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Cypen & Cypen
SEPTEMBER 18, 2008

Stephen H. Cypen, Esq., Editor


Talpesh appealed an order of the judge of compensation claims denying his claim for benefits. He argued that he was entitled to the presumption that his coronary artery disease was caused by his occupation as a firefighter. Section 112.18(1), Florida Statutes, known as the “Heart/Lung Bill,” provides in pertinent part:

Any condition or impairment of health of any Florida ... municipal ... firefighter ... caused by tuberculosis, heart disease, or hypertension resulting in total or partial disability or death shall be presumed to have been accidental and to have been suffered in the line of duty unless the contrary be shown by competent evidence. However, any such firefighter ... shall have successfully passed a physical examination upon entering into any such service as a firefighter ..., which examination failed to review any evidence of any such condition.

The statute applies to workers’ compensation cases, and provides for a presumption of compensability. Thirty years ago, the Florida Supreme Court explained that the presumption embodies the social policy of the state, which recognizes that firefighters are subjected to hazards of smoke, heat and nauseous fumes from all kinds of toxic chemicals, as well as extreme anxiety derived from necessity of being constantly faced with possibility of severe danger. The Legislature recognized that this exposure could cause a firefighter to become a victim of tuberculosis, hypertension or heart disease. Thus, based upon a claimant’s occupation as a firefighter, the presumption relieves him from necessity of proving an occupational causation of the disease resulting in disability or death. But here is the wrinkle: the judge of compensation claims determined that the presumption did not apply to Talpesh’s coronary artery disease because his pre-employment physical indicated that he had high blood pressure. Because the pre-employment physical did not reveal heart disease, however, the judge of compensation claims erred in determining the presumption did not apply. Talpesh is entitled to the presumption that his coronary artery disease was caused by his occupation as a firefighter. The presumption merely switches the burden of proof from claimant to employer/carrier and may be overcome by, as the statute plainly states, competent substantial evidence. Although the presumption should have applied to Talpesh under the statute, the judge of compensation claims did not address whether the employer/carrier rebutted the presumption with competent evidence. Therefore, the appellate court reversed the order on appeal, and remanded for further proceedings. This decision is extremely important because it recognizes that the presumption applies to three discrete conditions: tuberculosis, hypertension and heart disease. Hence, Talpesh’s admitted pre-existing high blood pressure did not automatically disqualify him for the presumption as to “heart disease.” So, unless the evidence shows that hypertension caused heart disease, pre-existing hypertension would only be problematic if the disability is actually for hypertension. Talpesh v. Village of Royal Palm Beach, 33 Fla. L. Weekly D2191 (Fla. 1st DCA, September 15, 2008).


Sponsors of governmental plans that have never received determination letters verifying tax qualification of the plans’ terms can do so without submitting prior year documentation, but they may have to use Internal Revenue Service’s voluntary correction programs, according to information posted on the agency’s website on September 2, 2008. IRS announced earlier that it intended to increase its oversight of governmental plans, which have not received the same scrutiny as corporate retirement plans. In answering some lengthy asked questions about determination letters for governmental plans, IRS said a governmental plan that has never received a determination letter can apply for one now without submitting documentation from previous years. However, if a governmental plan has not been amended in a timely fashion or has never received a determination letter, the plan sponsor should make a submission under IRS’s Voluntary Correction Program, the service said. (VCP is part of EPCRS.) The submission generally must include all plan amendments and a restated plan, even if the plan was not adopted in that format. IRS will not require sponsors of governmental plans to make submissions each year to cover pension law changes passed by state legislatures. Instead, most governmental plan sponsors may submit summaries of interim and discretionary amendments when they apply for a determination letter. Sponsors of most individually designed plans need apply for a determination letter only about once every five years, IRS said. The difference between a determination letter and a private letter ruling for governmental plans is that a private letter ruling interprets and applies tax law to a taxpayer’s specific circumstances and a determination letter addresses terms of a specific governmental plan. This posting can be located at,,id=184417,00.html. (Separately, IRS also posted “Retirement Plans FAQs Regarding Governmental Plans and EPCRS,” at,,id=184690,00.html. EPCRS stands for Employee Plans Compliance Resolution System.)


