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Cypen & Cypen
August 23, 2012

Stephen H. Cypen, Esq., Editor

1.     CalPERS APPROVES FIVE-YEAR STRATEGIC PLAN:     California Public Employees’ Retirement System Board has approved a new five-year strategic plan that will serve as a blueprint for meeting the retirement and health benefits needs of CalPERS members and their families.  The 2012-17 CalPERS Strategic Plan is the result of an eight-month process in which a wide range of stakeholders participated.  The Strategic Plan identifies three overarching goals:  improving long-term pension and health benefit sustainability; cultivating a high performing, risk intelligent and innovative organization; and engaging in state and national policy development to enhance the long-term sustainability and effectiveness of programs.  The goals will also guide development of future two-year vision plans that are designed to align day-to-day operations with the broad objectives of the five-year Strategic Plan. 
Some of the specific initiatives call for CalPERS to: 

  • Actively manage and assess funding risk through an asset liability management framework that guides investment strategy and actuarial policy. 
  • Expand member and employer access to information regarding cost and quality of health care and ways to impact those trends
  • Establish partnerships that focus on increasing public and private sector focus on wellness
  • Develop and implement a comprehensive talent management strategy that includes recruitment, knowledge transfer and succession planning
  • Establish principles and beliefs to guide public policy engagement by the System.

