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Cypen & Cypen
JULY 21, 2005

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


NASD has issued Notice to Members 05-45, an Agency Securities Lending Disclosure Initiative. The Notice advises broker-dealers engaged in the business of agency securities lending that NASD’s Agency Lending Disclosure Task Force has recommended certain uniform processes and a proposed calendar of milestones, to help broker-dealers engaged in agency securities lending activities comply with existing rule requirements relating to books/records, net capital requirements and internal/supervisory controls. Agency lending of securities involves use of an intermediary, or agent, that acts on behalf of both borrower and lender, and does not have title to the securities being loaned. It is common practice for broker-dealers to rely on agents to locate securities they wish to borrow, pay collateral to these agents and record agency securities lending transactions at the agent level. Often, borrowing broker-dealers record little or no details regarding the underlying principal lender. The borrowing broker-dealer may not even know the identity of the actual lender. Broker-dealers that engage in the business of agency securities lending should be aware of the milestones established by the Task Force’s Initiative. Among other things, broker-dealers engaged in the business of agency securities lending must monitor credit exposure as to each underlying principal lender (as of October 31, 2005) and calculate regulatory capital exposure as to each underlying principal (as of March, 2006).


According to Pensions & Investments, unfunded pension liabilities continued to decline in 2004 because of improved investment returns and increased contributions. However, the pace was slower than in 2003. Unfunded liabilities of the largest 100 corporate defined benefit plans fell 21.9% in 2004 from the previous year. (In 2003, liabilities had fallen 41% from 2002.) In dollar terms, the top 100 plans were underfunded by $69.5 Billion, down from $89 Billion in 2003 and $151 Billion the year before that. Employer contributions dropped 27.7%, to $37.3 Billion in 2004 from $51.6 Billion the previous year. None of the top 100 corporate plans reported any investment loss last year. In fact, 73 plans experienced a return of 10% or more on plan assets. Note that, despite 2003's recovery, 75 of the top 100 companies had lowered their long-term rate of return assumptions that year. In 2004, 28 companies lowered their return assumption. The average long-term rate of return assumption for the top 100 plans for 2004 was 8.6%, down slightly from 8.7% in 2003. Five firms in the top 100 still have assumptions in excess of 9% (down from 7 in 2003), with General Mills being the absolute highest at 9.6% in 2004 (down from 10.4% in 2003!).


Last year we reported on the Justice Department’s probe of actuaries, investigating anticompetitive agreements or understandings relating to contract terms and conditions among providers of actuarial consulting services (see C&C Newsletter for June 3, 2004, Item 2). The investigation related to the decision of several large actuarial firms to ask their pension fund clients to set limits or caps on what they would pay in lawsuits over their work or to exempt the firms from liability in such cases. Little did we know that the Justice Department was also investigating Professional Consultants Insurance Co., Inc. for colluding to ensure industry-wide adoption of liability limit provisions in engagement letters with their pension fund clients. The kicker? -- the company is owned by three of the largest actuarial consulting firms in the country! In other words, PCIC is a captive insurer that covers only its three owners against malpractice suits. Pensions & Investments reports on a settlement with the government, which is in effect for ten years, containing an agreement by PCIC and its three owners to: stop sharing information about liability limit provisions with each other and with other actuarial consulting firms; establish an antitrust compliance office; prohibit PCIC and its owners from agreeing among themselves or with other actuarial consulting firms about existing or potential liability limit provisions; and appoint an independent antitrust lawyer to oversee compliance with the settlement. Interestingly, the suit was settled the same day it was filed, indicating that the parties had already resolved their differences. Any pension clients that got “stuck” with contractual liability clauses may want to revisit the issue at this time. [Pensions & Investments, July 11, 2005, Page 3]


The typical institutional investor paid weighted average commissions of 4.1¢ per share in the first quarter of 2005 for trades on the New York Stock Exchange, according to a Greenwich Associates report summarized in Pensions & Investments. That figure is down from 4.5¢ in the first quarter of 2004, and is expected to drop to 3.9¢ per share over the next year. (Large institutional investors, which generate more than $50 Million in annual commissions on Big Board trades, currently pay 3.9¢ a share and expect 3.7¢. Commissions for trades on the Nasdaq stock exchange cost about the same.


According to Plansponsor,com, a former New York police officer has charged the NYPD with violating his right to free speech after he was fired for operating a website where officers rant about their jobs. As justification for termination, the department pointed to content of the NYPD Rant Web site. The officer had agreed to early retirement last October, after the department raised objections to the site. However, earlier this month the department retroactively changed the retirement to a firing (huh?), costing the officer a significant portion of his pension benefits. (How the department will sustain that action will be quite interesting.)