Current economic conditions are cutting more deeply into Americans’ pocketbooks, as significantly more workers (61%, up from 56%) and retirees (61%, up from 55%) cut overall spending even further this quarter compared with second quarter 2008, according to the latest Principal Financial Well-Being Index. The Index revealed that the vast majority of American workers (71%, up from 67% a year ago) are concerned about their long-term financial security, and significantly more Americans this year compared to last are losing sleep over it. The basic financial worry that keeps them awake at night is ability to pay for basic necessities during retirement (up significantly to 48% from 38% a year ago). Workers are equally concerned that they will not be able to afford good medical care or sustain the same quality of life they currently enjoy in retirement (up significantly to 44% from 39%). Retirees, on the other hand, say their sleepless nights are due to rising cost of inflation eating into their purchasing power during retirement (up dramatically to 44% from 28%). They are also concerned about their ability to maintain the same quality of life they enjoyed before retirement (up significantly to 30% from 20%), affordability of good medical coverage (30%, up from 29%) and ability to pay for even basic necessities (29%, up from 21%). While retirement funding worries are keeping American workers awake at night, nearly a third (31%) still have no plan for retirement. Even more alarming, nearly a quarter of retirees (22%) did not even begin to think seriously about retirement finances until they had retired. But looking back, 71% of retirees wish they would have begun planning more than a decade before retiring. And the powers-that-be want American workers to handle their own retirement through defined contribution plans! Right.


According to attorney/blogger Thomas Geer, on July 21, 2008, in Notice 2008-62, Internal Revenue Service created a new rule on public school teacher compensation. The rule says that “recurring part year compensation” will not be treated as deferred compensation under Section 457(f) as long as (1) the arrangement does not defer payment of any of the recurring part-year compensation beyond the last day of the 13th month following beginning of the service period and (2) does not defer from one taxable year to the next taxable year payment of more than the applicable dollar amount in effect for the calendar year in which the service period begins ($15,500 for 2008). The reason for creation of the rule is to allow teachers and other eligible public school employees to annualize their compensation. Typically, a teacher will be allowed to receive pay in equal amounts from beginning of a school year (say, September) to beginning of the next school year (say, the following August). Unwillingness of IRS to extend the rule to non-teachers, incidentally, serves as an example of the clout of K-12 teachers. On the other hand, just from reading the summary, we would say the rule was drawn by Professor Irwin Corey.


United States Government Accountability Office has released a study of defined benefit pension plans, entitled “Guidance Needed to Better Inform Plans of the Challenges and Risks of Investing in Hedge Funds and Private Equity.” Millions of retired Americans rely on DB plans for their financial well-being. Recent reports have noted that some plans are investing in “alternative” investments such as hedge funds and private equity funds. Given that these two types of investments have qualified for exemptions from federal regulation, the greater risk to retirement assets has raised concerns. To understand this trend and its implications, GAO was asked to examine (1) the extent to which plans invest in hedge funds and private equity; (2) the potential benefits and challenges of hedge funds investments; (3) the potential benefits and challenges of private equity investments; and (4) what mechanisms regulate and monitor pension plan investments in hedge funds and private equity. GAO found recent surveys of private and public sector plans reveal that investments in hedge funds and private equity generally make up a small share of total plan assets, but a considerable and growing number of plans have such investments. Available survey data of mid- to large-size plans indicate that between 21% and 27% invest in hedge funds, while over 40% invest in private equity; such investments are more prevalent among larger plans. The extent of investment in hedge funds and private equity by plans with less than $200 Million in total assets is unknown. Pension plans invest in hedge funds to obtain a number of potential benefits, such as returns greater than the stock market and stable returns on investments. However, hedge funds also pose challenges and risks beyond those posed by traditional investments. For example, some investors may have little information on funds’ underlying assets and their values, which limits opportunity for oversight. Plan representatives said they take steps to mitigate these and other challenges, but doing so requires resources beyond the means of some plans. Pension plans primarily invest in private equity funds to attain returns superior to the stock market. Pension plan officials generally had a long history of investing in private equity, and said such investments have met expectations for returns. Nevertheless, these investments present several challenges, such as wide variation in performance among funds, and resources required to mitigate these challenges may be too substantial for some plans. The federal government does not specifically limit or monitor private sector plan investment in hedge funds or private equity, and state approaches to public plans vary. Under federal law, fiduciaries must comply with a standard of prudence, but no explicit restrictions on hedge funds or private equity exists. Although a federal advisory council recommended that the Department of Labor develop guidance for plans to use in investing in hedge funds, the Department of Labor has not yet acted. While most states also rely on a standard of investor prudence, some have legislation that restricts or prohibits plan investment in hedge funds or private equity. For example, in Massachusetts, public plans with less than $250 Million in total assets are prohibited from investing directly in hedge funds. GAO recommends that the Secretary of Labor provide guidance on investing in hedge funds and private equity that describes steps plans should take to address challenges and risks of these investments. GAO-08-692.


