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Cypen & Cypen
AUGUST 13, 2009

Stephen H. Cypen, Esq., Editor


Following a tumultuous year in financial markets, the Florida State Board of Administration released its preliminary 2008-09 (June 30) fiscal year investment performance, showing an almost minus 19% decline in the Florida Retirement System Trust Fund assets.  FRS entered the fiscal year with nearly $127 Billion in assets and a 106% funding ratio.  (The funding ratio is the actuarial calculation that compares actuarial value of assets to actuarial value of liabilities, and is commonly used to evaluate relative health of the Fund.)  The year-end net asset value was just under $100 Billion, resulting in a preliminary estimate of 93% funded ratio.  The Fund has recently enjoyed one of the highest funding ratios of state pension funds in the United States.  In 2007, only seven of fifty state public pension fund programs were funded at 100% or better, with Florida being ranked third at the time.  The average funding level for state pension funds at that time was 83%; however, most experts recognize that those levels have likely dropped dramatically due to the recent year’s weakness in financial markets  Being funded less than 100% is not new to FRS:  the plan was underfunded for twenty-five years from inception through 1997.  Its first surplus came in 1998, when funding levels jumped from 91% to 106% and peaked at 118% in 2000.  The SBA, a state government agency that provides a variety of investment services to various environmental entities, currently invests in eight asset classes:  Domestic Equities, Foreign Equities (developed and emerging markets), Fixed Income, High Yield, Private Equity, Strategic Investments, Real Estate and Cash.  This announcement is no real big surprise (see C&C Newsletter for April 23, 2009, Item 10). 


Hillsides operated a nonprofit residential facility for neglected and abused children, including victims of se.xual abuse. Hernandez and Lopez were employed by Hillsides, sharing an enclosed office and performing clerical work during daytime business hours.  Hillsides’ facility director learned that late at night, after Hernandez and Lopez had left the premises, an unknown person had repeatedly used a computer in their office to access the internet and view pornographic websites.  Such use conflicted with company policy and with Hillsides’ aim of providing a safe haven for the children.  Concerned that the culprit might be a staff member who worked with the children, and without notifying Hernandez and Lopez, the director set up a hidden camera in their office.  The camera was not operated during business hours, and the employees’ activities in the office were not viewed or recorded by means of the surveillance system.  Nevertheless, after discovering the hidden camera in their office, the employees filed a tort action alleging, among other things, that Hillsides intruded into a protected place, interest or matter, and violated their right to privacy under both the common law and the California Constitution.  The trial court granted Hillsides’ motion for summary judgment and dismissed the case.  However, the court of appeal reversed, finding triable issues that the employees had suffered (1) an intrusion into a protected zone of privacy that (2) was so unjustified and offensive as to constitute a privacy violation.  On review by the Supreme Court of California, the court concluded that the trial court properly granted the motion for summary judgment.  On one hand, the court of appeal did not err in determining that a jury could find requisite intrusion.  While the employees’ interests in a shared office at work were far from absolute, they had a reasonable expectation under widely held social norms that their employer would not install video equipment capable of monitoring and recording their activities -- personal and work related -- behind closed doors, without their knowledge or consent.  On the other, the court of appeal erroneously found a triable issue as to whether such intrusion was highly offensive and sufficiently serious to constitute a privacy violation.  Any actual surveillance was drastically limited in nature and scope, exempting the employees from its reach.  Hillsides also was motivated by strong and countervailing concerns.  A complaining party must show more than an intrusion upon reasonable privacy expectations.  Actual invasion of privacy also must be “highly offensive” to a reasonable person and “sufficiently serious” and unwarranted as to constitute an “egregious breach of the social norms.”  In reversing, a unanimous court said it appreciated the employees’ dismay over discovery of video equipment that their employer had hidden among their personal effects in an office that was reasonably secluded from public access and view.  Nothing the court said was meant to encourage such surveillance measures, particularly in absence of adequate notice to persons within camera range that their actions may be viewed and taped.  Nevertheless, considering all relevant circumstances, the employees did not establish, and cannot reasonably be expected to establish, that the particular challenged conduct was highly offensive and constituted an egregious violation of prevailing social norms -- from standpoint of a reasonable person based on Hillsides’ vigorous attempts to avoid intruding on the employees’ visual privacy altogether.  (Interestingly, shortly after the events in question, Hillsides circulated a memorandum reminding staff that they cannot use Hillsides’ computers or internet services to view or access any se.xually explicit or offensive material or web site.  The memorandum further stated that unspecified “surveillance devices” could be placed wherever inappropriate computer use occurred.)  Hernandez v. Hillsides, Inc.,
Case No. S147552 (Cal., August 3, 2009). 

