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Cypen & Cypen
NEWSLETTER
for
JULY 1, 2010

Stephen H. Cypen, Esq., Editor

1.            SACRAMENTO WILL HIRE 30 MORE POLICE OFFICERS:  The Sacramento City Council voted to pump $6 Million into its police department over the next three years, money that city officials said will put 30 new cops on the streets by the summer of 2013.  Another part of the council vote, according to sacbee.com,  spared two fire department rigs that had been slated for rotating closure.  Still, two units will be "browned out" on a rotating basis. 

 2.            FACT-FINDING COMMITTEE SUBJECT TO FLORIDA SUNSHINE LAW:  The Florida Attorney General was asked for advice as to whether a town council, by official act, may identify a task force (created by the town council) as a strictly fact-finding committee that reports its findings to the town council and is, thereby, not subject to requirements of the Government in the Sunshine Law, Section 286.011, Florida Statutes.  As a follow up, he was asked in the event the task force oversteps its fact-finding role and acts in a manner that would be subject to Section 286.011, Florida Statutes, may actions be validated by the town council’s subsequent action at a properly noticed public meeting.  Section 286.011(1), Florida Statutes, provides that no resolution, rule, regulation or formal action shall be considered binding unless taken or made at an open meeting.  Should action be taken in violation of the Sunshine Law, it is considered void ab initio.  The perfunctory or ceremonial acceptance of actions that were taken at a meeting held in violation of the Sunshine Law will not cure the violation; rather it takes independent, final action in the sunshine.  Only a full open hearing will cure a violation of holding a meeting outside the Sunshine Law.  Informal AGO, June 10, 2010. 

 3.            EXHAUSTION OF REMEDIES NOT REQUIRED BEFORE INSTITUTION OF OPEN RECORDS ACT SUIT:  The Governor of Rhode Island and directors of twelve state agencies, appealed a judgment entered in favor of unions brought under the Access to Public Records Act and the Governmental Oversight and Fiscal Accountability Review Act, pursuant to which the unions sought records relating to state agency privatization contracts.  The state contended that the trial court erred in ruling that the unions were not required to exhaust administrative remedies before instituting suit.  They also assert that the trial court erred in deciding that, under GOFARA, the state was required to determine whether services now performed by private agencies on behalf of state agencies formerly were performed by agency personnel at any time in the past.  The Rhode Island Supreme Court determined it was clear from the language of APRA there were various administrative remedies not requiring pursuit prior to bringing an action.  The General Assembly manifestly intended requestors to have recourse to court even without prior exhaustion of alternative, administrative remedies.  The Court then addressed the issue of scope of duty imposed on the state under GOFARA.  Upon consideration of the meaning of the term “services heretofore provided” as used in GOFARA, the Supreme Court concluded that the phrase encompassed all services performed at any time in the past by regular employees of a state agency.  Thus, the Supreme Court affirmed the trial court’s award of damages to the unions.  Downey v. Carcieri, Case No. 09-79 (RI, June 16, 2010). 

 4.            CALIFORNIA WORKERS’ COMP FURLOUGHS ILLEGAL:  About 7,900 state workers' compensation employees were furloughed illegally by the state of California last year, and are entitled to $25 Million in back pay, according to a state appeals court ruling reported in sfgate.com.  A state law that exempts employees of the State Compensation Insurance Fund from hiring freezes and staff cutbacks also prohibits the state from cutting their workweeks.  The court endorsed an earlier ruling by another appellate panel that found the state had acted illegally when it furloughed about 500 lawyers and hearing officers employed by the same insurance fund (see C&C Newsletter for September 17, 2009, Item 4 and C&C Newsletter for September 24, 2009, Item 6).  The new ruling applies to all of the fund's employees.  The fund sells workers' compensation insurance to employers and uses their payments to run its operations.  The state ordered about 200,000 state employees to take two days off each month without pay in February 2009, and added a third furlough day in July, saying the state would save $1.4 Billion a year.  Note, the state Supreme Court has agreed to review the state’s authority to impose furloughs.

 5.            ONE-THIRD RETIREMENT PLAN PARTICIPANTS SAVING MORE TO MAKE UP FOR MARKET DOWNTURN:  More than one-third (38%) of retirement plan participants have increased the amount they are saving for retirement following the market downturn of recent years.  In addition, 20% of participants have moved into more aggressive investment options, reports a survey of retirement plan participants conducted by Diversified Investment Advisors, Inc. and reported in businesswire.ca.  While many people have curtailed their spending, the results suggest that many participants appreciate the importance of funding their retirement plans.  In fact, 70% of respondents had reviewed their retirement outlook in the past year.  Other key findings are 

  • Three out of five participants are saving six percent or more for their retirement, with 17% of these individuals saving more than 15% of their income. 
  • Despite financial hardship caused by the economic downturn, only 4% had taken a hardship withdrawal.  However, 15% had taken a loan and 12% decreased the amount they are saving for retirement. 
  • As far as concerns about retirement income needs, 43% want to have guaranteed monthly income for the rest of their lives; 35% want to get the best return on their investments; and 19% want to ensure that their retirement income keeps up with inflation. 
  • Fifty-five percent have used an online calculator, asked a financial advisor or estimated on their own what they will need.  Half said they wanted help to establish a retirement income goal, an 18% increase over 2008. 
  • Use of the web to manage retirement accounts has increased by 4% over 2008 figures.  Among web users, 95% review their account balance, 73% review investment performance and 49% change investment allocations.

