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Cypen & Cypen
SEPTEMBER 29, 2005

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


Total assets of the world’s 300 largest pension funds rose 27% in 2004, according to the annual survey conducted by Pensions & Investments and Watson Wyatt Worldwide. Assets totaled $8.39 Trillion, up from $6.59 Trillion in 2003. A huge gain -- 50% -- was seen with the top 20 funds, at $3.24 Trillion in 2004 from $2.16 Trillion the year before. Actually, 39% of the top 300 assets were held by the largest 20 pension funds. Assets of U.S. funds in the top 300 totaled $3.74 Trillion, up from $3.47 Trillion. But the percentage of total assets held by U.S. funds among the 300 continued to decline. In 2004, U.S. funds accounted for 44.7% of total assets for the world’s top 300 funds, the first time since the survey began that total U.S. assets fell below the 50% mark. U.S. funds held 52.6% of assets in 2003 and 63% in 2001. The following is a list of the top 10 largest pension funds in the world:

1. Government Pension Investment (Japan) - $1,058,502,000,000

2. ABP (Netherlands) - $230,783,000,000

3. California Public Employees (U.S.) - $168,320,000,000

4. Local Government Officials (Japan) - $164,135,000,000

5. Federal Retirement Thrift (U.S.) - $141,026,000,000

6. National Pension (Korea) - $134,970,000,000

7. New York State Common (U.S.) - $117,450,000,000

8. Pension Fund Association (Japan) - $116,784,000,000

9. California State Teachers (U.S.) - $116,695,000,000

10. Postal Savings Fund (Taiwan) - $110,264,000,000

At $102,517,000,000, Florida State Retirement System ranks number 12.


For the third consecutive year, the rich got richer. In this, the 24th annual edition of the Forbes 400, the collective net worth of the United States’ wealthiest climbed $125 Billion, to $1.13 Trillion. Surging real estate and oil prices drove up several fortunes and helped pave the way for 33 new members. Here are the top 10:

1. William Henry Gates, III - $51 Billion

2. Warren Edward Buffett - $40 Billion

3. Paul Gardner Allen - $22.5 Billion

4. Michael Dell - $18 Billion

5. Lawrence Joseph Ellison - $17 Billion

6. Christy Walton - $15.7 Billion

6. Jim C. Walton - $15.7 Billion

8. S. Robson Walton - $15.6 Billion

9. Alice L. Walton - $15.5 Billion

10. Helen R. Walton - $15.4 Billion

The youngest on the list are Sergey Brin and Larry Page, founders of Google, both 32. At 96, the oldest is vintner Ernest Gallo.


Effective October 1, 2005, Chapter 2005-167 expanded the definition of special risk membership in the Florida Retirement System. Section 121.0515(2)(h), Florida Statutes, has been amended to add the following:

The member must be employed by a law enforcement agency or medical examiner’s office in a forensic discipline recognized by the International Association for Identification and must qualify for active membership in the International Association for Identification. The member’s primary duties and responsibilities must include the collection, examination, preservation, documentation, preparation, or analysis of physical evidence or testimony, or both, or the member must be the direct supervisor, quality management supervisor, or command officer of one or more individuals with such responsibility. Administrative support personnel, including, but not limited to, those whose primary responsibilities are clerical or in accounting, purchasing, legal, and personnel, shall not be included.

The International Association for Identification recognizes 14 forensic disciplines, including latent fingerprint identification, questioned document examination, bloodstain pattern identification and polygraph examination. For your information, in addition to traditional law enforcement and firefighting personnel, FRS special risk membership includes about 30 classes of employees.


Consumer confidence in the U.S. fell in September the lowest in almost 2 years, after Hurricane Katrina devastated the Gulf Coast and pushed gasoline prices to a record high. The Conference Board’s consumer confidence index fell to 86.6, the lowest since October 2003, from a revised 105.5 in August. The index was expected to fall to 95, based on a Bloomberg News survey of 62 economists. Katrina damaged drilling rigs and curtailed fuel shipments. The biggest drop in confidence in 15 years threatens to curtail consumer spending, which makes up 70% of the world’s largest economy. The Conference Board surveys 5,000 households on general economic conditions, their employment prospects and spending plans. The percentage of consumers who saw jobs as hard to get rose to 25.4% from 23.1%. The percentage who saw jobs as plentiful fell to 20.1%, compared with 23.6% in August. The component of the index that tracks consumers’ expectations for the next 6 months dropped to 71.7 from 93.3. A gauge of optimism about the present situation also fell, to 108.9 from 123.8.