Disaster Medical Assistance Teams are groups of professional and para-professional medical personnel designed to provide medical care during a disaster or other event. DMATs are a segment of the National Disaster Medical System, a section within the United States Department of Homeland Security, Federal Emergency Management Agency, Response Division, Operations Branch, and are responsible for supporting medical agencies in management and coordination of the federal medical response to major emergencies and federally declared disasters. DMAT members are appointed as “intermittent disaster-response appointees.” Federal law provides that service as an intermittent disaster-response appointee is deemed “service in the uniformed services” for purposes of the Uniformed Services Employment and Reemployment Rights Act. USERRA, in turn, supersedes any state or local law or policy that reduces, limits or eliminates any right or benefit provided by that law. Thus, members of a DMAT are entitled to protections afforded by USERRA. However, USERRA does not require employers to provide those serving in the uniformed services with paid military leave. That’s where Chapter 115, Florida Statutes, comes in: it authorizes state and local governments to provide leaves of absence for officers and employees when they are engaged in military service. Section 115.09, Florida Statutes, mandates that the first 30 days of any such leave of absence be with full pay. The definition of “active military service” in Section 115.08, Florida Statutes, is more limited, and, of course, does not specifically include service as an intermittent disaster-response appointee. The Florida Attorney General has opined that the intent of Chapter 115, Florida Statutes, appears to be to compensate such individuals, who are called into service by the United States to protect its citizens and property. Although the Attorney General cannot conclude that these individuals should be excluded from the provisions of Chapter 115, Florida Statutes, he does “suggest that the Legislature clarify its intent on this issue.” So, the answer to the question posed in the above caption is “don’t know.” AGO 2005-43 (July 12, 2005).


Jackson brought an action against her former employer, City of Chicago, for violations of Title II of the Americans with Disabilities Act. The Federal District Court granted the City’s motion for summary judgment because Ms. Jackson could not raise a genuine issue of material fact as to whether she was a qualified individual with a disability, as defined in the ADA. In order to make out a prima facie case of discrimination under the ADA, plaintiff must show: (1) that he suffers from a disability as defined in the statutes, (2) that he is qualified to perform the essential functions of the job in question, with or without reasonable accommodation and (3) that he has suffered an adverse employment action as a result of his disability. Here, Ms. Jackson was terminated because her own physician testified that she could not safely handle a firearm, without reasonable accommodation. (The minimum eligibility requirements required that even a police officer assigned to “limited/convalescent duty” must be able safely to carry, handle and use his prescribed firearm.) In affirming the lower court, the appellate court declined to second-guess the employer’s judgment as to the essential functions of a position. Ms. Jackson was also unable to show ability to perform the essential functions of her position with reasonable accommodation. To determine the appropriate reasonable accommodation it may be necessary for the employer to initiate an informal, interactive process with the qualified individual in need of accommodation. And although the burden of “exploring” reasonable accommodation lies with the employer, it is plaintiff’s burden to show that a vacant position exists for which he is qualified. At bar, Ms. Jackson was responsible for breakdown in the interactive process and so could not claim that the City failed to accommodate her. One other bit of info: Ms. Jackson’s first name is Vendetta. Jackson v. City of Chicago, Case No. 03-4266 (U.S. 7th Cir., July 12, 2005).


On November 15, 2001, Tobler, a Verizon employee, was arrested after he was observed purchasing a bag of cocaine while in a company vehicle. Early the next morning, he left a message on his supervisor’s voice mail requesting a short notice vacation that day and fabricating the reason therefor. When Tobler reported for work on Monday, November 19, the 32-year employee was told he was being terminated. On the same day, Verizon offered certain employees an Enhanced Income Security Plan, provided an eligible employee remained on the active payroll until December 29, 2001, and retired on that date. Although he would have otherwise been eligible, Tobler was not offered enhanced benefits. He brought an action in federal court, seeking damages for Verizon’s failure to notify him of his eligibility for enhanced benefits and to provide those benefits to him. Section 510 of ERISA specifically prohibits interference with an employee’s attainment of ERISA benefits: “It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary...for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan... .” To prevail, plaintiff must establish (1) that an employer took specific actions (2) for the purpose of interfering (3) with an employee’s attainment of pension benefit rights. Here, the only evidence that Tobler had to support his theory that Verizon terminated him for the purpose of interfering with ERISA benefits was the timing of his termination. Thus, the court, treating Verizon’s motion to dismiss as one for summary judgment, entered judgment in favor of Verizon. The court did not buy Tobler’s claim that he was not, in fact, terminated until an arbitrator upheld the decision to terminate almost a year later. Tobler v. Verizon PA Inc., Case No. 04-5708 (E.D. Pa., July 13, 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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