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Cypen & Cypen
AUGUST 6, 2009

Stephen H. Cypen, Esq., Editor


To assist small businesses and other entities, the Federal Trade Commission staff will redouble its efforts to educate them about compliance with the “red flags” rule and ease compliance by providing additional resources and guidance to clarify whether businesses are covered by the rule and what they must do to comply.  To give creditors and financial institutions more time to review this guidance and develop and implement written identity theft prevention programs, FTC will further delay enforcement of the rule until November 1, 2009 (see C&C Newsletter for July 9, 2009, Item 3).  The red flags rule is an anti-fraud regulation, requiring “vendors” with covered accounts to implement programs to identify, detect and respond to the warning signs, or “red flags,” that could indicate identity theft.  The financial regulatory agencies, including FTC, developed the rule, which was mandated by the Fair and Accurate Credit Transactions Act of 2003.  The Act’s definition of “creditor” includes any entity that regularly extends or renews credit -- or arranges for others to do so.  As we said, the rule could apply to a pension board that has a deferred retirement option program permitting loans, and, thus, could be defined as a “creditor” subject to FACTA. 


Another state pension plan has sued the top credit rating agencies for misleading investors by giving high ratings to subprime mortgage-backed securities, reports.  The Public Employees’ Retirement System of Mississippi has charged in the U.S. District Court for the Eastern District of New York that Moody’s Investor’s Service, Inc., Fitch Group, Inc. and The McGraw-Hill Companies, Inc. (Standard & Poor’s) with assigning defective ratings on mortgage pools that relied on inadequate and antiquated rating models that considered historical data that was outdated when more modern methods were available.  Earlier, the three agencies were sued for similar claims by CalPERS (see C&C Newsletter for July 23, 2009, Item 2).  Read the 30-page complaint in the instant case at

 3.            EEOC SUES SAHARA: 

The Sahara Hotel and Casino on the Las Vegas Strip violated federal law by creating a hostile work environment for an Egyptian kitchen employee through a daily barrage of derogatory comments due to his national origin and retaliated against him when he reported it, the U.S. Equal Employment Opportunity Commission charged in a lawsuit.  According to EEOC’s complaint, the Sahara’s supervisors and co-workers continuously belittled and harassed Ezzat Elias, whose job was delivering food from the kitchen to the hotel buffet and maintaining the buffet, because of his Egyptian heritage.  The harassment included offensive comments, slurs and graffiti such as being called “Bin Laden” and “Taliban,” and being told to “go back to Egypt.”  Despite Elias’s repeated complaints of such harassment, the employer failed to take effective measures to stop it.  Instead, supervisors retaliated against him, which included disciplinary write-ups and suspension.  National origin discrimination violates Title VII of the Civil Rights Act of 1964.  EEOC filed suit in the United States District Court for the District of Nevada, after first attempting to reach a voluntary settlement.  The Commission seeks monetary damages for Elias, as well as injunctive relief to prevent such discrimination in the future.  Tut Tut.


The Securities and Exchange Commission is proposing for comment a new rule under the Investment Advisers Act of 1940 that would prohibit an investment adviser from providing advisory services for compensation to a government client for two years after the adviser or certain of its executives or employees make a contribution to certain elected officials or candidates (see C&C Newsletter for July 30, 2009, Item 2).  The new rule will also prohibit an adviser from providing or agreeing to provide, directly or indirectly, payment to any third party for a solicitation of advisory business from any government entity on behalf of such adviser.  Additionally, the new rule would prevent an adviser from soliciting from others, or coordinating, contributions to certain elected officials or candidates or payments to political parties where the adviser is providing or seeking government business.  The Commission also is proposing rule amendments that would require a registered adviser to maintain certain records of the political contributions made by the adviser or certain of its executives or employees.  The new rule and rule amendments would address pay-to-play practices by investment advisers.  A link to SEC’s 114-page release is at  [Release No. IA-2910; File No. S7-18-09], 17 CFR Part 275. 


