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Cypen & Cypen
NEWSLETTER
for
JULY 7, 2005

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001

1. PRE-65 NBA RETIREES WILL GET PENSION INCREASE:

When we recently compared pro sports retirement benefits, we noted that the National Basketball Association Plan took effect in 1965 (see C&C Newsletter for March 31, 2005, Item 2). We reported that players can collect $364.00 per month for each season they played in the league, starting at age 62. Well, the recent death of 1950s superstar George Mikan may have been a catalyst for increased pension benefits for players who retired prior to 1965. (Mikan, who died June 1 at the age of 80 after a long battle with health problems, was so cash-strapped that he sold his own memorabilia.) Now Pensions & Investments reports that the NBA and the players union announced June 21 that they had reached an agreement in principle on a new six-year collective bargaining agreement that includes increased benefits for those players who retired before 1965, the year NBA players formed an organized bargaining entity.

2. P&I APPLAUDS SEC STAFF REPORTS, URGES ACTION:

A June 27, 2005 Pensions & Investments editorial says now that the Securities and Exchange Commission has warned pension executives and trustees to safeguard against conflicts of interest by consultants (see C&C Newsletter for May 19, 2005, Item 1), they must do more than just ensure those conflicts are disclosed and acted upon. Executives and trustees should audit their consultants’ past work to see if activities harmed the pension funds’ financial interests. Reviewing past activity may well provide insights that can improve understanding of current potential conflicts. It may also reveal that some decisions, such as which managers to hire, were flawed and need to be revisited. Pension executives and trustees should not sweep flawed decisions under the rug. Pension consulting firms that have not sought to collect additional revenue through conflict-laden relationships at expense of their fiduciary loyalty to their clients should welcome such audits and cooperate with them. Let’s get ready to rumble.

3. MICHIGAN HEALTHCARE BENEFITS CAN BE CHANGED:

Michigan Public School Employees’ Retirement Board began providing a healthcare plan for public school retirees in 1975 pursuant to amendments made by a 1974 statute. Since that time, participants in the plan have been required to pay deductibles and copays for prescription drugs, and the amounts of deductibles and copays have gradually increased throughout the years because of numerous amendments the board has made to the plan to reflect rising costs of healthcare and advances in medical technology. A board amendment that became effective on January 1, 2000 increased the amount of deductibles that retirees are required to pay. Another board amendment, effective January 21, 2000, increased copays and out-of-pocket maximums that retirees pay for prescription drugs. Six public school retirees filed suit for declaratory and injunctive relief against the Board and others. Both sides moved for summary judgment and the trial court granted defendants’ motion. Plaintiffs appealed to the court of appeals, which affirmed the lower court’s ruling in its entirety, holding that healthcare benefits are not “accrued financial benefits” subject to protection by the State of Michigan Constitution and that the legislature’s enactment of the original statute created a contract, but the impairment was too de minimis to be recognized. On appeal to the Michigan Supreme Court, the court of appeals was affirmed: (1) healthcare benefits paid to public school retirees do not constitute “accrued financial benefits” subject to protection from diminishment or impairment by the State Constitution and (2) the original statutory provision establishing healthcare benefits did not create a contract with public school employees that could not be changed by later legislation. (The second holding is an example of the rule that a court will be affirmed on appeal if it reached the correct result, even for the wrong reason.) Studier v. Michigan Public School Employees’ Retirement Board, Case Nos. 125765 and 125766 (Mich., June 28, 2005).

4. IRS ISSUES SPRING 2005 STATISTICS OF INCOME BULLETIN:

On June 30, 2005, Internal Revenue Service issued IR-2005-70, its Spring 2005 Statistics of Income Bulletin. Of the more than 130 million individual income tax returns filed for tax year 2002, there were over 2.4 million returns reporting adjusted gross income of $200,000 or above and slightly more with inclusion of “expanded income.” These data mean that, for the first time in a quarter-century, the number of Americans with such high incomes decreased during the first two years of the Bush Administration (down 7% in 2001 and 6% in 2002). By way of contrast, a total of 36.5 million filers report no tax liability, most having adjusted gross incomes of less than $50,000.

5. HUH? IT’S NOT BAD TO BE AN ACTUARY?:

According to CareerJournal.com, many children dream of one day being a cowboy or a cowgirl. Few, if any, want to be an actuary. Little do they know. Editors at CareerJournal.com recently asked a pair of rhetorical questions: What are some of the best jobs out there and what are some of the worst? The editors used six main factors to judge a job: income, stress, physical demands, outlook, security and work environment. Some assumptions about those factors’ importance for workers had to be made: for example, it’s better to work indoors in an air-conditioned office than to work outside. Also, it’s better to be in a noncompetitive environment. Finally, it’s important to earn more money. Well, the upshot is that some secure, well-paying office jobs, like actuary, landed high. Physically demanding, high-risk jobs, such as cowboy, brought up the rear. Based on the foregoing factors, the following are the ten best and ten worst jobs (each in alphabetical order):

Best Worst
Accountant Construction Worker (laborer)
Actuary Cowboy
Bank Officer Dancer
Biologist Fisherman
Computer-systems Analyst Garbage Collector
Financial Planner Ironworker
Parole Officer Lumberjack
Software Engineer Roofer
Statistician Seaman
Web-site Manager Welder

Maybe we should rethink those little jabs we have been taking at our friends in the actuarial profession.

