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Cypen & Cypen
JULY 2, 2009

Stephen H. Cypen, Esq., Editor


New Haven, Connecticut, used objective examinations to identify those firefighters best qualified for promotion.  When results of such examination to fill vacant captain and lieutenant positions showed that white candidates had outperformed minority candidates, a rancorous public debate ensued.  Confronted with arguments both for and against certifying the test results -- and threats of a lawsuit either way -- the City threw out the results based on the statistical racial disparity.  White and Hispanic firefighters who passed the exams but were denied a chance at promotions by the City’s refusal to certify the test results sued the City, alleging that discarding the test results discriminated against them based on their race in violation of, inter alia, Title VII of the Civil Rights Act of 1964.  The City responded that had it certified the test results, it could have faced Title VII liability for adopting a practice having a disparate impact on minority firefighters.  The District Court granted summary judgment for the City, and the Second Circuit affirmed.  On certiorari review, the United States Supreme Court held that the City’s action discarding the tests violated Title VII.  Title VII prohibits intentional acts of employment discrimination based on race, color, religion, s.ex and national origin (disparate treatment), as well as policies of practices that are not intended to discriminate but in fact have a disproportionately adverse effect on minorities (disparate impact).  Under Title VII, before an employer can engage in intentional discrimination for the asserted purpose of avoiding or remedying an unintentional, disparate impact, the employer must have a strong basis in evidence to believe it will be subject to disparate-impact liability if it fails to take the race-conscious, discriminatory action.  The question is whether the purpose to avoid disparate-impact liability excuses what otherwise would be prohibited disparate-treatment discrimination.  Certain government actions to remedy past racial discrimination -- actions that are themselves based on race -- are constitutional only where there is a “strong basis in evidence” that the remedial actions were necessary.  The Court adopted the strong-basis-in-evidence standard as a matter of statutory construction to resolve any conflict between Title VII’s disparate-treatment and disparate-impact provisions.  The City’s race-based rejection of test results cannot satisfy the strong-basis-in-evidence standard.  The City could have been liable for disparate-impact discrimination only if the exams in issue were not job related and consistent with business necessity or if there existed an equally valid, less discriminatory alternative that served the City’s needs but that the City refused to adopt.  The City’s assertions that the subject exams were not job related and consistent with business necessity are blatantly contradicted by the record, which demonstrated the detailed steps taken to develop and administer the test and the painstaking analyses of the questions asked to assure their relevance to the captain and lieutenant positions.  Respondents also lacked a strong basis in evidence showing an equally valid, less discriminatory testing alternative that the City, by certifying the test results, would necessarily have refused to adopt.  Fear of litigation alone cannot justify the City’s reliance on race to the detriment of individuals who passed the examinations and qualified for promotions.  Discarding the test results was impermissible under Title VII, and summary judgment is appropriate for the complaining firefighters on their disparate-treatment claim.  If, after it certifies the test results, the City faces a disparate-impact suit, then in light of the instant holding the City can avoid disparate-impact liability based on the strong basis in evidence that, had it not certified the results, it would have been subject to disparate-treatment liability.  The Justices predictably were lined up 5-4, with swing vote, Justice Kennedy, delivering the opinion for the majority.  Ricci v. DeStefano, Case No. 07-1428 (U.S., June 29, 2009). 


According to a new Working Paper from the Pension Research Council at Wharton, despite only having been in existence for 27 years -- less than a typical working career -- some analysts seem to have concluded that 401(k) plans are a failure.  For example, some argue that the 401(k) is “coming up short” due to, among other factors, low contribution rates among those participating.  A recent government report concludes that “low defined contribution plan savings may pose challenges to retirement security.”  In addition, there are proposals to replace 401(k) plans with Guaranteed Retirement Accounts, in part due to belief that 401(k) plan participants will not be adequately prepared for retirement.  The paper illustrates that moderate 401(k) contribution rates can lead to inadequate income replacement rates in retirement for many workers; that adequate asset accumulation can be achieved using only a 401(k) plan; and that these results do not rely on earning and investment premium on risky assets.  Using Monte Carlo simulation techniques (not risky, eh), the study also illustrates the investment risk faced by participants who choose to invest their 401(k) contributions in risky assets, or who choose to make systematic withdrawals from an investment account in retirement rather than annuitize their account balance.  PRC WP 2009-01 (January 2009).  See Part Two below.


According to a new Working Paper from your Editor, the answer is “No.”  See Part One above. 