 3.            REAL MONEY, REAL WORLD: 

Financial literacy is a major concern in today’s society.  From learning how to manage a paycheck to understanding credit to saving money to pay for necessities, financial literacy is essential to creating a competent consumer.  Numerous studies conducted on American youths’ understanding of basic financial concepts consistently revealed that they have little knowledge of money management and do not  possess adequate financial knowledge to be financially proficient in adulthood.  Real Money, Real World is a program created by Ohio State University Extension professionals to simulate real-life experiences to help make youth aware of the money management skills they need to be productive and successful adults.  The program focuses on making students aware of the correlation between educational attainments and earning power, factors that determine income, understanding needs versus wants, typical monthly expenses for a family, factors that affect spending and importance of budgeting/saving.  In 2007 a statewide evaluation investigated the program’s effectiveness in raising awareness, changing attitudes and motivating students to plan for behavior changes concerning financial management, education and career choices.  Data show that the program made a dramatic difference in raising youths’ awareness about cost to maintain a household, as well as an awareness of interrelationships of education, job and money.  In 2009 a follow-up study was done, seeking to explore the extent to which participants in the program made changes in their behaviors after completing the program.  Approximately three months after students completed the program, the follow-up evaluation assessed behavior changes and barriers in areas of financial, spending, saving and educational behavior.  Students reported significant changes in their financial behavior after the program.  Over 80% of participants reported changes in the extent to which they now repay money owed on time, set aside money for the future and compare prices.  Over three-fourths of students indicated they now think more carefully about spending money.  (Nearly one-third of students indicated changes in all spending practices investigated.)  In relation to savings behavior, over three-fourths of the students reported that they now understand the importance of saving money.  Overall, the findings of the new study provide evidence that Real Money, Real World presents financial management in a way that appeals to youth.  Students learn advantages of adopting sound financial practices and are actually doing so after the program. 


Apropos of a recent Newsletter article (see C&C Newsletter for August 6, 2009, Item 6), U.S. News & World Report has an article on planning to retire.  Financially struggling companies sometimes try to entice workers to give up their jobs with buyout and early retirement incentive packages.  About 6,000 General Motors employees recently accepted buyout offers.  Yet, it can be difficult to know when to take early retirement and when to try to hold on to your job.  A cash bonus certainly sounds appealing at first glance, but retirees can come out behind if their pension payments will be reduced or they lose employer-subsidized health care.  Here are the author’s ten tips for evaluating an early retirement offer: 

 1.            Consider the company’s financial health.  Assess the likelihood that you will be able to keep your job if you turn down the buyout offer. 

 2.            Calculate the financials.  Compare the financial incentive being offered to benefits you would have received in retirement if you had stayed at your job.

 3.            Cover your expenses.  When you retire, you need to have a plan for paying your expenses for 30 years or more into the future. 

 4.            Make a counteroffer.  If a buyout is offered because a business unit is being closed or an entire department is being eliminated, you may not have a lot of room to ask for a better severance package.  But if the company offers an early retirement package to only a few people, there's more room for discussion about the terms. 

 5.            Find healthcare.  Make sure that an early retirement incentive package provides health insurance if you are younger than age 65 and cannot yet qualify for Medicare. 

 6.            Factor in Social Security benefits.  Social Security payments are calculated based on an average of the 35 years in which you earned the most.  Retiring early means losing out on having another higher earning year factored into the calculation. 

 7.            Review what you are owed.  Make sure you are getting all the money you are entitled to before signing a buyout agreement. 

