Cypen & Cypen
SEPTEMBER 4, 2008
Stephen H. Cypen, Esq., Editor
August 27, 2008 was a big day for pension forfeitures in the Florida Fourth District Court of Appeal. In addition to upholding forfeiture of a former Hollywood police officer’s pension (see C&C Special Supplement for August 27, 2008), on that date the court also upheld forfeiture of W.D. Childers’s pension from the Florida Retirement System. Childers was the “Dean” of the Florida Legislature, having served there for thirty years, beginning in 1970. The Fourth District case involved the extent to which a pension can be forfeited because of a criminal conviction. Childers appealed a final agency order forfeiting his pension based upon his conviction for bribery and receipt of unlawful compensation or reward for official behavior. He challenged forfeiture of the full amount of his pension, arguing that the statute is unconstitutional as applied to that part of the pension accruing prior to his employment as a county commissioner, during which time he committed the forfeiting crimes. Childers had accrued credited service under FRS as a teacher and as a member of the State Legislature. In November 2000, he became a member of the Escambia Board of County Commissioners, and continued to accrue years of credited service. It was during his tenure as a county commissioner that he was charged with the crimes that ultimately led to forfeiture of his pension benefits under FRS. He was convicted of bribery and unlawful compensation or reward for official behavior. The parties stipulated that the crimes were not related to his service as a teacher of legislator. The Department of Management Services, Division of Retirement, ordered forfeiture of all Childers’s rights and benefits under FRS, except for return of his own accumulated contributions. On appeal, Childers argued that Section 112.3173, Florida Statutes, is unconstitutional because, as applied, it violates his constitutional protection against excessive fines, double jeopardy and ex post facto laws. He suggested that the forfeiture apply only to that part of the pension that accrued during his tenure as a county commissioner and not to the 32-1/2 years he served as a teacher and legislator. The Fourth District Court of Appeal disagreed with those arguments, and aligned itself with the First District Court of Appeal, which addressed the same constitutional arguments in 1996. Article II, Section 8, Florida Constitution, declares that a public office is a public trust, and the people shall have the right to secure and sustain that trust against abuse. Any public officer or employee who is convicted of a felony involving a breach of public trust shall be subject to forfeiture of rights and privileges under a public retirement system or pension plan in such manner as may be provided by law. To effectuate these constitutional provisions, the Florida Legislature enacted Section 112.3173, Florida Statutes, which provides that any public officer or employee who is convicted of a specified offense committed prior to retirement shall forfeit all rights and benefits under any public retirement system of which he or she is a member, except for return of his or her accumulated contributions as of the date of termination. The Excessive Fines Clause limits only those fines directly imposed by, and payable to, the government. Forfeiture of an employee’s retirement benefits is not a fine because the employee has not been ordered to pay anything to the government. Unlike a criminal forfeiture statute, Section 112.3173(3), Florida Statutes, merely relieves the state of its duty to pay retirement benefits. Here, the state entered into a contract with the employee, promising to pay him benefits upon his retirement. However, that contract included a condition precedent: the employee must refrain from committing specified offenses prior to retirement. The failure of that condition foreclosed the employee’s right to performance. It is as direct and to the point as that. There simply is no violation of the Excessive Fines Clause. The court also held that the Double Jeopardy Clause was not violated by forfeiture of the employee’s entire pension. The Double Jeopardy Clause protects against three distinct abuses: the second prosecution for the same offense after acquittal; a second prosecution for the same offense after conviction; and multiple punishments for the same offense. Here, there is neither a second prosecution for the same offense after acquittal nor a second prosecution after conviction. The question is whether the employee is receiving multiple punishments for the same offense. The answer is “no.” The clause protects only against imposition of multiple criminal punishments for the same offense. While forfeiture, in general, has historically been understood as punishment, Florida courts have recognized that statutes providing for forfeiture of government benefits merely enforce terms of the contract rather than impose punishment. While Section 112.3173, Florida Statutes, promotes deterrence against commission of certain crimes, and while the outcome, particularly in this case, may appear harsh, it does serve a unique alternative purpose: to assure the people’s right to secure and sustain the public trust of public office against abuse. It is in the public’s interest that a retirement system be prevented from inducing to public service those individuals inclined to breach the public trust. Finally, the court held that application of the forfeiture statute to Childers’s rights under FRS does not violate the constitutional proscription against ex post facto laws. An ex post facto law is one that reaches back in time to punish acts that occurred before enactment of the law. Neither the date the employee entered into the pension system nor the date that his pension rights vested is relevant to an ex post facto law analysis. It is the date of the crime that led to conviction that determines the outcome. Because Section 112.3173, Florida Statutes, was enacted before Childers committed the crimes for which he was convicted, that section does not reach back in time and does not violate the proscription against ex post facto laws. Having found no violation of the Excessive Fines Clause, the Double Jeopardy Clause or the proscription against ex post facto laws, the court held that the forfeiture statute can be constitutionally applied to forfeiture of Childers’s pension. One thing the Legislature made perfectly clear is that an employee who is convicted of a specified offense committed prior to retirement shall forfeit all rights and benefits under any public retirement system of which he or she is a member. Case closed. Childers v. State of Florida, Department of Management Services, Division of Retirement, 33 Fla. L. Weekly D2056 (Fla. 4th DCA, August 27, 2008).