The Center for Retirement Research at Boston College has released a new Issue in Brief asking that very question.  It is no secret that Social Security is facing a long-term financing shortfall.  The problem can be solved only by putting more money into the system, cutting benefits or both.  There is no silver bullet.  Discussion in the brief is not to suggest that there is an easy way out, but rather to explore whether the entire financing of the Social Security system should rest on the payroll tax.  The payroll tax may be a perfectly reasonable way for current workers to pay for their benefits.  (Covering current costs through the payroll tax gives workers a sense that they have earned their benefits and provides a stable revenue source.)  But is it the right tax to finance costs left over from paying benefits far in excess of contributions to early generations?  The brief explores the question of the appropriate tax, or combination of taxes, to finance Social Security.  Since the need for more revenue gives the question increased currency, the first section briefly describes Social Security’s financial outlook.  The second section then describes the payroll tax.  The third section explores whether the whole cost of the Social Security system -- contributions necessary to generate current benefits and contributions required to make up for giving early participants benefits far in excess of their contributions -- should be financed in the same way.  (Covering legacy costs means that low- and middle-income workers are paying disproportionately for benefits of past generations.)  The fourth section concludes that perhaps a portion of Social Security financing could be transferred from the payroll tax to the income tax.  It would mean higher income taxes, but the burden of the “legacy debt” would be borne more broadly. 


Employee reductions and terminations have been an unfortunate result of the current economic downturn.  Even in good economic times, however, businesses of every size carefully assess their operational structures and may sometimes decide to reduce their workforce.  Often, employers terminate older employees who are eligible for retirement, or nearly so, because they generally have been with the company the longest and are paid the highest salaries.  Other employers evaluate individual employees on criteria such as performance or experience, or decide to lay off all employees in a particular position, division or department.  An employer’s decision to terminate or lay off certain employees, while retaining others, may lead discharged workers to believe that they were discriminated against based on their age, race, sex, national origin, religion or disability.  To minimize risk of potential litigation, many employers offer departing employees money or benefits in exchange for a release (or “waiver”) of liability for all claims connected with the employment relationship, including discrimination claims under civil rights laws enforced by the Equal Employment Opportunity Commission -- the Age Discrimination in Employment Act, Title VII, Americans with Disabilities Act and the Equal Pay Act.  While it is common for senior-level executives to negotiate severance provisions when initially hired, other employees typically are offered severance agreements and asked to sign a waiver at time of termination.  When presented with a severance agreement, many employees wonder: Is this legal?  Should I sign it?  A new publication from EEOC answers questions that employees may have if they are offered a severance agreement in exchange for a waiver of their actual or potential discrimination claims.  The document provides basic information about severance agreements; explains when a waiver is valid; specifically addresses waivers of age discrimination claims that must comply with provisions of the Older Workers Benefit Protection Act; and includes a checklist with tips on what the employee should do before signing a waiver in a severance agreement and a sample agreement offered to a group of employees giving them the opportunity to resign in exchange for severance benefits. Generally, a waiver in a severance agreement is valid when an employee knowingly and voluntarily consents to the waiver.  The rules regarding whether a waiver is knowing and voluntary depend on the statute under which suit has been, or may be, brought.  In addition to being knowingly and voluntarily signed, a valid agreement also must:  (1) offer some sort of consideration, such as additional compensation, in exchange for the employee’s waiver of the right to sue; (2) not require the employee to waive future rights; and (3) comply with applicable state and federal laws.  The publication, which appears designed more for employees than employers, is available at   


Median asset levels in defined contribution (401(k)) and IRA/Keogh plans dropped at least 15% from year-end 2007 to mid-June 2009, reflecting the significant downturn in the economy, according to an analysis of Federal Reserve data published by nonpartisan Employee Benefit Research Institute.  The EBRI study is based on the 2007 Survey of Consumer Finances, the Federal Reserve Board’s triennial survey of wealth, adjusted to account for the economic downturn in 2008.  The EBRI analysis adjusted account balances of defined contribution plans and individual retirement accounts based on asset allocation reported within the plans by using equity and bond market returns from January 1, 2008 to June 19, 2009.  The analysis appears in the August 2009 EBRI Issue Brief no. 333, of which the following is a brief summary: 

  • Defined Contribution Plans:  Among all families with a defined contribution plan, the median plan balance was $31,800 in 2007, up 16 percent from 2004.  However, the balance dropped 16.4 percent (to $26,578) from year-end 2007 to mid-June 2009.  Curiously, losses were higher for families with more than $100,000 a year in income (down 22 percent) or having a net worth in the top 10 percent (down 28 percent). 
  • IRA/Keogh Plans:  Among all families with an IRA/Keogh plan, median value of their plan was $34,000 in 2007, up 3 percent from 2004.  This median value dropped 15 percent (to $28,955) from year-end 2007 to mid-June 2009. 

