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Cypen & Cypen
JULY 20, 2006

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


Senator Charles Grassley, Chairman of the Committee on Finance, and Senator Max Baucus, ranking member, have asked the Government Accountability Office to study the funding status of public pension plans, citing concern that many such plans are poorly funded and have no back-up source for guaranteed benefit payments, as do private pension plans. The Senators’ letter makes reference to the current weak funding rules that currently apply in the private sector, and the terminations that have pushed Pension Benefit Guaranty Corporation’s deficit to over $23 Billion and led to major losses in retirement income for workers. Many of the same forces that impacted private sector defined benefit plans impact public sector defined benefit plans. Because of different rules, many public sector plans are more poorly funded than their private sector counterparts. But there is no PBGC to back up these plans; the burden would fall directly on state and local taxpayers and on the Nation’s teachers, police and firefighters. To help the Committee on Finance understand the fiscal and other challenges facing state and local retirement plans and to help public employees avoid benefit losses and reduced accruals experienced in the private sector, the Senators asked GAO to explore a variety of issues regarding state and local DB plans and the accompanying retiree health benefits. These include:

  • What is the general financial health of state and local government DB plans and how has it changed over the past decade?
  • How widespread is the provision of retiree health benefits by state and local government employers, in terms of cost and employee coverage, and what is the funded status of these plans? How has this changed in the last decade?
  • To what extent do state and local government employers and employees benefit from the federal tax expenditure for defined benefit pension plans?
  • To what extent will recent changes in applicable accounting standards affect the funding and transparency of state and local public employer plans as well as their financing of retiree health benefits?
  • What are the implications of these trends for state and local government employee retirement security and retirement security generally?

We anxiously await GAO’s answers to these pointed questions.


Inflation has been hurting bond prices this year, but inflation-protected bonds have gone down in price, too, according to BusinessWeek. It turns out that while Treasury Inflation-Protected Securities (TIPS) get added payments to compensate for inflation, that cash comes only when the bonds mature. Meanwhile, they pay less interest than ordinary Treasuries. Even so, financial advisers recommend that investors put a portion of long-term savings into inflation-protected securities. Despite short-term price swings, they are the only investment guaranteed to beat inflation over the long term. They are also one of the only asset classes, along with commodities, that tend to move in the opposite direction of the U.S. Stock Market. Owning TIPS for diversification can thus improve your portfolio’s returns and dampen volatility. The U.S. Treasury sells TIPS in 5-, 10- or 20-year maturities directly to investors through The Treasury also sells “I bonds” that accrue interest and an inflation adjustment for up to thirty years. As with ordinary savings bonds, investors receive accumulated interest when they choose to redeem. Investors owe taxes every year on both the interest they get from TIPS and the accrued inflation adjustment that will not be paid off until maturity. In a tax-deferred account, that is not a problem. But I-bonds are the only taxable-savings product that lets investors defer all taxes until they redeem the bonds.


Although slightly off our usual subject matter, we thought the following case might be of interest to some of our readers. As a result of being injured on the job, Lake filed a workers’ compensation claim. Her employer offered light duty work when she was able to return to work; however, Lake did not accept the offer, instead agreeing to a lump sum settlement of her workers’ compensation claim, which provided that she would not return to work for her employer. Lake then sought unemployment benefits, but the appeals referee found that she had voluntarily left employment in order to accept the workers’ compensation settlement. The employment appeals commission affirmed, and Lake appealed. The district court of appeal also affirmed: Lake clearly left her employment voluntarily when she agreed to the settlement that terminated her employment. Lake v. State of Florida, Unemployment Appeals Commission, 31 Fla. L. Weekly D1821 (Fla. 4th DCA, July 5, 2006).


Investment Company Institute, a national association of U.S. investment companies, has issued the U.S. Retirement Market, 2005. Here are some key findings:

  • Americans’ retirement assets reached a record $14.5 Trillion in 2005, a 7% increase over 2004. Retirement assets now account for more than one-third of all household financial assets.
  • Nearly two-thirds of Americans’ retirement assets are held in employer-sponsored retirement plans. Furthermore, a significant portion of assets held in Individual Retirement Accounts originated in employer plans and were transferred, or “rolled over,” into IRAs.
  • Assets in defined contribution plans and IRAs continued to grow more rapidly than assets in other types of retirement plans in 2005, rising nearly 9%, compared with less than 5% asset growth for other retirement plans. Together, DC plans and IRAs now constitute 51% of retirement assets, up from 39% in 1990.
  • Mutual funds manage 48% of DC plan assets and 45% of IRA assets. The growth in assets in these retirement plans in recent years has lifted mutual funds’ share of the retirement market.