The title of Ernst & Young’s new release is not nearly as scary as the subtitle: “The likelihood of outliving their assets.” Many of the 77 million Baby Boomers retiring over the next few years will face unprecedented challenges in maintaining their standard of living in retirement. Middle-income Americans are most at risk as longer life spans, decline of guaranteed sources of retirement income and the fact that nearly half of older Americans lack employer-based retirement plans contribute to increased retirement risks. Ernst & Young analyzed the likelihood that middle-income Americans would outlive their financial assets in retirement. Many studies have focused on inadequacy of American families’ savings. Some have documented other risks that could result in households outliving their assets: longevity, volatile investment returns and high inflation. However, this report is the first to combine all of these factors to determine the likelihood of middle-income Americans, including those who are near retirement and those who have recently retired, outliving their financial assets. The analysis finds that almost three out of five middle-class new retirees can expect to outlive their financial assets if they attempt to maintain their current pre-retirement standard of living! To avoid outliving their financial assets, middle-class retirees will have to reduce their standard of living, on average, by 24%. Some key findings of the analysis include:

  • Guaranteed income is projected to cover a decreasing share of retirement income, leaving households with increased responsibility for their retirement and at increasing risk of retirement vulnerability.
  • Americans' increased reliance on defined contribution pension plans and personal savings and the trend away from defined benefit pension plans and other guaranteed sources of retirement income raise serious sustainability challenges.
  • Many Americans will have to reduce their standard of living significantly due to fluctuating investment returns and probability of spending more years in retirement.
  • The next wave of retirees (5-10 years from now) will have a higher risk of outliving their financial assets than those currently at retirement age.

Savings is just one aspect affecting retirement readiness. A less recognized but equally critical retirement vulnerability is risk of outliving one’s financial assets due to people living longer in retirement and market fluctuations affecting retirement asset values. Social Security is an important source of guaranteed lifetime income, but it provides, on average, just 40% of retirement income. With the decline of employer-provided defined benefit pension coverage, however, many near and new retirees will not have another source of guaranteed lifetime income unless they purchase a lifetime guarantee using their private savings. How many more times do we have to hear about the importance of DB plans and the unacceptable risk of DC plans?


Congressional Research Service has issued its report for Congress, entitled “Pension Sponsorship and Participation: Summary of Recent Trends,” updated September 8, 2008. The aging of the American population has made retirement income an issue of increasing concern to Congress and the public. Although Americans are living longer than ever before, most retire before age 65. Moreover, while the nation’s population continues to grow, decline in birth rates that follow the post-World War II “Baby Boom” and the continued lengthening of life spans will result in fewer workers relative to number of retirees. These trends will affect the economic well-being of future retirees because pensions and Social Security benefits will be paid over longer periods of time; savings will have to be stretched over longer retirements; and Social Security benefits will have to be financed by a working population that is shrinking relative to the number of retirees. According to the Census Bureau’s Current Population Survey, the number of private-sector workers between ages of 25 and 64 whose employer sponsored a retirement plan rose from 51.2 million in 2006 to 53.5 million in 2007. The number of private-sector workers who participated in employer-sponsored retirement plans rose from 42.0 million in 2006 to 44.1 million in 2007. The proportion of 25 to 64 year-old workers in the private sector who participated in employer-sponsored retirement plans increased from 43.2% in 2006 to 45.1% in 2007. Between 2000 and 2007, the number of private-sector workers between the ages of 25 and 64 who participated in employer-sponsored retirement plans fell from 46 million to 44 million. The percentage of workers who participated in an employer-sponsored plan fell from 50.3% in 2000 to 45.1% in 2007.