 8.            Consider taxes.  If you accept a buyout offer, you have to decide whether to take your payout as a lump sum or a monthly check. 

 9.            Read the fine print.  Carefully examine the contract you are signing and have an attorney look it over if you have any questions. 

10.            Size up the job market.  If you take the buyout and can find another job before the cash runs out, it is found money. 


In a very sluggish economy or a recession, people should generally try to watch their spending and not take any undue risks that might put their future financial goals in jeopardy.  According to Investopedia, there are several types of risks that everyone should avoid during a recession.  Some of the most common mistakes people make are 

1.            Becoming a Cosigner.  Cosigning a loan can be a very risky thing to do even in flush economic times.  After all, if the individual taking the loan does not make the scheduled payments, the cosigner will be asked to make them. (Ask any institutional lender how to define “cosigner,” and he will tell you it is “a jerk with a pen.”) 

2.            Getting Into an Adjustable-Rate Mortgage.  As long as interest rates are low, the monthly payment will be low as well.  As rates rise, however, the monthly payment will go up.

3.            Adding Debt.  Taking on new debt (such as a car loan, home loan or similar obligation) may not be a problem in good times if the individual makes enough money to cover the monthly payments and still has extra funds to live on and to save for retirement.  But, what happens if your livelihood is adversely affected in the midst of economic turmoil or if you are laid off?

4.            Taking Your Job for Granted.  (Nothing needs to be said about this one.)

5.            Taking Risks With Investments.  Business owners should always be thinking about the future.  Although they should always be thinking about new and exciting ways to grow their businesses, an economic slowdown may not be the best time to make risky bets. 

The bottom line:  Individuals may not need to live a monk’s existence during an economic slowdown, but they should pay extra attention to their spending and budgeting, and be wary of taking any unnecessary risks. 


 The U.S. Securities and Exchange Commission has charged former American International Group Chairman and CEO Maurice “Hank” Greenberg and former Vice Chairman and CFO Howard Smith for their involvement in numerous improper accounting transactions that inflated AIG’s reported financial results between 2000 and 2005.  The complaint, filed in the U.S. District Court for the Southern District of New York, charges that Greenberg and Smith are liable as control persons for AIG’s violations of the anti-fraud and other provisions of securities laws.  Smith is also charged with direct violations of the anti-fraud and other provisions of securities laws.  The complaint alleges that Greenberg knew about effects that certain improper transactions would have on AIG’s reported financial results, and along with Smith, was responsible for falsely misleading public statements and material omissions in quarterly reports AIG filed in the second and third quarters of 2002 and in related press releases and investor conference calls.  As is often the case, the parties apparently agreed in advance to settle the case.  Without admitting or denying allegations of the complaint, Greenberg consented to a judgment enjoining him from violating securities laws and directing him to pay a penalty of $7.5 Million and disgorgement of $7.5 Million.  Smith basically did the same thing, but got off for a total of $1.5 Million.  SEC previously charged AIG in 2006 with securities fraud and improper accounting, and the company settled the charges by paying disgorgement of $700 Million and a penalty of $100 Million, among other remedies.  Litigation Release No. 21170/August 6, 2009; Accounting and Auditing Enforcement Release No. 3032/August 6, 2009. 

 7.            WHAT IS FINRA?: 

The Financial Industry Regulatory Authority is the largest independent regulator for all securities firms doing business in the United States.  FINRA oversees nearly 4,850 brokerage firms, about 173,000 branch offices and approximately  647,000 registered securities representatives.  Created in July 2007 through consolidation of NASD and the member regulation, enforcement and arbitration functions of the New York Stock Exchange, FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services.  FINRA touches virtually every aspect of the securities business -- from registering and educating industry participants to examining securities firms; writing rules; enforcing those rules and the federal securities laws; informing and educating the investing public; providing trade reporting and other industry utilities; and administering the largest dispute resolution forum for investors and registered firms.  It also performs market regulation under contract for the NASDAQ Stock Market, the American Stock Exchange, the International Securities Exchange and the Chicago Climate Exchange.  FINRA has approximately 2,800 employees and operates in Washington, D.C. and New York, New York, with fifteen district offices around the country.  FINRA believes investor protection begins with education.  Using the internet, the media and public forums, FINRA helps investors build their financial knowledge and provides them with essential tools better to understand the markets and basic principles of saving and investing.  FINRA is a trusted advocate for investors, dedicated to keeping markets fair, ensuring investor choice and proactively addressing emerging regulatory issues before they harm investors or the markets.  FINRA’s website address is  Use FINRA’s BrokerCheck , at, as a free tool to check the professional background of current and former FINRA-registered securities firms and brokers.  