On September 21, 2005 the Securities and Exchange Commission voted to publish for comment proposed interpretive guidance concerning Section 28(e) of the Securities Exchange Act of 1934. That section creates a “safe harbor” by providing that a person who exercises investment discretion with respect to an account shall not be deemed to have acted unlawfully or to have breached a fiduciary duty under state or federal law solely by reason of having caused an account to pay more than the lowest available commission if that person determines in good faith that the amount of the commission is reasonable in relation to the value of the “brokerage and research services” received. The proposed interpretive guidance would clarify that the scope of the Section 28(e) safe harbor is limited to brokerage and research services that

  • satisfy the eligibility criteria in the statute;
  • provide lawful and appropriate assistance to the money manager in carrying out his decision-making responsibilities; and
  • satisfy the requirement that the money manager make a good faith determination that commissions paid are reasonable in relation to the value of the products and services provided by broker-dealers in connection with his responsibilities to the advisory accounts for which he exercises investment discretion.

As noted in a speech by SEC Chairman Christopher Cox the same day, soft dollars are an anachronism. They are a throwback to the time of fixed commission rates on securities transactions, which Congress abolished in 1975. In the old days, under the high price umbrella of fixed commissions, price competition could occur only in the form of extra services, such as provision of research. Because research is a good thing, when Congress abolished fixed commissions, it also added the statutory safe harbor, in Section 28(e) of the Exchange Act. The purpose was to clarify that money managers could continue using commissions to pay for research in this new environment of competitive commission rates. Over the last 30 years, the Commission has issued only two interpretive releases regarding the scope of permissible research services. The first release was issued in 1976, just one year after the law was enacted. It stated that the safe harbor did not protect “products and services which are readily and customarily available and offered to the general public on a commercial basis.” This release was clearly aimed at soft dollar abuses that had nothing to do with research. Among the products excluded from the safe harbor were office supplies, off-the-shelf software and airline tickets. The second release, issued 10 years later in 1986, went the other way: it construed the safe harbor more broadly, to cover research services that provide “lawful and appropriate assistance to the money manager in the performance of his investment decision-making responsibilities.” This release opened the door to potentially overbroad readings of the safe harbor, and renewed opportunities for abuses that heightened the conflicts of interest between money managers and investors. The Commission has continued to study the question of soft dollars in recent years. There is a sometimes breathtaking audacity in private determinations of what services qualify for the safe harbor. For example, the Commission has seen soft dollars used to pay for membership dues, professional licensing fees, office rent, carpeting and even entertainment and travel expenses. Although the Commission has brought enforcement actions in some of the most egregious cases, going after abuses one at a time is not enough. The Commission must provide greater clarity in its own guidance and insure that there can be no mistake about how this 30-year old law applies in today’s world.


Under Kentucky’s retirement plan for certain state and county employees, one who becomes disabled prior to reaching normal retirement age is credited with unworked years in determining the benefit amount. The Equal Employment Opportunity Commission challenged the system under the Age Discrimination in Employment Act, but suffered a summary judgment at the trial level. On appeal, the United States Court of Appeals for the Sixth Circuit affirmed based upon prior Sixth Circuit precedent, which requires that the system be upheld even though under the plan certain younger employees (those below normal retirement age) are eligible to receive credit for additional years of service that they did not in fact work, with the result that a younger employee receives greater retirement benefits than an older employee with the identical final or average salary and years of actual service. The Sixth Circuit precedent controls even though Congress in enacting the Older Workers Benefit Protection Act (amending ADEA) appears to have intended to make such schemes unlawful unless cost-justified. Equal Opportunity Employment Commission v. Jefferson County Sheriff’s Department, Case No. 03-6437 (U.S. 6th Cir., September 19, 2005)


Pepper, an unpaid member of the City of Florence, Colorado’s volunteer police reserves, allegedly suffered mental impairment and experienced stress as a result of a shooting incident at the time he was performing his duties as a volunteer reserve police officer. Colorado’s Workers’ Compensation Act provides that regularly employed police officers, firefighters, sheriffs and deputy sheriffs are deemed employees. In addition, posse members [seriously] and several types of volunteers, including volunteer firefighters and members of volunteer rescue, disaster and ambulance teams, are deemed employees. However, members of volunteer police departments, volunteer police reserves and volunteer police teams or groups in any county or municipality, while actually performing duties as volunteer police officers, may be deemed employees at the option of the governing body of such county or municipality. Because the City of Florence chose not to include members of its volunteer police reserves as employees under its workers compensation policy, Pepper was, as they say, S.O.L. However, on appeal from a determination to that effect by the Industrial Claim Appeals Office, Pepper was successful in having the state appellate court conclude that the statute is unconstitutional. In a 2-1 decision, the higher court found that the law violated the guarantees of equal protection: there is no conceivably valid purpose for allowing police volunteers to be excepted from workers’ compensation coverage, while mandating all other volunteers, who similarly serve a vital function and are subject to similar risks and perils, be covered. Pepper v. Industrial Claim Appeals Office of the State of Colorado, Case No. 04CA0457 (Col. App., September 22, 2005).

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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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