Centre for Financial Market Integrity has published a document entitled “Code of Conduct for Members of a Pension Scheme Governing Body.” (Pension scheme means pension plan and governing body means board of trustees.) The conduct of those who govern pension schemes significantly impacts lives of millions of people around the world who are dependent on pensions for their retirement income. Consequently, it is critical that pension plans are overseen by a strong, well-functioning governing body in accordance with fundamental ethical principles of honesty, integrity, independence, fairness, openness and competence. Codes of conduct addressing professional activities are standard practice for many successful investment firms, and have become increasingly common among public and private pension schemes. Such codes are established to improve performance of schemes sponsored by private enterprise and public pension schemes alike. Just as there is no one-size-fits-all governing structure for investment firms, there is no single governance structure that can be universally applied to pension schemes. Varying goals, restrictions, political environments, market conditions, manager/trustee competency, regulatory schemes and many other factors will affect the appropriate governance structure for any pension scheme. This code represents best practice for members of the pension governing body when complying with their duties to the pension scheme. Whether public or private, each pension scheme board that adopts the code will demonstrate its commitment to serving best interests of participants or beneficiaries. The code provides guidance to those individuals overseeing management of the scheme regarding their individual duties and responsibilities, and is not meant to replace the overall policies and procedures established for governance of the pension scheme. However, to reflect best ethical practice, incorporating the fundamental ethical principles embodied in the code will enhance those policies and procedures. Here is the Code of Conduct (without any underlying details):

1. Act in good faith and in the best interest of the scheme participants and beneficiaries.

2. Act with prudence and reasonable care.

3. Act with skill, competence and diligence.

4. Maintain independence and objectivity by, among other actions, avoiding conflicts of interest, refraining from self-dealing and refusing any gift that could reasonably be expected to affect their loyalty.

5. Abide by all applicable laws, rules and regulations, including terms of the scheme documents.

6. Deal fairly, objectively and impartially with all participants and beneficiaries.

7. Take actions that are consistent with the established mission of the scheme and the policies that support that mission.

8. Review on a regular basis the efficiency and effectiveness of the scheme's success in meeting its goals, including assessing the performance and actions of scheme service providers, such as investment managers, consultants and actuaries.

9. Maintain confidentiality of scheme, participant and beneficiary information. (This one is not completely applicable in states like Florida, where certain information is public as a matter of law.)

10. Communicate with participants, beneficiaries and supervisory authorities in a timely, accurate and transparent manner.

It seems to us that everything stated is rather logical and self-evident. No surprises.


Government officials handling billions of dollars in oil royalties partied, had sex with and accepted golf and ski outings from employees of energy companies they were dealing with, according to The Associated Press. The alleged transgressions involve 13 former and current Interior Department employees in Denver and Washington. Their alleged improprieties include rigging contracts, working part-time as private oil consultants and having sexual relationships with -- and accepting golf and ski trips and dinners from -- oil company employees. The investigations reveal a culture of substance abuse and promiscuity by a small group of individuals wholly lacking in acceptance of or adherence to government ethical standards. (Now, there’s an oxymoron: “government ethical standards.”) The Inspector General spent more than two years and over $5 Million on the investigations. He is recommending that current employees implicated be fired and be barred for life from working within the royalty program. Aren’t fuel prices already high enough without the fraternity house atmosphere prevailing inside government offices?

