insurance program for employees. FEGLIA permits an employee to name a beneficiary of life insurance proceeds, and specifies an “order of precedence” providing that an employee’s death benefits accrue first to that beneficiary ahead of other potential recipients. Section A of a Virginia statute revokes a beneficiary designation in any contract that provides a death benefit to a former spouse where there has been a change in the decedent’s marital status. In the event that the provision is preempted by federal law, Section D of the state statute provides a cause of action rendering the former spouse liable for the principal amount of the proceeds to the party who would have received them were Section A not preempted. Warren named his then-spouse, Judy, as beneficiary of his Federal Employee’s Group Life Insurance policy. After their divorce, he married Jacqueline, but never changed his named FEGLIA beneficiary. After Warren’s death, Judy, still the named beneficiary, filed a claim for FEGLIA proceeds, and collected them. Jacqueline sued in a Virginia court seeking recovery of the proceeds under Section D. Judy argued that Section D is pre-empted by federal law. (The parties agreed that Section A was pre-empted.) The Virginia court found Judy liable to Jacqueline under Section D for FEGLIA policy proceeds. The State Supreme Court reversed, concluding that Section D was pre-empted by FEGLIA because it conflicts with the purposes and objectives of Congress. On certiorari to the Supreme Court of Virginia, the United States Supreme Court affirmed because Section D of the Virginia statute was also pre-empted by FEGLIA. State law is pre-empted to the extent of any conflict with a federal statute. To determine whether a state law conflicts with Congress’ purposes and objectives, the nature of the federal interest must first be ascertained. FEGLIA creates a scheme that gives highest priority to an insured’s designated beneficiary, and which underscores that the employee’s right of designation cannot be waived or restricted. Section D interferes with this scheme, because it directs the proceeds actually belong to someone other than the named beneficiary by creating a cause of action for their recovery by a third party. FEGLIA establishes a clear and predictable procedure for an employee to indicate who the intended beneficiary shall be, and evinces Congress’ decision to accord federal employees an unfettered freedom of choice in selecting a beneficiary and to ensure the proceeds actually belong to that beneficiary. Note, the reasoning in this decision may have some bearing upon validity of recently enacted Florida House Bill 401 (See C & C Special Supplement for June 25, 2012 ). Hillman v. Maretta, Case No. 11-1221 (U.S. June 3, 2013).
4. GENERAL RELEASE DOOMS ERISA PENSION CLAIM: A general release of any and all claims by a former employee in exchange for a severance package is enforceable in an ERISA action for contested pension benefits. According to a recent decision of the U.S. Court of Appeals for the Seventh Circuit. Hakim sought pension benefits, claiming that he did not receive notice of a 1996 plan amendment that reduced his benefit accruals but complied with ERISA. In 2000, Hakim received a benefit statement indicating that he was ineligible to participate in the retirement plan. Three years later, Hakim was let go as part of a reduction in force, and signed a release in return for a severance package. The release covered in and all claims of any nature whatsoever, known or unknown. In 2007, Hakim submitted a formal claim for additional pension benefits, arguing that the notice of the 1996 amendment violated ERISA’s notice requirements. After his claim was formally denied by the pension committee, Hakim sued. The district court granted summary judgment in favor of the plan, holding that Hakim knew or should have known about his claim when he signed the release, and thus, waived his claim. The appellate court affirmed, drawing a distinction between entitlement claims, which are subject to ERISA’s anti-alienation provision, and contested claims, which fall outside the realm of the anti-alienation provision. The pension entitlement is a claim for vested benefits to which a plaintiff is entitled under the terms of the pension plan itself; on the other hand, a contested claim is a claim for additional benefits to which a plaintiff is not entitled under the terms of the plan itself. Here, the claim was contested, not entitled. Hakim v. Accenture United States Pension Plan, Case No. 11-3438 (7th Cir. May 23, 2013). Note, the above summary was adapted from one by Seyfarth Shaw LLP.
5. ARE AMERICANS PREPARED FOR THEIR GOLDEN YEARS?:The Pew Charitable Trusts has released Retirement Security Across Generations, part of its economic mobility project. When the Great Recession hit in 2007, the oldest baby boomers were nearly eligible for Social Security. Many of them recalled stories of the Great Depression, and feared that their own nest eggs would vanish with too little time to make up the losses. Having lived most of their lives in an expanding economy, these Americans faced the real possibility of downward mobility just as they were entering their golden years. The downturn also heightened concerns about retirement planning -- or lack thereof -- by younger generations. Many younger Americans were already behind in saving for retirement, and suddenly millions of them were out of work or owned homes worth far less than they had been just a few years earlier. The report explores how the Great Recession affected the wealth and retirement security of baby boomers relative to younger and older cohorts of Americans. The analysis compares their wealth to that of other cohorts at similar ages to understand how boomers are faring in relative terms. The report also tracks the wealth of each cohort over the last two decades to assess the recession’s impact on each group’s financial security. Wealth is measured in three ways:
- Net worth – the comprehensive measure of wealth that includes all financial assets.
- Financial net worth - a subset of net worth that includes just financial assets.