Patricia F. Shoemaker, Benefits Administrator, Municipal Police Officers’ & Firefighters’ Retirement Funds, Division of Retirement, has issued a memorandum concerning significant variations in special calculations for 2007 premium taxes. For 2007, the overall increase in gross amounts for firefighters’ premium taxes amounted to 7.57%, while police officers’ premium taxes showed a decrease of 0.05%, compared to 2006 (see C&C Special Supplement for August 11, 2008). Significant variations in premium tax distribution sometimes occur when insurance companies file amended or late returns for prior years. The effect may be to inflate amounts received in one year and diminish amounts received in a later year, as the “correction” is made in a subsequent distribution. In addition, the tax return for calendar 2006 was the first year that insurance companies were subject to fines and penalties if they did not make use of the Insurance Premium Tax (IPT) database. Many companies converted to the database, and indicated that this change resulted in a “correction” in the allocation of premium taxes. If your city received a significantly higher or lower premium tax amount this year, please keep the foregoing in mind. With implementation of the IPT database, Section 185.085(6), Florida Statutes, required proportionate calculation for 2005, 2006 and 2007 police distributions. This year’s distribution will be the third (and final) year of adjustment to police officers’ premium tax distributions. (This provision is not applicable to firefighters’ premium taxes.) Inasmuch as there was an increase in distribution for police officers, as compared to the amount collected per calendar year 2004, each participating municipality shall receive, at a minimum, an amount equal to the 2004 year’s amount. A similar adjustment was made for the last two years. The funding of a minimum guaranteed distribution is made by allocating the aggregate shortfall among cities showing increases in the current year and subtracting from each the amount necessary to meet the minimum distribution for cities showing a decrease. Any new city electing to participate in police officers’ premium taxes after January 1, 2005 is not subject to the proportionate share calculation, and will receive the total amount reported by insurance companies. Calculation details are provided on the Division’s website. As we said in our August 11, 2008 Special Supplement, cities and pension boards should review the “unmodified” distribution amount column over the last three years, in order to make appropriate adjustments for future years; this year is the third and final year for prorated police distributions. Thanks for the info, Trish.
The Boston Herald reports that an attorney for fire inspector-turned-body builder Albert Arroyo will provide the city new evidence that he is not fit to return to his $81,000-a-year job. The lawyer said Arroyo has been vindicated by results of a “functional capacity exam,” which supports the contention that he is unable to report to work. The fire department ordered Arroyo to return to work in July, after a video of him competing in a bodybuilding contest surfaced. At the time, Arroyo was seeking disability pension, which the retirement board rejected in August. The lawyer, citing need to protect his client’s privacy, declined requests to share the full report with the Herald before handing it over to the Fire Department. He said that Arroyo had arranged for the exam because of the back-to-work order. We wonder if there is an FCE for the position of body builder.
Instead of costing the state millions of dollars, the transfer of nearly 15,000 teachers and school personnel from a 401(k)-style plan to a defined benefit plan will save the state about $22 Million in pension costs, according to the Charleston Gazette. The $22 Million savings is a far cry from initial estimates that the transfer could cost the state as much as $78 Million, to subsidize pensions for teachers and service personnel who transferred to the Teachers Retirement System but had limited assets in their Teachers Defined Contribution plans. The actuary for the State Consolidated Public Retirement Board told the Legislative Committee that surprisingly large numbers of TDC at or near retirement age did not transfer. However, a surprisingly high percentage of under-40 teachers and service personnel voted to switch to TRS. The retirement board had projected that nearly 100% of all teachers and service personnel age 65 or over would switch to the pension plan with defined benefits. Yet, only 50% of TDC participants over age 70 transferred and only 69% in the 65-to-69 age group opted out. The retirement board had also projected that fewer than 10% of teachers and school personnel under age 40 would transfer to the DB plan, but, as it turned out, more than 75% of that group voted to switch. All in all, a pretty happy ending.
