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Cypen & Cypen
AUGUST 11, 2005

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


As anticipated and called for by various sources (see C&C Newsletter for August 4, 2005, Item 3), the Administration announced that it would bring back the 30-year Treasury Bond. The initial auction of bonds will take place in the first quarter of 2006, with auctions held twice a year. The Treasury stopped issuing long bonds in 2001. [, August 4, 2005]


In July 2004 the Law Enforcement Officer Safety Act of 2004 became law. The new federal law provides for the carrying of concealed weapons by qualified retired law enforcement officers, notwithstanding any other provision of law of any state or political subdivision. In Florida, any citizen who meets qualifications of Section 790.06(2), Florida Statutes, may be granted a license to carry a concealed weapon or firearm. Although Florida law exempts active Florida law enforcement officers from requirements of the State’s Concealed Weapons Licensing Statute, retired law enforcement officers are required to obtain a concealed weapons license through Section 790.06, Florida Statutes. According to the Florida Attorney General, the federal act, by permitting retired law enforcement officers to carry concealed weapons provided they meet criteria specified therein, would preempt the state statute requiring retired law enforcement officers to obtain a concealed weapons permit. AGO 2005-45 (August 2, 2005).


Section 932.705, Florida Statutes, requires that contraband forfeiture trust funds be used only for the expressly specified purposes set forth in the statute or for other extraordinary programs and purposes, beyond what is usual, normal, regular or established. Using this analysis, the Florida Attorney General has concluded that a city may use contraband forfeiture trust funds for specialized equipment for its vehicles, such as trunk mount radios and emergency light equipment. The city also appears to be authorized to use such funds to secure a narcotics trained police dog for use in drug prevention programs and in protracted or complex investigations with other law enforcement agencies. AGO 2005-47 (August 3, 2005).


Despite a rise in pension terminations last year, the nation’s largest employers appear to be sticking with their defined benefit plans, according to a Watson Wyatt Worldwide survey reported in Employee Benefit News. In an analysis of Fortune 1000 companies, Watson Wyatt found that the rate of DB plan sponsorship has remained fairly constant, at just over 60%. Because there is a turnover rate of about 7% of firms on the list, the data suggest that DB plan sponsorship is the same for firms joining the Fortune 1000 as for those dropping off. Researchers also found that the larger a plan is relative to the firm’s market value, the more likely it is that the plan remains fully active. As might be expected, freezing or terminating a plan occurs more often in less-profitable firms. Between 2001 and 2004, about half the companies that ended their plan in any given year dropped off the Fortune 1000 list the following year. However, in contrast to freezing or termination, closing the plan to new participants (presumably implying a switch to defined contribution only) does not appear to be confined to troubled companies.


Thirty states and Puerto Rico have responded to the largest mobilization of the National Guard and Reserves since World War II, by guaranteeing to make up the difference between civilian and military pay for state employees called to active duty, according to a story. As state budget deficits have turned to surpluses, more states have taken steps to cover the difference in pay since military call-ups began after September 11, 2001. Still, 20 states and the federal government -- the single largest employer of Guard members and Reservists -- provide no pay deferential to their employees who temporarily leave their jobs, families and paychecks to help fight the war on terrorism. When summoned for active duty, Guardsmen and Reservists face challenges such as leaving behind a family with mortgage payments and tuition bills. Citizen-soldiers have faced increasingly long deployments, ranging from six months to two years. Almost 140,000 of the 400,000 Guard and Reserve members are on active duty -- nearly half the current force in Iraq and Afghanistan -- and about 40% take a pay cut when mobilized. A 2000 GAO survey found that those who took a pay cut to serve in the Guard suffered an average loss of almost $2,000 a year. In Florida, the Governor signed legislation earlier this year that created a $1.8 Million Citizen Soldier Matching Grant Program, which allows private employers to apply for a grant to help them supplement pay for some 1,200 active-duty soldiers. But the federal government, which employees 65,000 Reservists and an additional 48,000 federal technicians who are Guard members, has yet to enact a pay-gap law. For shame.


“SRI” is not an obscure professional designation or a new strategic defense initiative: it stands for Socially Responsible Investing. A paper recently-published in a professional journal seeks to establish the validity of employing socially responsible investing in retirement plans. By definition, SRI is investing in companies that meet certain baseline standards of social and environmental responsibility; actively engaging those companies to become better, more responsible corporate citizens; and dedicating a portion of assets to community economic development. In other words, SRI is the process of integrating values, societal concerns and institutional mission into investment decision-making. SRI strategies tend to fall into three categories: screening (both negative and positive), shareholder advocacy and community investment. From this description alone, it should be clear that SRI is not one simple thing that can be debunked -- or defended, for that matter. Social and environmental screens can be applied to any portfolio, as another (if unusual) layer of fundamental research, and may or may not have a significant impact. All investors, small and large, have an obligation to take part in the management of companies they own, by voting their shares and by engaging corporate management in discussions on matters of shareholder interest, and sponsoring shareholder resolutions for general shareholder vote when direct engagement fails. To refuse to invest in a local community because a better return on similar investments can be obtained elsewhere, while certainly justifiable and perhaps even necessary from the financial viewpoint, might seem to be reprehensible from some particular moral viewpoints. Considerations of fiduciary duty do not prevent retirement plan trustees from implementing basic SRI strategies. Certainly some practical problems could make it extremely difficult, and some political problems could make it almost impossible, but retirement plan trustees do not have a fiduciary duty to choose the easiest course, or to avoid controversy. In the end, fiduciary prudence is not determined by what trustees do, why they do it or even how it turns out, but by how trustees design a process that can be consistently applied across all products and strategies, with appropriate concerns for needs and risk tolerance of the plan and its beneficiaries. The paper is entitled “Retirement Plans, Fiduciary duty, and SRI: Complicated But Compatible,” published in the Summer 2005 Journal of Deferred Compensation. (Note: we report items -- we do not write them.)

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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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