A federal appeals court recently considered whether a plan administrator’s reduction of benefits under a long-term-disability plan based upon a participant’s receipt of Social Security disability benefits is reasonable and entitled to deference. White appealed a summary judgment against his complaint for benefits under the Coca-Cola Company Long Term Disability Income Plan, which is governed by Employee Retirement Income Security Act of 1974. White contested the plan administrator’s interpretation of both the provision that permits an offset for receipt of other disability benefits and a provision that allows the plan to recoup overpayment of benefits. Because interpretation of the offset provision by Coca-Cola is reasonable and entitled to deference and the interpretation of the recoupment provision by Coca-Cola is correct, the summary judgment in favor of Coca-Cola was affirmed. Under the plan, the default monthly benefit is ordinarily 60% of the participant’s average compensation. However, the plan contains an offset provision that reduces disability benefits for a participant who receives disability benefits from other sources. The plan also states that benefits under the plan will cease if benefits from other sources equal or exceed 70% of the participant’s average compensation. White v. The Coca-Cola Company, Case No. 07-13938 (U.S. 11th Cir., September 10, 2008).


Putting psychological distance between yourself and a criticism takes practice, especially if the criticism is harsh. If someone is letting you have it with both barrels, or even if they are telling you gently, it is not always easy to realize that what you are hearing is information that might be very valuable. Do not let criticism destroy your self-confidence. The ego is fragile. An important difference between achievers and nonachievers is how they handle failure and criticism. Nonachievers say, “I am a failure.” Achievers say, “I did something that did not work. I will do it better next time.” Sound advice from Time Tactics of Very Successful People.


Total assets in individual retirement accounts grew 12.5% last year, reaching a record $4.75 Trillion, the fifth consecutive year of double-digit IRA growth. A study from Employee Benefit Research Institute shows that the percentage growth for IRA assets was lower than the 15.6% recorded in 2006. The average annual percentage increases in IRA assets during the 1990s amounted to 17.2%. After retrenchment in assets during the economic turndown from 2000-2002, annual increases resumed their double-digit rise in 2003. Total IRA assets were

  • 4.22 Trillion in 2006. The study also includes the following points:
  • Total IRA assets in 2007 were larger than those in other retirement plan types. Private-sector defined contribution (401(k) type) plans held $3.49 Trillion, and private-sector defined benefit plans held $2.33 Trillion in 2007.
  • Rollovers from other types of retirement plans, not new contributions, continued to fuel IRA growth.
  • A large shift in market share has taken place over the past quarter-century in IRA assets, with mutual funds and brokerage accounts now dominating. Mutual funds held 47% of IRA assets in 2007, followed by brokerage accounts (38%), life insurance companies (8%) and banks/thrifts (7%).
  • Traditional IRAs (taxable on withdrawal) hold most assets, amounting to 90% of all IRA assets. However, most new contributions are going into Roth IRAs (untaxed at withdrawal) and other types of IRAs.

In addition, the study reports the portion of eligible taxpayers who contributed to IRAs was near 10% for each year from 2000-2004, ranging from 9.5% to 10.6%. The average contribution for those contributing was approximately $2,400 in both 2000 and 2001, before the contribution limits increased in 2002. In 2002, the average contribution jumped to $2,894, and in 2004 it rose to $3,324. EBRI notes that while IRAs are likely to be the largest non-Social Security asset in retirement for many Americans in the next generation of retirees, only 10% of taxpayers eligible to contribute to an IRA actually do so. Although the higher IRA contribution rates that took effect in 2002 did increase the size of the average contribution, they did not attract more contributors. This fact underscores how IRAs are primarily a holding vehicle for assets coming from employment-based retirement plans, and generally are not being used for new retirement savings. For your information, EBRI is a private nonprofit research institution that focuses on health, savings, retirement and economic security issues. EBRI does not lobby and does not take policy positions.


A plan to make onetime payments totaling $4 Million to senior county employees would save money in the long run, but it is causing a stir in a workforce that has endured a year of layoffs and small or nonexistant raises. According to, the county proposes to eliminate employee sick leave banks, which allow workers to save unused vacation and sick time to use if they have a long-term illness or to cash out when they retire. While 126 employees would get checks of at least $10,000, the county estimates it would save about $900,000 a year by getting rid of the perk. Nevertheless, firefighters and paramedics say the time is wrong for the county to be making large cash payments to its top employees. The county is about to pass its first deficit budget in memory, laid off 230 employees in the last 16 months and asked its managers and many of its employees to forego raises this year. Only employees hired before 1999 get the sick leave benefit, and they tend to be higher paid. So, about half of the county’s workers can bank unused time off, while the other, younger half, cannot. Much of the benefit is concentrated at the top. A group of 25 employees, mainly top managers, attorneys and fire department officers, would receive $1 Million, an average of $40,000 each. The benefit is fully funded, which means over the years the county has accumulated in a dedicated account the $4 Million needed to make the payouts. The “plus” for the county is that it would no longer have to make annual contributions to the fund. Incidentally, the biggest payout, $78,360, would go to the county’s general manager for information technology operations. The county is also making changes to healthcare plans it will offer to most employees. The HMO plan will be dropped because premiums were going up 25%. Also, the overall healthcare deductible is being increased from $500 to $750.