  Exposito petitioned for a Writ of Certiorari from the circuit court to quash a decision by the City of Miami City Commission, terminating him as Chief of Police.  After the Chief indicated his intent to demote three high-ranking officers from the police department’s senior staff, the City Manager instructed him to maintain the status quo and take no action with regard to the command staff officers until Exposito returned from vacation.  Notwithstanding the order of the City Manager to hold off on such demotions, before leaving on his vacation, Exposito reassigned the three command staff officers.  Pursuant to the City Charter, the City Manager notified Exposito and the City Commission that he was suspending Exposito for failure to obey his orders with regard to the Command Staff officers.  Pursuant to the Charter, the Commission initiated proceedings to consider whether to terminate or reinstate Petitioner as Chief.  After an extended hearing, the Commission voted 3-2 to affirm the City Manager’s suspension, and terminated Petitioner as Chief of Police.  Exposito argued that the City Manager did not have cause to suspend him, that the Commission departed from the essential requirements of law by affirming his suspension and terminating him as Chief of Police.  Exposito’s position was that technically he did not demote command staff officers but only reassigned them.  The City correctly argued that the definition of demotion does not apply to unclassified employees such as command staff officers, and that a more general definition of demotion is applicable, where a demotion is evidenced by a decrease in pay, responsibility, supervisory duties or prestige.  Exposito’s argument was irrelevant anyway, given that the City Manager instructed him to “maintain the status quo” regarding the three Command Staff officers, and Exposito acted in direct contravention to that instruction by reassigning them.  Exposito’s attack of procedural due process grounds was equally unavailing.  He contended the Commission failed to abide by the time restrictions contained in the Charter: 
If [the police chief] be so suspended the city manager shall forthwith certify the fact, together with the cause of suspension, to the commission who within five (5) days from the date of receipt of such notice, shall proceed to hear such charges and render judgment thereon, which judgment shall be final.
The City’s interpretation that the five-day requirement only requires the Commission to begin proceedings regarding suspension within five days of receiving notice of a suspension from the City Manager is reasonable and logical.  The courts customarily give judicial deference to interpretation of a statute or ordinance by the body responsible for its administration, and will not overturn that interpretation unless it is clearly erroneous.  Furthermore, when determining timeliness of an act, if the last day falls on a Saturday, Sunday or holiday, the period of time is generally extended to the following day that is not a Saturday, Sunday or holiday.  The Court denied Exposito’s Petition for Writ of Certiorari, and the decision of the City of Miami City Commission was affirmed.  Exposito v. City of Miami, 17 Fla. L. Weekly Supp. 1910 (11th Cir., June 27, 2012). 
3.      DEPUTY FIRE CHIEF APPLICANT WHO WAS NOT GIVEN REQUIRED VETERANS’ PREFERENCE HAS NO CLAIM WHERE CITY HIRED BEST QUALIFIED APPLICANT:      The City of Deland appealed a Public Employees Relations Commission ruling that arose out of a veterans’ preference complaint filed by Landolfi against the City after he was not hired for the position of deputy fire chief.  PERC dismissed Landolfi’s complaint because the individual hired by the City was more qualified than Landolfi, but awarded attorney’s fees and costs to Landolfi due to the manner in which the City conducted the hiring process.  The City appealed the award of the fees and costs and Landolfi cross-appealed dismissal of his complaint.  On review, the district court of appeal affirmed the issue raised by Landolfi, but reversed the award of attorney’s fees and costs on the City’s appeal.  Landolfi requested a veterans’ preference, but his request was not conveyed to the fire chief, who was responsible for screening the resumes, conducting interviews and making the hiring decision.  Landolfi did not receive an interview or any other special consideration during the hiring process.  Only two applicants were interviewed by the chief, one of whom was determined by the chief to be the most qualified based on his resume.  A PERC hearing officer concluded that the City should have given Landolfi an interview or other special consideration during the hiring process because he was a preference-eligible veteran who was qualified for the deputy fire chief position, and the City was aware that he was claiming a veterans’ preference.  Nevertheless, the hearing officer concluded that the City did not violate the law because the individual hired for the position was more qualified than Landolfi.  In its final order, PERC rejected the exceptions filed by Landolfi, and dismissed the complaint.  However, on its own initiative, PERC ordered the City to pay attorney’s fees and costs to Landolfi due to the manner in which the City conducted its hiring process.  PERC reasoned that the City’s failure to provide Landolfi with an interview or any other form of special consideration was a clear violation of the statute.  The City contended that because the PERC hearing officer found that it hired a more qualified applicant for the deputy fire chief position, there was no statutory violation that would authorize PERC to award attorney’s fees and costs under the statute.  The statutory prerequisite to an award of any relief under the statute is a “violation” of one of the statutes enumerated.  If there is no statutory violation, then there is no basis for PERC to order compliance under the mandatory provisions and there is no basis for PERC to award monetary relief.  Resolution of the issue raised by the City on appeal boiled down to whether PERC erred in finding that the City violated the statute by failing to give Landolfi special consideration in the interview process, even though the City hired a more qualified applicant.  The final order in this case was consistent with prior authorities insofar as it dismissed Landolfi’s complaint based on the hearing officer’s finding that the City hired a more qualified applicant.  However, the final order conflicted with these authorities in concluding that the City violated the statute by failing to give Landolfi special consideration, such as an interview, during the hiring process. City of Deland v. Landolfi, 37 Fla. L. Weekly D1982 (Fla. 1st DCA, August 17, 2012). 
4.      FICA’S IMPACT UPON PUBLIC PENSIONS:      One of the most significant challenges facing public pension systems today that often goes unnoticed is violations of the Federal Insurance Contributions Act provisions and Section 218 of the Social Security Act.  Writing in the NAPPA Report, the authors say many systems fail to recognize implications for their affiliated employers of this different, and often times confusing, area of the FICA tax.  State and local governments pay FICA taxes in excess of $200 Billion annually.  This employment tax, which is the basis for Social Security and Medicare, is straight-forward in the private sector.  Applying it to state and local government employment, however, can be exceedingly difficult.  In fact, the Governmental Accounting Standards Board does not even test for FICA compliance, which can provide a false sense of security when an affiliated entity receives a favorable audit compliance finding based on GASB audit standards.  Since 2007, when a significant compliance problem was discovered in the State of Missouri, the Internal Revenue Service and Social Security Administration have been increasing their scrutiny of state and local governments’ FiCA coverage (or lack thereof), especially by pension systems’ members. A hidden threat for those systems is what affiliated employers are doing (or not doing) that violates FICA or Section 218 of the Social Security Act.  Such noncompliance is a challenge to retirement systems as the associated tax problems of affiliated employers can result in disaffiliations and negative publicity for all parties.  The laws and rules that impact public employers’ federal FICA tax obligations include numerous exemptions and exclusions to laws that apply to the private sector.  Further exacerbating the situation are the semantics associated with the laws that can create confusion and inadvertent noncompliance by an affiliated entity.  A few examples are 