In a letter to the editor of the Delta County (Colorado) Independent, the writer says a defined benefit plan works best for Colorado retirees.  It appears that the Colorado economy is in a stagnant holding pattern, much like the rest of the country.  Most of us who are retired or may be close to retirement are interested in what might happen with our IRAs and public retirement benefits.  There have been those who have used the economic slump as an excuse to attack the state’s public retirement program.  They use a term known as “misinformation,” which is politically correct for using false information to make a point.  The pension management team, as well as the legislature, will soon have accurate information as to where the retirement program is and how much damage has accrued this past year.  Fortunately, cooler heads in the legislature have prevailed, and decisions can be made based on solid facts.  The plan’s portfolio lost about 26%.  The good news is that the plan did better than most others, including IRAs.  The number of retirees in 2009 has dropped 30%; it seems some who were going to retire have changed their minds, for at least a year.  One criticism being used to attack the retirement program is, “state retirees are retiring too young, thus becoming a burden on the system.”  Of those who retired in 2008, the average age was 58.  Only 3.5% who retired last year are under 55 years of age.  The plan pays a total of $225 Million a month in the state of Colorado.  These are dollars being reinvested back into every community.  The National Institute of Retirement Security says that, given a targeted retirement goal, a defined benefit plan (like Colorado’s) can provide the same benefit at a cost that is 46% lower than a defined contribution plan can provide (see C&C Newsletter for August 21, 2008, Item 1).  It is obvious that everyone in Colorado should get behind the plan in these troubled economic times, and support a program that is working and will be now and forever a huge part of every city and county’s economic base.  There is a group of naysayers who have targeted Colorado’s plan, as well as other states’ defined benefit plans, to be attacked and privatized.  Had Colorado done that, everyone would be worse off.  The naysayers will use any and all “misinformation” to stir up fear.  When you hear or read their fearmongering, remember that Colorado’s plan is and will be 46% more efficient at managing the state retirement system than any defined contribution plan being pushed. Then ask yourself why they are doing this and what do they expect to get from their fearmongering.  The writer, Roger Fulks, appears to be connected with the state retirement system.  


A paraplegic sued the city for not having developed a transition plan to achieve the Americans With Disabilities Act’s accessability standards as required by regulation.  However, that regulation implements Section 202 of ADA’s Title II, which says nothing about a public entity’s obligation to draft a detailed plan and schedule for achieving such meaningful access, and does not create a private right to such a plan.  Therefore, the regulation is not enforceable through a private right of action.  Lonberg v. City of Riverside, Case No. 06-55781 (U.S. 9th Cir., June 26, 2009).  This summary was provided by Chuck Carlson. 


Despite having an average $3.5 Million in investable assets and $306,000 in annual household income, 46% of U.S. millionaires do not feel wealthy and are taking action to reassess and rebuild their wealth, according to the study, which looks annually at investing attitudes and behaviors of more than 1,000 millionaire households.  The study reveals that these investors are using the market downturn as an opportunity to reconfigure their portfolios:  while many are upweighting their allocation to fixed income investments, others are increasing their exposure to stocks, and half plan to sell poorly performing assets to offset expected increases in capital gains in their portfolios.  Although 77% of millionaires surveyed say that the current economic environment is the worst they have experienced, many are drawing on lessons learned from past financial crises.  At an average age of 59, 78% of millionaires have personal experience in the last four recessions, from the early 1970s oil crisis to the early 1980s, 1990s and 2000s downturns.  Based on their past experience, the top three pieces of advice millionaires would give investors trying to cope with the current situation are (1) stay the course; (2) remain calm and be optimistic; and (3) cut back on spending and save more.  Today, millionaires who stayed the course during a previous financial crisis or used it as a buying opportunity, boast an average of $1 Million more in investable assets compared to their peers who moved to more conservative investments in previous downturns.  When asked about the single investment category promising best returns for the next 12 months, 34% of millionaires surveyed say they feel that bonds, fixed income, certificates of deposit and money market funds may offer the greatest potential, followed by individual stocks.  As such, 32% of these millionaires say they plan to increase their exposure to fixed income, bonds and CDs over the next 12 months, while 31% say they will invest more in individual stocks.  Over the next five years, however, 44% see stocks as the investment vehicle promising best returns, while only 6% cite bonds, CDs and money market funds.  (According to our scientific survey conducted by the firm of Dicker & DIcker, Beverly Hills, 82% of our readers are millionaires.  We also found that 98% of all statistics are made up.)