Think about it, folks:  the average family has a median defined contribution plan balance of about $25,000!  Our (uneducated) guess would be that families need about ten times that amount, in addition to Social Security and personal savings (if any).  See Item 10 below. 


Workers with a traditional pension can generally get by saving less for retirement because they have a guaranteed stream of income above what Social Security provides.  According to U.S. News & World Report, however, employees with both a 401(k) and traditional pension actually save more in their 401(k)s than workers with only a 401(k) or similar retirement plan.  In 2007, the median balance in a 401(k) or similar retirement plan for families with a pension and a 401(k) was $56,000, while the median balance was $25,000  for families with only a 401(k)-type plan.  The difference was found among all demographic groups in 2007, suggesting that families participating in both types of plans tend to be more highly compensated and therefore better able to save, have a more generous defined contribution plan or have traits in common with those who tend to save more.  For updated figures on median 401(k) account balances, in general, see Item 7 above. 

 9. WHAT’S IN A NAME?:  

 In 2008, American parents voted for a change in naming their children.  After a 12-year reign as the most popular baby name, Emily has slipped to third on the list.  Emma is now the nation’s most popular name for girls.  The most popular boy’s name, Jacob, remained the same for the tenth year in a row.  Here are the top ten boys and girls names for 2008: 

Rank Male Name Female Name

   1 Jacob Emma
   2 Michael Isabella
   3 Ethan Emily
   4 Joshua Madison
   5 Daniel Ava
   6 Alexander Olivia
   7 Anthony Sophia
   8 William Abigail
   9 Christopher Elizabeth
  10 Matthew Chloe

On the other hand, the most unpopular names are Osama and Bernie for boys and Imelda and Monica for girls.  (We just made that up.) 


The “three-legged stool” was a retirement terminology from the past that many financial planners used to describe the three most common sources of retirement income for a retiree during retirement:  Social Security, employee pensions and personal savings.  Times have changed though and so has the three-legged stool, according to Investopedia.  For younger workers, one could say that there still is a three-legged stool, but the legs have changed.  In place of pension plans, many employers have moved toward 401(k) plans, which require workers to defer a portion of their own paycheck into the 401(k) retirement account.  Some employers will match the employee contribution up to a certain percentage, but now some employers are even eliminating the match.  According to the 2009 annual report issued by the Social Security and Medicare Trustees (see C&C Newsletter for May 21, 2009, Item 2), they estimate that the Social Security Trust Fund will run out by 2041 if changes are not made in the system.  Although it is unlikely that the U.S. government will let the Trust Fund be depleted, it is a date in the future that has been talked about for several years now.  Each year, workers in the U.S. receive an annual Social Security statement; review it to see how much you may receive at early retirement, full retirement and age 70.  This information will help you determine when you can retire. Personal savings rates have been extremely low for U.S. workers over the last decade (though they have increased during this financially-troubled time).  Individuals will need to start saving a larger portion of their income and continue to utilize retirement based tools such as IRAs, annuities and other brokerage accounts to build their retirement nest eggs.


The Bureau of Labor Statistics did a comparison of hourly wage rates for full-time and part-time workers by occupation (2007), which was released in July 2009.  The majority of full-time workers earn more per hour than part-time workers.  In some occupations, however, particularly those in health care, part-time workers earn more per hour than their full-time counterparts.  There are 27 million part-time workers in the United States.  They may work part-time by choice, to supplement their income from a full-time job or because full-time work simply is not an option.  Here are the occupations in which part-time earnings are greater than full-time earnings:  computer system analysts; clergy; engineering and architecture teachers (postsecondary); therapists; physical therapists; speech-language pathologists; medical and clinical laboratory technologists; dental hygienists; licensed practical and licensed vocational nurses; legal secretaries; farm workers and laborers, crop, nursery and greenhouse; construction laborers.  The report provides insight into the wage structure of this sizeable part of the U.S. workforce. 