The survey indicates that many plan participants are more aware of their retirement needs than for which they have been given credit.  Unfortunately, it may have taken an economic crisis to get to this point. 

 6. GASB STICKS WITH TRADITIONAL VALUATION METHOD:  The Government Accounting Standards Board generally reaffirmed use of the expected long-term return on investments as a basis for valuing public pension plan liabilities, rather than move closer to a market-based discount rate, according to pionline.com.  Continued use of the traditional valuation method would apply to plans as long as the assets available for benefits are projected to be sufficient to cover future benefits.  Such condition generally applies to plans that meet their actuarially-determined contributions and intend to meet such future actuarial contributions, even if the plans are underfunded.  According to GASB’s preliminary views document, plans that typically do not fund their plans with the actuarially-determined contributions would use a high-quality municipal bond index rate to value only those pension liabilities that are in excess of those benefits covered by current and projected plan assets.  GASB’s view is that a reasonable long-term expected rate of return on plan investments would continue to be the basis for discounting projected benefit payments to their present value, but only to the extent that the current and expected future plan net assets will be sufficient to cover future benefit payments.  In addition, the proposal would require public plan sponsors to use only the entry-age-normal method to discount projected benefits of participants.  GASB’s suggestion would likely have no impact on some 65% to 70% of public plan sponsors that already use the entry-age-normal method.  Overall, GASB believes implications of the proposal will be for many plan sponsors a non-event.  In light of what most people expected from GASB (see C&C Newsletter for June 17, 2010, Item 13), we are wondering who talked some sense to GASB. 

 7. PENSION EXPERT COMMENTS ON GASB RELEASE:  American Academy of Actuaries Senior Pension Fellow Frank Todisco has provided several observations following his review of the above Government Accounting Standards Board's Preliminary Views on Pension Accounting and Financial Reporting by Employers.  Here are Todisco’s initial observations: 

  • GASB's blended discount rate approach appears to lean heavily toward its current methodology of using expected return on plan assets, although additional clarification may be required.  GASB's approach has been, and remains, significantly different from that taken by the standard setters for the private sector (Financial Accounting Standards Board and International Accounting Standards Board), which prescribe a high quality bond-based discount rate. The appropriate discount rate (and, by extension, whether public and private sector plans should have different accounting) has been a key point of contention in the controversy surrounding public plan valuation. 
  • To promote comparability, the GASB release calls for use of a single actuarial cost method for measuring value of the obligation, eliminating the variety of choices that are currently available.  The recommended method is already used by the vast majority of public sector plans, although here again the method differs from that prescribed for the private sector. 
  • GASB calls for the unfunded obligation to be recognized on the employer's balance sheet.  In contrast, under current standards, the balance sheet reflects only a liability for any actuarially-recommended contributions not made, which could be much smaller than the plan's unfunded obligation.  GASB's recommendation to recognize the entire unfunded obligation is, in concept, similar to what is currently required for the private sector in the U.S. -- although GASB would measure the value of the obligation differently, as noted above, and additional clarification is required on how GASB intends to approach the valuation of plan assets. 
  • The Preliminary Views, in general, call for accelerating the expense recognition of effects of plan amendments and certain actuarial gains and losses, using an average expected future service for current workers and immediate expensing for changes in value of obligations to retired workers. On the other hand, current standards allow amortization periods of up to 30 years.  The recommended amortization periods would be more in line with approaches used for the private sector.

 8. PUBLIC PLANS INCREASE ALTERNATIVE INVESTMENTS:  Public pension plans are giving endowments and foundations a run for their money in alternative investing, according to a J.P. Morgan Asset Management report that shows state and local plans will outpace other institutional investors in increasing their allocations.  Pionline says public pension plans will have an average 21% allocation over the next two to three years, seven percentage points above the 14% average in the first quarter of 2009.  Meanwhile, endowments and foundations expect to boost their allocations by an average five percentage points, to 31%, from the 26% average allocation as of March 31, 2009. Corporate pension plans are expected to increase their average allocation by three percentage points, to 14%, over the same time period.  Among all funds surveyed for the report, 56% plan to increase funding to alternatives, 31% expect to maintain investment at existing levels and 13% plan to reduce allocations.  Despite heavy losses suffered by endowments and foundations in the credit crisis, because of highly-leveraged positions and large investments in alternatives, the report's authors say the endowment model for investing appears to be alive and well.  Once again, does the word “Harvard” ring a bell (see C&C Newsletter for June 3, 2010, Item 3)? 