 Tessicini was an employee of Electronic Data Systems Corporation for 21 years.  In 2005, EDS eliminated Tessicini’s position.  EDS’s written vacation pay policy provided that beyond the first year of employment, the amount of an employee’s paid vacation time would be based on the number of full calendar years he had worked for EDS.  Under the policy, a person who had been employed for 20 years or more is eligible for five weeks of paid vacation per calendar year, to be used by December 31 of that year, or lost.  The policy further provides that vacation time is not earned and does not accrue.  Upon leaving EDS, whether voluntarily or involuntarily, an employee will not be paid for unused vacation time (unless otherwise required by state law).  At time of his discharge, Tessicini had used only one day of vacation in calendar year 2005.  Pursuant to the vacation pay policy, EDS did not pay Tessicini for any part of his unused vacation time.  Tessicini filed a complaint with the Attorney General’s Fair Labor Division, which ordered payment under the State Wage Act.  EDS appealed through the Division of Administrative Law Appeals, which affirmed.  On further review in the Superior Court, the Division’s decision was upheld.  The Massachusetts Supreme Judicial Court granted an application for direct appellate review, and affirmed the rulings below.  Massachusetts’s highest court concluded that the statute requires Tessicini to be paid for unused vacation time remaining at time of involuntary discharge.  Because EDS’s policy does not provide for such payment, it contravenes the Wage Act, which provides that any employee discharged from employment shall be paid in full on the day of his discharge; the word “wages” shall include any holiday or vacation payments due an employee under an oral or written agreement.  Employers who choose to provide paid vacation to their employees must treat those payments like any other wages under the Wage Act.  Like wages, vacation time promised to an employee is compensation for services that vests as the employee’s services are rendered.  Under separation of employment, employees must be compensated by their employers for vacation time earned under an oral or written agreement.  Electronic Data Systems Corporation v. Attorney General, Case No. SJD-10260 (Mass., June 11, 2009). 


A law enforcement officer currently employed by the Broward County Sheriff’s Office committed a “specified offense” as defined in Section 112.3173, Florida Statutes, after vesting in the Pompano Beach Police and Firefighters’ Retirement System, but not while actively participating in that system.  The offense was committed while the officer was working for the Broward County Sheriff’s Office, which pursuant to an inter-local agreement began providing police services to Pompano Beach in 1999 and while the officer was a member of the Florida Retirement System.  The Florida Attorney General concluded that Section 112.3173, Florida Statutes, requires the official or board responsible for paying benefits under a public retirement system to make a forfeiture determination when the board has reason to believe that the rights of a person under any such system are required to be forfeited pursuant to the statute.  As long as the Pompano Beach Police and Firefighters’ Retirement System is a  “public retirement system” within the scope of Part VII, Chapter 112, Florida Statutes, and the board has either received notice or otherwise has reason to believe that a forfeiture under the statute is required, the board must provide notice and hold an administrative hearing on this matter.  The statute specifically requires that “all” rights and benefits under any public retirement system of which the officer or employee is a member shall be subject to forfeiture.  Thus, the forfeiture provisions apply to any and all public retirement benefits to which the employee may be entitled.  Frankly, in light of the crystal clear, dispositive ruling in the recent case of Childers v. State, Division of Retirement, 989 So.2d 716 (Fla. 4th DCA, 2008) (see C&C Newsletter for September 4, 2008, Item 1), we are not sure why this Attorney General Opinion was sought -- unless the request predated the Childers decision.  AGO 2009-31 (June 15, 2009). 


Florida Public Pension Trustees Association celebrated its 25th Anniversary and Annual Conference at Boca Raton Resort & Club, June 28 - July 1, 2009.  Of course, the multi-day program was jam-packed with top-notch speakers and useful information.  The highlight -- at least to us -- was Sunday night’s anniversary dinner, after which almost 1,000 attendees were treated to a marvelous performance by “The Fab Four,” remarkable Beatles’ impersonators.  Everyone had a ball, and rumor has it that Ray Edmondson actually danced.  Your editor is proud to have been a part from inception of FPPTA, including all Trustees Schools and Conferences.  Alison Bieler, one of our associates, serves on FPPTA’s Associate Advisory Board.  The usual kudos to Ray, Lois and Kim (plus Ethan, Lea, Jean and Brittany). 


Last week we wrote about “90-year-old” columnist Regina Brett.  Well, thanks to reader GF in Jefferson City, Missouri and, we learned that Ms. Brett is 53 years old.  However, because she is the compiler of the 45 Life Lessons, we will continue to publish them (plus the additional “5 to grow on” she recently added: 

 6.            You don't have to win every argument.  Agree to disagree.
 7.            Cry with someone.  It's more healing than crying alone.
 8.            It's OK to get angry with God.  He can take it.
 9.            Save for retirement starting with your first paycheck.
10.            When it comes to chocolate, resistance is futile.


ATTORNEY: The youngest son, the twenty-year-old, how old is he?
WITNESS: He's twenty, much like your IQ. 


I thought I saw an eye doctor on an Alaskan island, but it turned out to be an optical Aleutian. 


“The difference between genius and stupidity is that genius has its limits.”  Albert Einstein (Now that quote really is ingenious.)


Copyright, 1996-2009, 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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