- Home equity - a homeowner’s estimate of the difference between what the home could be sold for and what is owed.
In addition, the report explores the retirement security of each cohort by calculating replacement rates, or the extent to which retirees can use their accumulated wealth and savings to replace preretirement income. Surprisingly, the research reveals that younger cohorts are the ones who face a greater prospect of downward mobility in their golden years. Specifically, the study found:
- Early boomers (born between 1946 and 1955) were approaching retirement in better financial shape than the cohorts who came before them.
- The picture of wealth accumulation and savings for Americans born after 1955 were mixed.
- Gen-Xers (1966-1975) had higher net worth than late cohorts (1956-1965) when both were in their 30s and 40s, but neither group had as much wealth as early boomers had at the same age.
- Both cohorts of baby boomers and Gen-Xers have significantly lower asset-to-debt ratios than do the older groups.
- All groups experienced wealth losses in the Great Recession, but Gen-Xers took the hardest hit.
- Replacement rate analysis shows that the youngest cohorts will not have enough assets for a secure retirement.
The report delves into these findings, examining the evidence behind them, particularly the trends, by cohort, of wealth accumulation in periods immediately before, during, and just after the Great Recession. Through that lens, it considers implications for the later-life economic security of millions of Americans currently in their prime-earning through early-retirement years. The data clearly point to a lack of savings and wealth accumulation among Gen-Xers even before the economic downturn. As policymakers focus attention on americans’ retirement security, particular consideration should be paid to helping the youngest cohort change course and prepare for financial security over the long term.
6. IN THE MOOD: Lincoln Financial Group commissioned a survey on the current M.O.O.D. of America (Measuring Optimism, Outlook and Direction). Here are some of the results:
- 80% (versus 72% in 2011) are optimistic about their future overall.
- 68% of Americans are “in control” of their lives.
However, there appears to be a financial disconnect, with the following percentages of people feeling “very prepared” for retirement:
- 18% (ages 55-64).
- 11% (ages 45-54).
- 6% (ages 35-44).
- 5% (ages 25-34).
- 3% (ages 18-24).
7. FEDERAL COURT ENJOINS MARICOPA COUNTY, AZ, FROM DISCRIMINATING AGAINST LATINOS: We have previously written about Joe Arpaio, the legendary sheriff of Maricopa County, Arizona (See C & C Newsletter for December 22, 2011, Item 4 ; C & C Newsletter for January 12, 2012, Item 6 and C & C Newsletter for May 17, 2012, Item 5 ). Now, a U.S. District Judge has enjoined the sheriff and the sheriff’s office from:
- Detaining, holding or arresting Latino occupants of vehicles in Maricopa County, based on a reasonable belief, without more, that such persons are in the country without authorization.
- Following its LEAR policy against any Latino occupant of a vehicle in Maricopa County. (The sheriff’s LEAR policy requires deputies to detain persons believed to be in the country without authorization, but whom they cannot arrest on state charges.)
- Using race or Latino ancestry as a factor in determining to stop any vehicle in Maricopa County with a Latino occupant.
- Using race or Latino ancestry as a factor in making law enforcement decisions with respect to whether any Latino occupant of a vehicle in Maricopa County may be in the country without authorization.
- Detaining Latino occupants of vehicles stopped for traffic violations for a period longer than reasonably necessary to resolve the traffic violation in the absence of a reasonable suspicion that any of them have committed or are committing a violation of federal or state criminal law.
- Detaining, holding or arresting Latino occupants of a vehicle in Maricopa County for violations of the Arizona Human Smuggling Act without a reasonable basis for believing that, under all the circumstances, the necessary elements of the crime are present.
- Detaining, arresting or holding persons based on a reasonable suspicion that they are conspiring with their employer to violate the Arizona Employer Sanctions Act.
The court set a further hearing to discuss matters on June 14, 2013. Melendres v. Arpaio, PHX-CV-07-02513-GMS (U.S. D Ariz. May 24, 2013.)
8. FPPTA 29TH ANNUAL CONFERENCE: The Florida Public Pension Trustees Association’s 29th Annual Conference will take place on June 23-26, 2013 at the Omni Orlando Resort at ChampionsGate. A link on FPPTA’s web site, www.fppta.org , will take you to the Omni Orlando Resort at ChampionsGate site to make your room reservations. You may access information and updates about the conference at FPPTA’s website. All police officer and firefighter plan participants, board of trustee members, plan sponsors and anyone interested in the administration and operation of the Chapters 175 and 185 pension plans should take advantage of this Conference.
9. WHEN INSULTS HAD CLASS: He is simply a shiver looking for a spine to run up. Paul Keating
10. PHILOSOPHY OF AMBIGUITY: Why is there an expiration date on sour cream?
11. ON THIS DAY IN HISTORY: In 1968, Senator Robert Kennedy dies from his wounds after he was shot the previous night.
12. KEEP THOSE CARDS AND LETTERS COMING: Several readers regularly supply us with suggestions or tips for newsletter items. Please feel free to send us or point us to matters you think would be of interest to our readers. Subject to editorial discretion, we may print them. Rest assured that we will not publish any names as referring sources.
13. 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 .