  • “Voluntary” Social Security coverage through a Section 218 Agreement is now “mandatory.” 
  •  “Mandatory” Social Security coverage is not really mandatory for all state and local government employees. 
  •  “Mandatory” Medicare coverage is also not really mandatory for all such employees. 

Thus, FICA and public pension system compliance requirements for state and local governments not only vary from employer to employer, but also among individual employees as well.  The Missouri problem led to a Congressional request for the Government Accountability Office to study state and local governments’ FICA compliance, which resulted in a report issued in September 2010.  The study found that state and federal officials had, over decades, made several changes in state law that altered membership rules of retirement systems.  The effects of these changes on Social Security coverage were not well understood, and contributed to widespread coverage errors in hundreds of districts.  Further, IRS has initiated a process to find similar problems in other states, referred to as the Section 218 Assessment Tool.  IRS is using the information obtained from that survey to build a separate repository for each state of their Social Security, Medicare and pension system coverage.  As of early 2012, IRS had identified at least 15 risk areas nationwide among state and local governments, including a number that have implications for pension systems and employers:  public school teachers; police and firefighters; what state and local governments are doing to modify their public pension plans; charter schools; and mandatory Medicare.  And as if there are not already enough problems, a 2011 Republican Staff Commentary issued for a Joint Committee of Congress report stated that the state pension crisis is virtually unavoidable, but the federal government’s role in bearing the burden of irresponsible states can be mitigated through preemptive actions that will help prevent a taxpayer bailout of state pension systems.  We agree that those are possible “code words” for universal (mandatory) Social Security for state and local government employees and imposition of other likely changes to traditional defined benefits plans for the public sector, the consequences of which could have devastating implications for pension systems and their members.  
5.      DO AS I SAY, NOT AS I DO
:       Miller is a U.S. citizen who was employed by the Department of State as a safety inspector at the U.S. embassy in Paris, France.  He was hired as locally employed staff pursuant to a personal services agreement.  His contract was negotiated and signed under authority of section 2(c) of the Basic Authorities Act, which authorizes the Secretary of State to employ individuals or organizations, by contract, for services abroad.  A standard provision in Miller’s employment contract incorporated by reference all provisions of the local compensation plan for Foreign Service National employees in France.  One provision of the Local Compensation Plan is a mandatory retirement clause, which follows the apparently prevailing French practice of mandating retirement at age sixty-five, and expressly states that age 65 is the mandatory age limit for all employees under the LCP.  There is no dispute that the State Department terminated the employment of Miller on his sixty-fifth birthday (Happy Birthday, Pal) solely because he reached that age.  Indeed, it is the position of the Department that it is free to terminate employees like Miller on account of their age.  Moreover, the necessary consequence of the Department’s position is that it is also free from any statutory bar against terminating an employee like Miller solely on account of his disability or race or religion or sex.  Miller brought suit, alleging that his forced retirement violated the federal employment provisions of the Age Discrimination in Employment Act.  Accepting the State Department’s position, the U.S. district court dismissed Miller’s complaint on the ground that the statute under which Miller was hired, section 2(c) of the Basic Authorities Act, permitted the Department to exempt Miller from the protections of the ADEA.  The court of appeals reversed, finding nothing in the Basic Authorities Act that abrogates ADEA’s broad proscription against personnel actions that discriminate on the basis of age.  In 1974, Congress amended ADEA to address nondiscrimination on account of age in Federal Government employment:  all personnel actions affecting employees or applicants for employment who are at least 40 years of age shall be made free from any discrimination based on age.  The law includes an exception for personnel actions with regard to aliens employed outside the limits of the United States, but contains no parallel exception for U.S. citizens so employed. Miller v. Clinton, Case No. 10-5405 (U.S. DC Cir., August 7, 2012). 
6.      HUH – CIVIL GRAND JURY TELLS PENSION SYSTEM TO MAKE CHANGES?:     In reaction to weak returns and losses over the last five years -- including the 2008 financial crisis -- a civil grand jury has investigated the San Francisco Employees’ Retirement System’s investment strategy.  The report, according to aiCIO, rails against SFERS for its volatile and risky investment policies, unrealistically high assumed investment return rate of 7.66% and for not undertaking a formal failure analysis subsequent to the funding loss suffered in 2008-2009.  The $16 Billion public plan is 83.9% funded but San Francisco’s city charter requires that the public pension plan be fully funded.  Here are six recommendations made by the grand jury:  