6. MMPI IS MEDICAL EXAMINATION PROHIBITED UNDER ADA:

The Minnesota Multiphasic Personality Inventory is a test that does not simply measure such potentially relevant traits as whether someone works well in groups or is comfortable in a fast-paced office. Instead, the MMPI considers where an applicant falls on scales measuring traits such as depression, hypochondriasis, hysteria, paranoia and mania. In fact, elevated scores on certain scales of the MMPI can be used in diagnoses of certain psychiatric disorders. The Americans With Disabilities Act of 1990 contains three provisions that explicitly limit ability of employers to use “medical examinations and inquiries” as a condition of employment: a prohibition against using pre-employment medical tests; a prohibition against use of medical tests that lack job-relatedness and business necessity; and a prohibition against use of tests that screen out (or tend to screen out) people with disabilities. The Equal Employment Opportunity Commission defines “medical examination” as “a procedure or test that seeks information about an individual’s physical or mental impairments or health.” A psychological test that is designed to identify a mental disorder or impairment qualifies as a medical examination, but a psychological test that measures personality traits such as honesty, preferences and habits does not. Because the MMPI does not measure simply the latter, it is a prohibited pre-employment medical examination under the ADA. Karraker v. Rent-A-Center, Inc., Case No. 04-2881 (U.S. 7th Cir., June 14, 2005).

7. PTSD NOT SERVICE-CONNECTED WHERE PRECIPITATING EVENT NOT IN LINE OF DUTY:

Police officer Alvarez applied for a service-related disability retirement, after being diagnosed with post-traumatic stress disorder, major depression and panic disorder. According to her own testimony, Alvarez’s PTSD related directly to the line of duty death of Officer Marrero. Alvarez submitted medical reports from three mental-health professionals, all of whom concluded that her condition rendered her permanently and totally disabled from useful service as a police officer, but none specifically stated that Alvarez’s illness was caused by conditions she encountered in line of duty. One specifically stated that the triggering event for Alvarez’s illness was Marrero’s death. A psychiatrist retained by the pension board found that Alvarez’s disability was work-related. However, he issued a second report concluding that, upon further reflection, Alvarez’s illness was not work-related because she did not encounter Marrero’s death in the course of her duties. Following a hearing on Alvarez’s application, the pension board issued an order denying a service-connected disability but granting a nonservice-connected disability. On review by the circuit court, the pension board’s decision was affirmed. In order for a disability to be deemed service-related under the subject pension plan, it must have been contracted in the line of duty. Here, Alvarez’s disability began after she was exposed to news coverage of Officer Marrero’s death, which exposure was not related to her service as a police officer. Alvarez v. Pension Advisory Committee, City of Clearwater Employees’ Pension Fund, 12 Fla. L. Weekly Supp. 614 (Fla. 6th Cir., October 14, 2004).

8. CIVIL SERVICE BOARD INTERPRETATION OF PERSONNEL RULES ENTITLED TO JUDICIAL DEFERENCE:

Smarowsky, a city plant maintenance mechanic, was terminated as a result of off-duty conduct. Having been advised by his overnight house guest that she had given his wallet to her ex-boyfriend because of a threat, Smarowsky thought he could make a “citizen’s arrest.” Thus, he handcuffed the lady, put her in his car and pointed at handgun at her. He then returned home, and pointed the handgun at two neighbors who had witnessed Smarowsky’s struggle with his “arrestee.” Of course, Smarowsky himself was arrested, and charged with assault and kidnaping. The city did not take too kindly to the vigilante’s actions, charging him with violating a rule category that called for termination upon first violation. The specific rule prohibits “unlawful or improper conduct on or off the job, which would tend to affect the employee’s relationship to his job, his fellow workers, his reputation or goodwill in the community.” Smarowsky appealed his ultimate termination to the Civil Service Board, which upheld the action. On further review by the circuit court, the board’s decision was affirmed. Despite Smarowsky’s contention that the rule should be read disjunctively (and that a key word, either “and” or “or,” was missing), the board’s conclusion that the rule was intended to be read disjunctively was a permissible interpretation. In particular, construing the rule conjunctively would create a much higher threshold of improper conduct by necessitating a finding that such improper conduct would tend to affect the employee’s job, and fellow workers and reputation or goodwill in the community. Hence, while the rule may not be linguistically ideal, the board’s interpretation is not clearly erroneous, and the court must defer to the board’s understanding of the rule and accord it judicial deference. Smarowsky v. City of St. Petersburg, 12 Fla. L. Weekly Supp. 617 (Fla. 6th Cir., February 28, 2005).


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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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