 Every year at about this time, the Harris Poll asks whether an occupation can be considered to have very great prestige or hardly any prestige at all.  The results show the following as the most prestigious occupations: 

 1. Firefighter (62% say “very great prestige”)
 2. Scientist (57%)
 3. Doctor (56%)
 4. Nurse (54%)
 5. Teacher (51%)
 6. Military officer (51%)
 7. Police officer (44%)
 8. Clergy (41%)
 9. Engineer (39%)
10. Farmer (36%)

Meanwhile, the lowest five are real estate agent/broker (5%), accountant (11%), stock broker (13%), actor (15%) and banker (16%).  So, what?  While some of the numbers may fluctuate from year to year, one thing remains constant:  professions that are at the top of the list and considered to have very great prestige are ones that are not considered to be high-paying jobs -- firefighters, nurses, teachers and police officers.  The ones at the bottom are those who may have a lot of fame attached to them -- actors and entertainers -- or are ones who have potential to earn large amounts of money -- business executives and real estate agents.  Obviously, people do not equate money and fame with prestige.  These are two completely separate concepts to the American public. As it should be.


What law shows do lawyers consider the best of all time?  Well, the ABA Journal put that question to a jury of twelve experts -- nine lawyers, two scholars and a TV critic -- who write or teach about the nexus of law and pop culture.  They were asked to pick their favorites among scores of legal-minded shows that have come and gone over the years.  (Daytime judge shows and reality television were excluded.)  The verdict is in, and here are the panel’s choices for the greatest legal shows in TV history: 

 1. L.A. LAW (1986-1994).  This groundbreaking series about a boutique law firm did for lawyers what Hill Street Blues did for cops. 

 2. PERRY MASON (1957-1966).  Raymond Burr’s Perry Mason provided many Americans with their very first glimpse of what being a lawyer might mean.

 3. THE DEFENDERS (1961-1965).  Lawrence Preston (E.G. Marshall) and his son, Kenneth (Robert Reed), took the cases nobody else seemed to want.

 4. LAW & ORDER (1990- ).  Renewed for a record-time twentieth season, this show matches legendary Gunsmoke as the longest-running TV drama series ever. 

 5. THE PRACTICE (1997-2004).  Bobby Donnell was a handsome, driven defense attorney who surrounded himself at the self-named firm of Robert Donnell & Associates with talented lawyers who lacked the pedigree necessary to cut it in BigLaw. 

 6. ALLY McBEAL (1997-2002).  This David Kelley invention had no pretensions to be a vehicle for legal issues. 

 7. RUMPOLE OF THE BAILEY (1978-1992).  (Who?)  John Mortimer’s London Barrister Horace Rumpole had a great but uneven run on public television, with seven seasons filmed over fourteen years. 

 8. BOSTON LEGAL (2004-2008).  James Spader played Alan Shore, an ethically challenged lawyer and more than a bit of a jerk. 

 9. DAMAGES (2007- ).  Ellen Parsons is a brilliant law school grad who goes to work for the famous and powerful trial lawyer Patty Hewes (Glenn Close).

10. NIGHT COURT (1984-1992).  Judge Harry Stone (Harry Anderson) presided over the late-night antics of a misdemeanor court in New York City, which featured a lecherous prosecutor, a no-nonsense court clerk, a droll set of bailiffs and a string of cover-girl public defenders. 

In order, numbers 11 through 25 are Judging Amy; Owen Marshall; JAG; Shark; Civil Wars; Harvey Birdman; Law & Order:  Criminal Intent; Murder One; Matlock; Reasonable Doubts; Law & Order:  Special Victims Unit; Judd for the Defense; Paper Chase; Petrocelli; and Eli Stone.  A while back, the Journal did a piece on the 25 Greatest Legal Movies (see C&C Newsletter for July 31, 2008, Item 13).  


Here are the next 5 out of 50 lessons on life from the columnist: 

31. However good or bad a situation is, it will change.
32. Don't take yourself so seriously. No one else does.
33. Believe in miracles.
34. God loves you because of who God is, not because of anything you did or didn't do.
35. Don't audit life. Show up and make the most of it now.


ATTORNEY: Do you know if your daughter has ever been involved in voodoo?
WITNESS: We both do.
WITNESS: Yes, voodoo. 


The man who survived mustard gas and pepper spray is now a seasoned veteran.
17.            QUOTE OF THE WEEK: 

"I have not failed.  I've just found 10,000 ways that won't work."  Thomas Edison

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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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