The chart-laden fifteen page report can be accessed through

5. SENATE BILL WOULD EQUALIZE LAW ENFORCEMENT BENEFITS: reports that legislation to provide more consistent treatment of federal law enforcement officers when it comes to pay and retirement benefits has been introduced by Maryland’s two Democratic Senators. The bill is one of several proposed in recent years to address long-standing confusion over how to define and classify federal law enforcement jobs. Some officers carry weapons and make arrests but are excluded from special pay and pensions that other officers get, for example. The equity issue has been recognized as a problem by the Bush administration and by congressional Republicans. However, no consensus has emerged on how to change employment practices, partly because most proposed remedies would significantly increase pension costs. Although the equity issue is not new, it has taken on some urgency since the September 11, 2001 terrorist attacks. A recent House staff report found that law enforcement compensation has been shaped by an inflexible patchwork of outdated concepts that do not meet the needs of federal agents, investigators and police officers who have more homeland security responsibilities. Most officers and firefighters are eligible to retire at age 50 with 20 years of federal service. But some, such as customs and immigration inspectors in the Department of Homeland Security and police officers in the Veterans Affairs Department, are not eligible for those benefits. They fall under regular civil service retirement rules, which require most employees to be at least 55 and have at least 30 years of service. The different retirement rules are an especially sore point for many Customs and Border Protection officers, who carry weapons, can make arrests and are sometimes called upon to assist in capture of criminal suspects. They work at border-crossing stations, airports and seaports, screening international passengers and cargo.


Under a new federal law, taxpayers submitting new offers in compromise must make a 20% nonrefundable, up-front payment in many cases, according to an Internal Revenue Service announcement. The recently-enacted Tax Increase Prevention and Reconciliation Act of 2005 made major changes to the offer in compromise (OIC) program, tightening rules for lump-sum offers and periodic-payment offers. The changes became effective for all offers received by IRS starting July 16, 2006. An OIC is an agreement between a taxpayer and IRS that resolves the taxpayer’s tax debt. IRS has authority to settle, or “compromise,” federal tax liabilities by accepting less than full payment in certain circumstances. Under the new law, taxpayers submitting requests for lump-sum OICs must include a payment equal to 20% of the offer amount. The payment is nonrefundable, that is, it will not be returned if the OIC is later rejected. A lump-sum OIC means any offer of payments made in five or fewer installments. Taxpayers submitting requests for periodic-payment OICs must include the first proposed installment payment with their application. A periodic payment OIC is any offer of payments made in six or more installments. The taxpayer is required to pay additional installments while the offer is being evaluated by IRS. All installment payments are nonrefundable. Under the new law, taxpayers qualifying as low-income or filing an offer based solely on doubt as to liability qualify for a waiver of the new partial payment requirements. IR-2006-106 (July 11, 2006).


With more than 77 million Baby Boomers entering retirement over the next few years, future retirees must prepare for the challenge of maintaining their standard of living in retirement much more so than previous generations since they are expected to live longer with fewer sources of guaranteed income. Consider that the personal savings rate is at an all time low and Social Security replaces on average about 42% of pre-retirement earnings. Add to this, the fact that 88 million American workers either do not participate in, or have access to, any sort of employer-sponsored retirement plan. Americans for Secure Retirement has developed the Retirement Readiness Assessment to raise awareness of the retirement challenge that lies ahead and to gauge the preparedness of the country’s upcoming retirees. More specifically, the study identifies the financial retirement risks that individuals face in the 250 most densely populated counties across the United States. Each of the 250 most populated counties across the country was evaluated according to thirty economic and demographic variables that measure retirement preparedness. The categories are Fairly High Retirement Risks, High Retirement Risks, Elevated Retirement Risks, Moderate Retirement Risks, Less Retirement Risks and Nominal Retirement Risks. Believe it or not, all six counties in the Very High Retirement Risks are in Florida: Lee, Marion, Pasco, Polk, Sarasota and Volusia! Miami-Dade County falls into the High Retirement Risk category, while Broward and Palm Beach came in as Elevated Retirement Risks. Assessment categories include level of income, and age of a community.


When we first saw this item from Associated Press, we thought it was pretty obscure. However, since then, the story has been broadcast on virtually every television newscast. Anyway, the story is so bizarre, it is still worth repeating. It all started with a noise complaint called in by neighbors of Lorna Jeanne Dudash. The deputy sent to check on the complaint knocked on her door, and left. Dudash then called 911, asking that the “cutie pie” deputy return. The transcript went something like this:

“He’s the cutest cop I’ve seen in a long time. I just want to know his name. Heck, it doesn’t come very often a good man comes to your doorstep. I am 45 years old and I’d just like to meet him again, but I don’t know how to go about doing that without calling 911. I know this is absolutely not in any way, shape or form an emergency, but if you would give the officer my phone number and ask him to come back, would you mind?”

Sure enough, the deputy returned, verified that there was no emergency and arrested Ms. Dudash for abusing the 911 system, an offense punishable by a fine of up to several thousand dollars and a year in jail. The Camptown ladies sing this song, Dudash, Dudash.


“Arguing with a fool proves there are two.” Doris Smith

Copyright, 1996-2006, 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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