If you are not sure which employee benefits are right for you, MetLife’s Employee Benefits Simplifier Tool can help make your choices a little easier. The tool will help you make the most of your employee benefits. It will help you with such questions as: (1) Should you consider an HMO or PPO medical plan? (2) Should you get more disability insurance? (3) What other types of benefits should you consider? Using the tool takes a few minutes, and it does not matter whether you get your benefits from MetLife or not. Remember, open enrollment comes around only so often, and your workplace benefits provide the foundation for your personal safety net. The Simplifier Tool is available at the following not-so-simple address:


Individual Retirement Accounts allow individuals to save for retirement in a tax-preferred way. Traditional IRA contributions, subject to certain limitations, can be deducted from taxable earnings and taxes on earnings are deferred until distribution. In contrast, Roth IRA contributions are made after tax and distributions are tax-free. Faced with a host of rules covering IRA contributions and distributions, taxpayers may fail to comply with the rules. The United States Government Accountability Office was asked to (1) provide an overview of key rules and describe how Internal Revenue Service educates taxpayers about these rules, (2) describe what IRS knows about the extent of noncompliance with IRA transactions reported on taxpayer returns and (3) describe challenges taxpayers face with key rules and some options for strengthening compliance. GAO recommends that, in order to strengthen taxpayer compliance, IRS should qualify guidance on the combined traditional and Roth contribution limit and pursue options to improve older taxpayers’ compliance with the required minimum distribution rule. IRS has agreed to take actions consistent with both recommendations. We will see. GAO-08-654.


Blue Cross Blue Shield Healthcare Plan of Georgia, Inc. sued Gunter seeking reimbursement of insurance benefits paid to him from his settlement with a third party. The federal trial judge dismissed the case for lack of federal question jurisdiction. On Blue Cross’s appeal, the appellate court affirmed. The Federal Employees Health Benefits Act of 1959 establishes a comprehensive, nationwide program of health benefits for federal employees. The statute authorizes the Office of Personnel Management to contract with insurance carriers to offer federal employees a range of healthcare plans. Largest among these plans is the Service Benefit Plan, which is administered by local Blue Cross companies. Gunter was enrolled in the Service Benefit Plan in Georgia. Under the Plan, Gunter received insurance funds from Blue Cross for medical expenses resulting from injuries he received in an automobile accident. Subsequently, he also obtained a settlement on his personal injury claim against the third party responsible for the accident. The Plan contains a provision requiring that it be reimbursed in the event of an insured’s third-party recovery. After Gunter received his settlement proceeds from the third party, Blue Cross requested reimbursement for benefits it paid Gunter in connection with the accident. After Gunter refused, Blue Cross brought suit in federal court. A recent United States Supreme Court decision held that claims of this genre, seeking recovery from proceeds of state-court litigation, are the sort ordinarily resolved in state courts. Actually, Blue Cross recognized this jurisdictional hurdle, and contended that the U.S. Supreme Court created an exception to the rule where a significant conflict exists between state law and the federal interests at stake in the federal law. The appellate court disagreed for two reasons: first, there is no conflict between Georgia state law and FEHBA because the law of Georgia is that, where FEHBA is applicable, the Georgia statute is displaced and (2) the existence of the Georgia Common Fund Doctrine does not prevent Georgia courts from applying federal law where appropriate. Blue Cross Blue Shield Healthcare Plan of Georgia, Inc. v. Gunter, 21 Fla. L. Weekly Fed. C1063 (U.S. 11th Cir., September 5, 2008).


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“We did not all come over on the same ship, but we are all in the same boat.” Bernard Baruch

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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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