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Cypen & Cypen

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


The Phoenix Union High School District, as a result of negotiations with its teachers, adopted a voluntary early retirement incentive program. In a challenge by three teachers, the trial court found that the District’s retirement plans were discriminatory because they paid retiring teachers under 65 more to substitute teach than they paid those 65 or older. On review, the Arizona Court of Appeals reversed the finding that the plans constituted unlawful age discrimination. A premium wage for those who meet the E.R.I.P. requirements and retire early is not age discrimination but an incentive for the senior employee to leave, resulting in a monetary savings for the employer. In other words, it confers a benefit on senior employees whose early departure reduces the District’s budget by encouraging those teachers with the highest salaries to leave and, if they are replaced, to be replaced by those receiving lower salaries. The State of Arizona v. Phoenix Union High School District No. 210, 1 CA-CV 03-0518 (Ariz. App., August 19, 2004).


Chicago’s Fire Department has five ranks: Firefighter, Engineer, Lieutenant, Captain and Battalion Chief. Promotions depend on competitive examinations. Chicago developed the 1986 exam for lieutenant (a position open to firefighters and engineers) with care to ensure that it was both non-discriminatory and a valid test of skills. Yet, although 29% of those who took the exam were either black or Hispanic, only 12% of those groups who received the highest 300 scores were in these groups. The department concluded that this disparate impact could be justified, under EEOC Guidelines, only if the exam were valid for rank-order use; that is, if someone who scores higher on the test is bound to perform better than the person next in line. So, the city established separate lists for minorities and whites and promoted in rank-order from each, so that 29% of those promoted were minorities. White firefighters denied or delayed in promotion sued, and prevailed. Even supposing that EEOC’s regulations tell employers not to hire or promote in strict sequence when that would cause minority groups to succeed less than 80% as often as whites, the regulations would not supply a compelling governmental interest in making decisions based on race. Further, the Civil Rights Act of 1991, although not retroactive, explicitly forbids the dualist response to disparate impact. Biondo v. City of Chicago, Case Nos. 02-2707, 02-3099 and 03-1921 (U.S. 7th Cir., August 27, 2004).


The Americans with Disabilities Act of 1990, 42 U.S.C. §§12101, et seq., prohibits covered employers from discriminating against qualified individuals on the basis of their disabilities. Williams was unable to carry a firearm as the result of a mental condition, and was additionally perceived by his employer to be unable to have access to firearms or be around others carrying firearms. In an action against his employer, the District Court granted summary judgment against Williams, holding that such limitations would not make him significantly restricted in the major life activity of working because they did not prevent him from performing work in a broad range of jobs in various classes. On appeal, the judgment was reversed because the District Court did not consider whether such limitations would prevent Williams from performing work in a class of jobs and because a reasonable jury could conclude that Williams was actually (or perceived to be) precluded from working in a class of jobs. EEOC’s Regulations make clear that even if one has the ability to perform a broad range of jobs, one is nevertheless disabled if one is significantly restricted in one’s ability to perform most of the jobs that utilized abilities similar to the job one has been disqualified from performing. Williams v. Philadelphia Housing Authority Police Department, No. 03-1158 (U.S. 3rd Cir., August 26, 2004).


The U.S. Department of Labor, Bureau of Labor Statistics, 2003 National Compensation Survey shows that private establishments with a hundred or more workers were much more likely than small establishments to offer medical insurance and retirement benefits in 2003. In addition to resuming a regular program of reports on the incidence and characteristics of employee benefit plans, the 2003 NCS introduced a variety of new data tabulations. These new data items range from information on the percentage of establishments offering major types of benefits to their employees and the percentage of total medical premiums paid by employers an employees, to tabulations that link benefit plan coverage to workers’ wages, to new details on such topics as the types of bonuses offered employees, employer contributions to cash balance pension plans and orthodontic coverage for dependents of employees.,, and


The City of Miami has shed its distinction as the nation’s poorest large city for the last four years. Miami is now in fifth place, behind Cleveland, Newark, Detroit and Fresno (in “descending” order). A few more condos and Miami could climb out of the bottom ten.


Traditionally, investors have ignored mid-capitalization equities because they often use a “barbell” approach to investing in stocks, owning both the large and small but not the middle. Mid-cap stocks seem to have that middle-child syndrome. The Standard & Poor’s 400 MidCap Index rose at a 12.1% annual rate in the past fifteen years. It handily outpaced both the S&P 500 Index, dominated by large stocks, which gained 10.4% per year and the S&P 600 Smallcap Index, which was up 9.9% per year. (Even in the past five years, dominated by small stocks, the mid-cap index at 8.5% per year almost kept up with the 9.6% annualized for small-caps.) According to Bloomberg, there are almost 700 funds in the mid-cap range. But that number pales in comparison with the approximate-1,200 funds for each of large-cap and small-cap. This apparent underrepresentation is reinforced by the total value of stocks that make up the S&P 400 MidCap Index ($937 Billion) -- more than double the $438 Billion market cap of the small-stock S&P 600. Of course, both are dwarfed by the S&P 500's total market value in excess of $10 Trillion. Mid-caps may represent enterprises whose growth has slowed before they attain blue-chip status. However, a mid-cap stock may also be a company on the way from big to small. The whole idea of investing by capitalization size may suffer from serious built-in limitations. A fund manager under a strict mid-cap mandate may take a beating on both sides -- forbidden to buy up-and coming little stocks until they reach mid-cap status and then forced to sell them as they blossom to the fullest of their potential. Go figure.


The replacement ratio is a person’s gross income after retirement, divided by his gross income before retirement. For example, if someone earns $60,000 per year before retirement, retires and receives $45,000 in Social Security and other retirement income, that person’s replacement ratio is 75% ($45,000/$60,000). Generally, a person needs less gross income after retiring, primarily due to five factors:

1. Income taxes go down after retirement.

2. Social Security taxes end at retirement.

3. Social Security benefits are partially or fully tax-free.

4. Saving for retirement is no longer a goal.

5. Age- and work-related expenses generally decrease, primarily because shelter and transportation expenses decrease.

Compared to prior studies, the 2004 update shows an increase in the amount of income people need at retirement to maintain their pre-retirement standard of living. However, in comparison to earlier studies, the increase is small (no more than 2 percentage points) for people with pre-retirement incomes of $60,000 or more (but 3-6 percentage points greater for people with pre-retirement incomes of $20,000-$50,000). Required replacement ratios now range from 75%-89%, compared to 74%-83% in 2001. Even though the age for full Social Security benefits has increased to 65 years and 4 months for people reaching age 65 in 2004, Social Security benefits for an age 65 retiree are actually greater in 2004 as a percentage of income than they were in 2001. As the Baby Boomer generation approaches retirement, the need for retirement planning has never been greater. The results of the study will provide employees and sponsors with quantitative information needed to begin that planning. Readers may view the entire report at

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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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