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Cypen & Cypen
SEPTEMBER 30, 2004

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


The Board of Trustees of the City Pension Fund for Police Officers and Firefighters in the City of Pembroke Pines offset Harlan Terry’s pension, using, as a cap, the average monthly wage established under workers’ compensation rather than the average monthly earnings established under the pension ordinance (see C&C Newsletter for May 12, 2004, Item 1). If the average monthly earnings had been used, there would have been no offset. However, using the average monthly wage established under workers’ compensation law resulted in a complete offset of Terry’s workers’ compensation benefits. Now, the Fourth District Court of Appeal has denied Terry’s petition for writ of certiorari -- without even requiring a response! To quote:

In short, we are prevented from reviewing this case de novo and may reverse only if the lower court applied the incorrect law. A review of Barragan reveals no such error. The circuit court correctly applied the language used in Barragan, which requires a comparison between total payments and “average monthly wage.” The key word here is “wage” as this word has a specific meaning within chapter 440, distinct from “compensation.” Compare § 440.02(7) with § 440.02(28). Terry wants a comparison between the total payments and his final monthly “compensation.” Such a comparison is not warranted by the express language employed by the Barragan court. We cannot reverse, on second-tier review, based on the unsupported suggestion the supreme court inadvertently used “average monthly wage” when it meant “average monthly compensation.”

Again, we are pleased to have represented our regular client, the pension board. Terry v. Board of Trustees of the City Pension Fund for Police Officers and Firefighters in the City of Pembroke Pines, Case No. 4D04-2121 (Fla. 4th DCA, September 29, 2004).


Astute investors are aware of the so-called index effect: that is, excess returns associated with index addition announcements. Well, apparently there has been an inter-temporal shift in the usual post-addition price pop. The median excess returns between announcement date and effective date for Standard & Poor’s 500 adds was 8.9% between mid-1998 and mid-2000, 4.5% mid-2000 and mid-2002 and only 3.6% between mid-2002 and mid-2004. The declining pattern is also observable for the S&P MidCap 400 and S&P SmallCap 600 additions. Excess volumes remained robust, suggesting the decline has not been caused by reduced trading interest in index changes. Index fund demand for added shares has not shrunk. The portion of shares outstanding of a company demanded by S&P 500 index funds has remained at the 10%-11% over the past six years. It has more than doubled for the S&P MidCap 400 and S&P SmallCap 600 to 6% and 5%, respectively. An increase in inter-index moves does not explain the decline. Diminution of the index effect across time persists in a sample of companies added from outside the S&P Composite 1500. There are three structural issues behind the decline. First, growing popularity of the index effect has resulted in a surge of proprietary trading activity that seeks to exploit this arbitrage opportunity. Second, many index funds have increasingly begun to trade around the effective date to minimize the cost of index changes. Third, increase in indexed assets for mid- and small-cap indices provides better offset for moves, thus reducing that demand.


Transition managers act as way stations when plan sponsors are moving assets between managers or implementing asset allocation changes. According to a report in, $2 Trillion moved through transition managers last year. As competition has intensified, differentiation has emerged. The challenge for plan sponsors is to understand the differences between each type of transition provider and the impact on execution. Providers can be broken down into several main groups. One, broker/dealers have long facilitated transitions through both agency and principal trading (for example, Morgan Stanley, Deutsche Bank, Lehman Brothers and Goldman Sachs). Two, global custodians, with their securities processing capabilities and index businesses, are among the leading providers (for example, State Street and The Bank of New York). Three, there are consultants, who have leveraged their gatekeeping role and asset management businesses to establish successful transition management businesses (for example, Frank Russell). Willingness to act as a fiduciary is another consideration. A transition manager acting in a fiduciary capacity is held to standards of best execution as expected from a “prudent expert,” a higher standard of care. As a practical matter, such capacity would prohibit behavior like moving a price up toward the close (most transactions are struck at opening or closing prices); taking a spread (particularly in over-the-counter and fixed-income trades); and restrictions on open market trading, crossing and principal trades. Although custodians and consultants are generally prepared to act as fiduciaries, broker/dealers usually will not.


Eight months after being promoted from sergeant to lieutenant, Grob was demoted for “failure to meet probation.” The demotion was not based on any misconduct or disciplinary reason, but rather, was performance-based. Grob filed a grievance with the Sheriff, contending that he could not be demoted without just cause and that he was not probationary. Although he requested reinstatement, Grob did not timely request a hearing before a review board under the Sheriff’s standard operating procedures and the Career Service Employees Act. When Grob’s grievance was ultimately denied by the Sheriff under his discretionary authority, Grob filed suit. On appeal of a directed verdict in favor of the Sheriff, the district court of appeal affirmed. While career service employees below the rank of major are not subject to dismissal or demotion without just cause, any employee who is required to serve a probationary period attendant to a promotion may be returned to his prior rank during such probationary period, without right of appeal. Grob vs. Bieluch, 29 Fla. L. Weekly D2136 (Fla. 4th DCA, September 22, 2004).


On August 23, 2004, a new federal rule governing overtime exemption for white-collar workers took effect (see C&C Newsletters for April 22, 2004, Item 4 and June 8, 2004, Item 2). A special report in the Daily Business Review describes what these new rules mean -- at least from the employer’s perspective. In the authors’ view, the dire predictions that up to six million Americans would lose their overtime pay did not materialize. The Federal Labor Standards Act overtime exemptions apply to five categories of white-collar workers: executive, administrative, professional, outside sales and computer. Exemption from overtime for workers in each category is governed by three components: a salary level test, a salary basis test and a duties test. For the first time, the minimum weekly compensation level for all white-collar employee exemptions is set at a uniform level. Further, the weekly earnings cap used to qualify an exempt employee has been lifted to $455 a week from $155 (which had been unchanged for almost 30 years). Workers earning $100,000 per year are automatically considered exempt if they customarily and regularly perform any one or more of the exempt duties of an executive, administrative or professional employee. The salary basis rule is that white-collar employees who receive a predetermined amount that is not subject to reduction because of variations in quality or quantity of work are exempt from overtime. The new salary basis test now carves out an additional safe harbor, which employers will have to learn. Employers should also review the job duties of all current exempt executive employees to assess whether they have the necessary hire/fire authority -- if the executive’s recommendations in that area are given particular weight. Because there is an effort in Congress to reinstate most, if not all, of the old rules, the authors warn employers to continue monitoring legislative developments in this area.

Copyright, 1996-2004, all rights reserved.

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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