The United States Court of Appeals for the First Circuit recently decided a case that presented the question of whether equitable estoppel may be applied against a government employer based upon the employer’s oral assurances to the employee of coverage under the Family Medical Leave Act.  To be eligible for FMLA leave, an employee must have worked at least 1,250 hours in the twelve-month period before taking leave.  Nagle was not eligible because in the twelve months prior to her request she had worked only 554 hours.  However she asserted that her supervisor told her she could take FMLA leave.  Based thereon, Nagle took FMLA leave, but was terminated.  Nagle concluded that she was fired because she had taken FMLA leave, and filed suit against her school district-employer for violating FMLA.  In due course, the District Court granted the employer’s motion for summary judgment, refusing to apply estoppel.  Under federal precedent, governments in the past have not been subject to estoppel or, more recently, have been held not subject to estoppel except for exceptional circumstances called “hen’s-teeth rare.”  The court has repeatedly refused to apply estoppel against the government in ordinary situations where a private party would or might have been estopped.  The core difficulty is that estoppel against the government poses real problems.  Governments have  many “agents,” who may or may not have authority to speak for the government in the matter at hand, and whose casual representations are hard to control.  Anyone could claim, without any confirming proof, that some official or clerk misinformed the person about his legal rights.  Further, the public has a general interest in having the same rules enforced against everyone; affording special treatment to someone who was misinformed creates special treatment, burdens on others or both.  In a strong, ten-page dissent, one judge felt the case presented a situation where estoppel against the government might be appropriate.  The remedy sought did not violate federal law and, indeed, advanced an important public policy; the claim implicated a small unit of local government rather than the federal system; and it relied on more than a casual representation by a government official.  Nagle v. Acton-Boxborough Regional School District, Case No. 08-2374 (U.S. First Cir., July 30, 2009). 


A coalition of placement agents is urging the Securities and Exchange Commission to pull the plug on a proposed rule covering so-called pay-to-play arrangements, convinced it could put some of them out of business (see C&C Newsletter for July 30, 2009, Item 2 and C&C Newsletter for August 6, 2009, Item 4).  Placement agents are accusing SEC of regulatory overkill, saying the proposal would indiscriminately hammer both good and bad firms, according to Pensions & Investments.  SEC’s proposed rule would bar money managers from using placement agents, pension consultants and other third parties to solicit investments from public funds, including retirement plans and college savings plans.  As part of the industry’s response, 25 firms have agreed to fund an educational lobbying campaign, urging SEC to replace its proposed ban with regulation aimed at weeding out the bad actors who trade on their political connections.  We agree that an outright ban is not the solution.  As we have written, disclosure, registration and regulation should be sufficient (see C&C Newsletter for May 14, 2009, Item 5 and C&C Newsletter for June 11, 2009, Item 1). 


Patricia Shoemaker, Benefits Administrator, Municipal Police Officers’ & Firefighters’ Retirement Funds, has announced the 41st Annual Conference has been scheduled for October 21-23, 2009, in Orlando, at the Radisson Plaza Resort-Celebration.  As a participant in all previous forty such conferences, your editor can attest to the fact that these conferences should not be missed. 


Presidio Pay Advisors, a compensation consulting firm, analyzed executive compensation practices among 115 banks participating in the Troubled Asset Relief Program.  The examination revealed that changes in executive compensation from 2006 to 2008 had no consistent relationship with changes in banks’ performance, despite significant deterioration in performance from 2006 to 2008.  A surprising number of executives received increases in their compensation notwithstanding their companies’ poor performance.  Bank compensation committees do not appear to use performance as a basis for their executive compensation decisions in any systematic, meaningful way.  The lack of linkage between executive pay and company performance is troubling, and should be added to the list of banking issues that need resolution.  Gee, what a shock. 