A report from American Savings and Education Council and AARP is entitled “Preparing For Their Future, A Look at the Financial State of Gen X and Gen Y.” First let’s refresh our memories: young adults are those between age 19 and 39 years old. The line between the Older Generation X and the Younger Generation Y was drawn at 1980. Gen X refers to those born between 1968 and 1979, while Gen Y refers to those born between 1980 and 1988. There is no doubt that in today’s political, social and economic climate, young Americans are faced with new challenges. Among key issues are earlier access to credit, rising costs of higher education, upward inflationary pressures, rising health care costs, increasing life expectancies, movement away from defined benefit to defined contribution retirement plans and rapidly changing technology. One striking finding of the research is that many young adults have yet to align their actions with their financial values and goals. These young adults feel they should be saving more, both in general and specifically for retirement. For example, they place high importance on workplace benefits, especially health insurance and retirement savings plans. Overwhelmingly, however, the majority believe they are not currently saving as much as they should. The following are some key findings of the report:
The last bullet point, in our humble opinion, is what spells disaster for the retirement future of younger people in this country.
MarketWatch.com reports that Boeing Co. has withdrawn an offer to begin replacing its traditional pension plan with an employer-sponsored plan, such as a 401(k), after its machinist union threatened to strike. Instead, the Chicago-based aircraft manufacturer has offered to lift its monthly pension payments by 11.4% and give its machinists raises totaling 9%. Boeing had originally wanted new hires to sign up for 401(k)-type plans, which are supported in part by employee contributions, saying employer-sponsored plans have become too costly. Such move would have been the first step toward the plan’s ultimate termination. As health-care expenses have climbed, companies are complaining about the cost of pension plans. At the same time, however, those companies have been posting record profits and paying the top executives salaries in the millions of dollars -- leading several unions to cry foul over attempts to trim employee packages.
Last month the appellate division of the Superior Court of New Jersey invalidated regulations that would have authorized the State Division of Investment to engage external investment managers to manage pension fund investments (see C&C Newsletter for August 28, 2008, Item 10). The division could embark on a novel strategy to use the brainpower -- but not the horsepower -- of outside investment professionals, according to pionline.com. Instead of using external managers, one idea is to consult with those people who have a special expertise and use them as external advisers. In essence, although there would be consultation with external advisers, the division would still be the one to pull the trigger when it comes to investment decisions. New Jersey officials may be looking at New York as a model. At the $154 Billion New York State Common Retirement Fund, the State Controller serves as sole trustee and makes all investment decisions. As part of the decision-making process, he does consult with a number of advisers. At this point, the division must either terminate its contractual relationships with external management firms or ask the State Supreme Court to review the case (and stay the appellate court decision pending review). The recent appellate court decision did hand the division a small victory: it upheld the regulations allowing the division to continue using external managers to invest in alternative strategies (which represent approximately 10% of the $77 Billion fund).
Center for Retirement Research at Boston College has released a new Issue In Brief entitled “The Housing Bubble and Retirement Security.” House prices rose 60% between 2000 and 2007 before the housing bubble burst. The question is whether the housing boom made people better or worse prepared for retirement. If they extracted the equity from their home through some form of housing-related debt and consumed all their borrowings, they will be left with additional debt and no additional assets, and probably will be worse off in retirement. If they did not borrow and consume their equity, they will have more housing wealth to tap in retirement and will be better off. The Brief explores how the rise in house prices affected individual households. The first section discusses the impact of an increase in house prices on the homeowner’s balance sheet, and describes evidence to date suggesting that the housing boom led to an increase in debt and to increased consumption. The second section uses a 2004 survey to explore actual responses of individual households. The third section discusses events since the 2004 survey -- continued inflating of the housing bubble and its ultimate bursting in 2007. The final section concludes that a substantial proportion, perhaps a third, of older households will be less secure in retirement because of the housing bubble. The following are some of the Brief’s key findings:
Just something else for us older folks to ponder.
Too often, we find ourselves wrestling with our problems instead of dancing with them. And we sometimes cannot distinguish which is which. The difference, of course, is that when you wrestle with a problem, you resist it, you fight it -- you try to impose your sense of order on the chaos of the world. When you dance with a problem, however, you flow with it, you are open to all possible solutions, you search for a harmonious resolution. Amazingly enough, you try to enjoy yourself in the process. Even in trying times, we can find ways to be playful and to view the situation as an invitation to dance. Sage words from Work Like Your Dog.
And speaking of dogs, today’s quote comes from the inimitable Snoopy: “Yesterday I was a dog. Today I’m a dog. Tomorrow I’ll probably still be a dog. Sigh: There’s so little hope for advancement.” Arf.
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