  • Address the $2 Billion dollar underfunding by forming a high-level task force. 
  • Adopt a realistic and consistent formula for estimating assumed expected investment return rate.  
  • Undertake an in-depth investigation and failure analysis study. 
  • Investigate, quantify and address all major risks in the portfolio. 
  • Investigate less volatile and risky investment policies that would attain sufficient returns. 
  • Replicate the Stanford, Upjohn and The New York Timesevidence-based comparison studies using data that apply and findings.  

California sure is different … very different. 
7.      STATE PENSION FORFEITURE LAWS: presents a nifty little site containing information on state pension forfeiture laws.  Go to and click on a state or refer to the table to view states’ pension forfeiture laws.  You will find a very short summary.  Information is current as of May 2012. 
8.      LIFE HAS ITS LITTLE UPS AND DOWNS:      A survey from CareerBuilder reveals the most unusual things that happened in work elevators.  Ever see someone at work floss his teeth in an elevator? “Pants” a co-worker?  Get in a fist fight?  CareerBuilder’s latest study pinpoints the most unusual and annoying behaviors workers have witnessed in their office elevators.  While most people follow standard elevator etiquette of facing forward and generally keeping to themselves, quite a few workers reported less-than-ordinary experiences while in transit.  Workers shared the following real-life examples of other weird behaviors observed in work elevators: 

  • Changing a baby’s diaper
  • Clipping fingernails
  • Showing someone a rash and asking for a diagnosis
  • Moving the entire contents of a co-worker’s office into the elevator, including the desk
  • A woman with her arms full of papers, using her head to keep the doors from closing on her

When asked to identify the most annoying elevator habits they see more commonly at the office, workers most often cited people talking on cell phones, standing in close proximity for no apparent reason and deliberately letting elevators doors close when someone is approaching.  Others among the top annoying habits are 

  • Standing too close when there is plenty of room in the elevator
  • Holding the elevator doors open for an extended period of time while waiting for someone else to get in
  • Taking the elevator to go up one or two floors instead of using the stairs

9.      GOLF WISDOMS:  
   Your straightest iron shot of the day will be exactly one club short.           
10.    PUNOGRAPHICS:      Broken pencils are pointless.            
11.    QUOTE OF THE WEEK:   “Worry is like rocking in a rocking chair – it keeps you busy, but gets you nowhere.”  Joyce Meyer
12.    ON THIS DAY IN HISTORY:  In 1993, New York Dow Jones index reaches record high of 3,638.96 points.  
13.    KEEP THOSE CARDS AND LETTERS COMING:  Several readers regularly supply us with suggestions or tips for newsletter items.  Please feel free to send us or point us to matters you think would be of interest to our readers.  Subject to editorial discretion, we may print them.  Rest assured that we will not publish any names as referring sources. 
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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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