12.            TOP 12 INDICATORS OF A BAD ECONOMY:   

Here are the top 12 indicators that the economy is bad: 

12.            CEO's are now playing miniature golf. 

11.            You received a pre-declined credit card in the mail. 

10.            You went to buy a toaster oven and they gave you a bank. 

 9.            Hot wheels and Matchbox car companies are now trading higher than Ford.

 8.            Obama met with small businesses -- GE, Pfizer, Chrysler, Citigroup and GM -- to discuss the Stimulus Package. 

 7.            McDonalds is selling the 1/4 ouncer. 

 6.            People in Beverly Hills fired their nannies and are actually learning their children's names. 

 5.            The most highly-paid job is now jury duty. 

 4.            People in Africa are donating money to Americans. 

 3.            Motel 6 won't leave the lights on for you. 

 2.            The Mafia is laying off judges. 

 1.            If the bank returns your check marked "insufficient funds," you have to call and ask them if they meant you or them. 


The U.S. Congressional Budget Office has released an updated analysis of the long-term liability of the Social Security system, entitled CBO’s Long-Term Projection for Social Security:  2009 Update.  Although Social Security’s annual revenues currently exceed its annual outlays, this situation will not continue as Baby Boomers age and receive benefits.  CBO projects that the Social Security Trust Funds will be exhausted in 2043.  Thus, if the law remains unchanged, CBO projects that 34 years from now, the Social Security Administration will not have legal authority to pay full benefits.  Such long-term projections are necessarily uncertain; nevertheless, the general conclusions hold true under a wide range of assumptions. 


USA Today reports that a 911 dispatch center has become the nation’s first to allow emergency callers to seek help via text message.  Beginning last week, callers in Waterloo, Iowa, and surrounding county could communicate with dispatchers using text-enabled cellphones.  The short-message text service extends now only to customers of one local wireless carrier, but will likely expand.  Enabling 911 systems to accept text messages could help hearing-impaired callers and younger generations, many of whom assume the service already exists.  Texting may also allow callers to communicate in areas with poor reception, where cellphone users can send texts when their signal’s too weak to place a call. 

15.            DELOITTE 2009 401(K) BENCHMARKING SURVEY: 

Against the challenging backdrop of the economic downturn, results of this year’s annual Deloitte 401(k) Benchmarking Survey reveal that plans are bent, but not broken.  Employers continue to be concerned regarding employees’ financial preparations for retirement, sufficiently supporting their plans and considering them important tools in overall benefit program design.  However, the ongoing effects of the economic downturn are a source of anxiety for employers and employees alike.  Combined with uncertainty of what recovery will eventually mean to participants, it is understandable that employers and employees are taking a “wait and see” approach to their 401(k) plans.  The survey results offer a detailed snapshot of 401(k) policies, features, objectives and expectations of hundreds of diverse employers.  A total of 606 companies responded to the survey, representing a wide distribution of employers in terms of geography, size, industry and ownership structure (public vs. private).  Among the notable findings: 

  • 17 percent of plan providers surveyed indicated an uptick in deferral rate changes, hardship withdrawals, loans and other similar activities. 
  • More than one-third reported their employees decreased deferral rates for 2009, with a majority (60 percent) holding steady at their current level of contribution. 
  • 12 percent of employers surveyed indicated an upswing in opt-outs from auto-enrollment programs.  
  • Almost one-fifth (19 percent, up 2 percentage points from last year) of plan sponsors believe “very few” of their employees will be financially prepared for retirement. 
  • More than three-quarters (79 percent) of employers surveyed are still fairly confident that their plan is effective for recruiting talent, and 68 percent say it helps with retention. 

The survey sheds light on the collective “frame of mind” of employers.  For the majority, plan designs have remained relatively consistent from last year.  This comprehensive survey offers a detailed examination of 401(k) policies and practices, and how plan sponsors and participants intend to utilize these powerful retirement savings instruments.  In addition to the full report, specific industry data are available, including for the public sector.  The survey was conducted jointly with International Foundation of Employee Benefit Plans and International Society of Certified Employee Benefit Specialists, the latter of which is cosponsored by the former and Wharton School of the University of Pennsylvania.  