 9. SOUTH CAROLINA SENATE CANDIDATE’S FINANCES UNDER INVESTIGATION:  First South Carolina gave us hiker Governor Mark Sanford.  Now, the Palmetto State has given us Democratic U.S. Senate candidate Alvin Greene, 32, who won 59% of the Democratic primary vote against a former circuit judge widely expected to trounce the unknown Greene.  Greene was unemployed, had no job, no organized campaign and had been discharged “involuntarily” from the Army.  The investigation into Greene’s finances will determine whether any laws have been broken in the way he has been representing his financial situation.  Investigators will use a new law, just adopted a few days ago, to issue an administrative subpoena to financial institutions to obtain basic information about account holders in cases of suspected financial wrongdoing.  (We smell constitutional challenge.)  Greene’s victory took on added interest when The Associated Press reported he was facing felony obscenity charges arising from a University of South Carolina student’s allegation that he had harassed her with computer pornography.  After that November charge, Greene told the magistrate he did not have enough money to afford a lawyer and was appointed a public defender.  Yet, four months later Greene somehow came up with $10,400 in cash to pay the filing fee.  We think South Carolina should change its name to the State of Confusion.

10. GRAD SUES FATHER TO RECOUP TUITION COSTS:  It is no secret that some children, especially as they hit their teenage and college years, do not get along with their parents.  But even experienced attorneys say it is rare when  disagreements grow to a point where litigation is required, reports the Connecticut Law Tribune.  So, consider the odd case of Dana Soderberg, who went to court to force her father to live up to a deal to pay her college tuition.  Dana came from what is perhaps an all-too-typical family situation:  her parents divorced, and upon splitting, agreed that the father, a property developer, would be responsible for the education costs for their three children.  Dana's experience had evidently taught her that her father had a tendency not to follow through with paying for things.  Thus, she persuaded him to enter into a written contract obligating him to pay her college tuition until she was 25, along with other expenses such as textbooks and car insurance.  As part of the agreement, Dana was required to make an effort to apply for student loans, which her father would pay off.  The father's sister co-signed the agreement.  The father delivered on his word through 2007, but when it came time for Dana to begin her senior year, he balked.  Dana then obtained a $20,000 loan to pay for her last year of college, with her mother as a co-signer.  After Dana finished school, she filed a breach of contract suit against her father for failing to pay for her senior year of college.   Representing himself, the father also filed a counterclaim alleging that his daughter dropped courses and pocketed the refunds.  After a two-day trial, the Judge found the parties had a legitimate contract, that Dana proved to be the more credible party and that the father had breached the agreement.  All-in, the judgment totaled $47,000.  Apparently, the father does not intend to appeal.  Meanwhile, Dana is now a teacher. 

11. DB FUNDING RELIEF BECOMES LAW:  On June 25, 2010, President Obama signed the “Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (H.R. 3962),” which includes a Medicare fix and, as a revenue raiser, defined benefit plan funding relief.  The following review of the DB funding relief provisions is from Plan Advisory Services.  Under the new law, DB plan sponsors may elect to delay funding of shortfalls related to any two years in the period 2008-2011 under either a 2+7 or a 15 year amortization alternative. (In other words, they pay interest only for two years and then amortize the shortfall over 7 years or amortize the shortfall over a 15 year amortization period.)  Sponsors electing extended amortization are required to make additional contributions in certain circumstances -- the "cash flow" rules.  During the 3-year period beginning with the election year (where the 2+7 years alternative is elected) or the 5-year period beginning with the election year (where the 15-year alternative is elected), the required contribution for any year would be increased by the amount of:  “excess compensation,” as defined, and extraordinary dividends/redemptions, as defined.  Sponsors electing extended amortization must give notice to plan participants/beneficiaries, and inform the Pension Benefit Guaranty Corporation of the election.  The new law includes two other, narrowly focused, relief proposals.  First, an extension, to 2010, of Worker, Retiree, and Employer Recovery Act of 2008 relief for accrual freezes where funding is below 60 percent.  Under the WRERA provision, for 2009, sponsors can, in effect, determine funding based on beginning-of-2008 values for purposes of determining whether, under Pension Protection Act benefit restriction rules, an accrual freeze is required. And, second, similar treatment for restrictions on level income payments.  Plan Advisory Services concludes that from viewpoint of plan sponsors, the new law is not perfect.  Sponsors considering electing extended amortization will want to study the effect of these rules on company operations over the restriction period before making a decision. But, in terms of what has been on the table during the last year-and-half of legislative work on this issue, the final bill was probably as good as could be hoped for, and should provide cash relief for some sponsors.

12. STEVE WYNN TAKES ON WASHINGTON:  Steve Wynn, originally from Miami Beach, is a hotelier-extraordinaire.  Listen to this 5-minute interview at http://bit.ly/aVnhXw, and start thinking about the future.    

13. ALL PUNS INTENDED:  Two cannibals are eating a clown. One says to the other: "Does this taste funny to you?"

14. OXYMORON:   Why do "tug" boats push their barges? 
15. FABULOUS RANDOM THOUGHTS:  Shirts get dirty. Underwear gets dirty. Pants? Pants never get dirty, and you can wear them forever.

16. QUOTE OF THE WEEK:   “I’m learning real skills that I can apply throughout the rest of my life -- procrastinating and rationalizing.”  Calvin

17. 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.  Thank you. 

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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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