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Cypen & Cypen
AUGUST 18, 2005

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


Effective August 12, 2005, Internal Revenue Service has issued Final Regulations under Section 411(d)(6) of the Internal Revenue Code. The Final Regulations provide guidance regarding the anti-cutback rules of IRC §411(d)(6), which generally protect accrued benefits, early retirement benefits, retirement-type subsidies or optional forms of benefits. The Final Regulations also provide related guidance concerning the notice requirements of IRC §4980F. The Final Regulations generally affect sponsors of, and participants in, qualified retirement plans. The regulations are designed to reflect changes to IRC §411(d)(6) made by the Economic Growth and Tax Reconciliation Act of 2001 and by the Retirement Equity Act of 1984.


The proposed regulations provide guidance on certain issues relating to the anti-cutback rules of Section 411(d)(6) of the Internal Revenue Code, which generally protect accrued benefits, early retirement benefits, retirement-type subsidies and optional forms of benefit under qualified retirement plans. The proposed regulations would address the interaction between the anti-cutback rules of IRC§ 411(d)(6) and the nonforfeitability requirements of IRC§ 411(a), and would also provide a utilization test under which plan amendments would be permitted to eliminate or reduce certain early retirement benefits, retirement-type subsidies or optional forms of benefit. The proposed regulations would generally affect sponsors of, and participants in, qualified retirement plans. The rules are intended to reflect the United States Supreme Court holding in Central Laborers’ Pension Fund v. Heinz, 541 U.S. 739 (June 7, 2004) (see C&C Newsletter for June 11, 2004, Item 1).


Currently, Florida State excise taxes on property insurance premiums can only be levied by a municipality or special fire control district having a fire department. However, effective October 1, 2005, Section 175.041, Florida Statutes, is amended by adding the following language concerning applicability:

Any municipality that has entered into an interlocal agreement to provide fire protection services to any other incorporated municipality, in its entirety, for a period of 12 months or more may be eligible to receive the premium taxes reported for such other municipality. In order to be eligible for such premium taxes, the municipality providing the fire services must notify the division that it has entered into an interlocal agreement with another municipality. The municipality receiving the fire services may enact an ordinance levying the tax as provided in s. 175.101. Upon being provided copies of the interlocal agreement and the municipal ordinance levying the tax, the division may distribute any premium taxes reported for the municipality receiving the fire services to the participating municipality providing the fire services as long as the interlocal agreement is in effect.

Section 175.101(3), Florida Statutes, is also amended to conform to the new provision. Chapter 2005-205 was approved by the Governor on June 10, 2005.


P&I Daily reports that the Dow Jones Wilshire 5000 stock index will add 32 companies considered by the investment community to be headquartered in the United States although they are legally based outside the country. The companies, which have a market capitalization totaling $130 Billion, will be included when the index is rebalanced as of October 1. The index currently has 4,939 companies. Factors that may be considered to determine inclusion are the country where the company’s headquarters and management are located; the company’s legal domicile; the stock exchange or exchanges it trades on, if there is no listing in its home country; and location of its operations (production assets).


Over 80% of those who had received lump sum distributions from their retirement plan saved all or some of their distribution dollars, according to a report issued by the Congressional Research Service and summarized in More than 40% said they had rolled over the entire amount of their most recent distribution into an IRA or other retirement plan and almost the same number of recipients said they had saved at least part of the distribution in some other way. The following methods were used by participants to “save” retirement money:

  • Investing in an IRA, annuity or other retirement program
  • Investing in a savings account or certificate of deposit
  • Investing in stocks, mutual funds, bonds or money market funds
  • Investing in land or other real estate
  • Investing in a family business or farm
  • Purchasing a home, paying off a mortgage or making home improvements
  • Paying bills, paying off loans or paying other debts

Predictably, younger workers are more likely to spend their lump sum distributions than older workers.


One of the expressed purposes of the Uniformed Services Employment and Reemployment Rights Act is to encourage non-career service in the military by eliminating or minimizing the disadvantages of civilian careers and employment that can result from such service. One of the rights that USERRA provides a returning serviceman is the right to reemployment with his same civilian employer upon completion of military service. As a result, USERRA requires employers, with limited exceptions, to provide “prompt reemployment” upon the employee’s completion of military service. However, the Act does not define what constitutes “prompt reemployment.” It is clear that USERRA does not require immediate reemployment, but instead “prompt employment,” which depends upon the facts and circumstances of each particular case. Thus, a United States District Court granted summary judgment in favor of defendant/employer, where plaintiffs were reemployed within a short period of time after their return from military service overseas. Vander Wal v. Sykes Enterprises, Incorporated, Case No. A1-04-49 (D. N.D., July 21, 2005).


Bloomberg News reports that international investors have increased their holdings of U.S. assets in June by $71.2 Billion, the most in four months, led by record purchases of corporate bonds. Investor purchases of Treasury notes, corporate bonds, stocks and other financial assets rose from $55.8 Billion in May. Investors bought a net $7.9 Billion of Treasuries, the fewest since September, 2003. Rising U.S. interest rates are adding to the appeal of American assets. The U.S. economy grew by 3.6% in the second quarter from a year earlier, more than double the rate in Japan, Germany, the United Kingdom and France.


As the saying goes, “you can’t be too rich or too thin.” However, according to Money, your chances of being rich go up when your weight goes down. Ohio State University researchers found that white adults who reduced their body mass index score by 10 points saw their net worth rise about $12,000. (Not bad -- $1,200 a point. What about interest?)


And speaking of shrinking something, Money also says that the best predictor of a stock’s future return may be whether the number of shares outstanding is going up or going down. Companies tend to issue more stock when managers believe the stock is richly priced and to buy them back when they think shares are cheap. Roughly speaking, each 1% shrinkage (not, a la Seinfeld) in the number of shares out there boosts a stock’s return by an extra quarter of a percentage point compared to stocks with similar characteristics. So, what to do? Using annual reports, just check a company’s number of shares outstanding for the past five years. (Be sure to adjust for any stock splits and the like.) If the number has been dropping, investment is worth a closer look.


It looks as if Americans finally have hit rock bottom in one economic measure: personal savings, says The government this month said the nation’s personal savings rate slumped to zero % in June. Actually, Americans did set aside about $1.9 Billion for the month in savings accounts -- about $6 for every man, woman and child. But as a percentage of disposable income, the figure, statistically speaking, is nil. The savings rate had been running between 1.5% and 2% in recent years, but has basically evaporated in 2005. Like most economic indicators, this one is a double-edged sword. One key problem with the savings figures is that they do not measure capital gains. In other words, they do not reflect increases in the value of homes or appreciation in stocks. Also, economists have noticed people tend to save less when business conditions are good, as is the case now. Although such behavior can instill a false sense of confidence, living paycheck-to-paycheck does not seem as risky when there is a high likelihood that those paychecks will continue.


Two pension fund experts speaking at the 59th annual meeting of the Southern Legislative Conference earlier this month advised that traditional retirement programs are best suited for public employees, rather than the newer, defined-contribution systems favored by private companies. The speakers said the long-standing defined-benefit pension provides stability in the government sector, keeping vital workers on the job. One called it a “golden handcuff.” The speakers said it would take decades for states to save any money by switching to the riskier, but possibly more profitable, system, in which defined contributions are invested by employees. Such defined contribution plans were designed for top executives, rather than for the average worker. According to the speakers, for state and other public workers the traditional defined benefit system is used by 90% of retirement plans.

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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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