The most recent Executive Quiz results released by The Korn/Ferry Institute reveal that nearly half (47 percent) of employed executives are either somewhat or very dissatisfied with their current position.  The lackluster job market has not only left executives unhappy with their jobs, but survey results also uncover a lack of trust for corporate leadership.  When asked what best describes employee morale within their company, 45 percent of employed executives said either "fair" or "poor," followed by 42 percent who said "good" and only 13 percent who said "outstanding."   Maintaining high employee morale is one of the most significant challenges facing organizations in today's economic environment, and a critical part of it is based on understanding of what truly drives and motivates executives.  Survey results suggest that low employee morale among executives may be linked to lack of trust they feel toward company leaders.  A surprising 31 percent of executives stated they do not trust their bosses, but, nevertheless, gave them favorable performance ratings.  Even worse, 36 percent of executives reported they do not trust their CEO!  In fact, when asked if their current CEO is the best person for the job, only 38 percent said "absolutely," while 34 percent responded "somewhat" and 28 percent said "not at all."  Finally, when executives were asked if they aspire to be CEOs, the majority (56 percent) said "yes," 16 percent said "maybe," 12 percent said "no" and 15 percent already are or have been a CEO.  Aspirations also ran high for their boss's job:  a majority of executives said they aspire to have their boss's position (67 percent) while the other 33 percent do not.  Quiz results were reported by PRNewswire-FirstCall.  Does the word “ingrate” ring a bell? 


The median plan in the BNY Mellon U.S. Master Trust Universe posted a 10.8% return for the second quarter of 2009, representing first positive returns since fall 2007.  With a market value of $897.5 Billion and an average plan size of $1.47 Billion, the BNY Mellon U.S. Master Trust Universe is a fund-level tracking service that can be used to make peer comparisons of both performance and asset allocation results.  According to PRNewswire-FirstCall, all segments of the Universe posted a positive gain for the quarter, with corporate plans leading the charge at a 11.69%.  Non-U.S. equities led all asset classes for the quarter with a median return of 25.26%; U.S. equities returned 16.90%; and U.S. fixed income posted a result of 4.65%.  Average asset allocation in the Universe was U.S. equity 33%, U.S. fixed income 15%, non-U.S. equity 30%, non-U.S. fixed income 1%, alternative investments 2%, real estate 9%, cash 2% and other (oil, gas, etc.) 8%. 


Representative Alan Grayson (D-FL) recently asked Federal Reserve Inspector General Elizabeth Coleman about trillions of dollars lent or spent by the Federal Reserve Bank.  Listen to the 5 1/2 minute colloquy, and then tell us who’s minding the store:


Camp Bow Wow, which says it runs premier doggy day and overnight camps, provides a fun, safe and upscale environment for dogs to play, romp and receive lots of love and attention.  Camp Bow Wow provides doggy day camp for clients wishing to drop their dogs off in the morning and pick them up in the evening, as well as overnight boarding for travelers.  Overnight boarders play in the day camp program during the day and have their own individual cabins at night.  Some facilities also offer a variety of other services including grooming and training.  Camp staffers are said to be trained in dog behavior, safety and health management.  Specifically, Camp Bow Wow offers live camper cams, campfire treats and indoor/outdoor play areas.  We wonder if they also provide Barka Loungers. 


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

36. Growing old beats the alternative -- dying young. 
37. Your children get only one childhood.  Make it memorable. 
38. All that truly matters in the end is that you loved. 
39. Get outside every day. Miracles are waiting everywhere. 
40. If we all threw our problems in a pile and saw everyone else's, we'd grab ours back. 


Your fences need to be horse-high, pig-tight and bull-strong. 


The butcher backed into the meat grinder and got a little behind in his work. 

23.            QUOTE OF THE WEEK: 

“It is curious that physical courage should be so common in the world, and moral courage so rare.”  Mark Twain

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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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