Cypen & Cypen
SEPTEMBER 24, 2009
Stephen H. Cypen, Esq., Editor
New Mexico's highest court has been asked to stop the state from collecting higher pension contributions from part-time governmental workers earning less than $20,000 a year. According to cnbc.com, the lawsuit filed in the state Supreme Court says pension payments are wrongly being deducted from salaries of state workers earning more than $9.579 an hour but who annually make less than $20,000. Starting in July, certain state workers had to contribute an extra 1.5 percent of their salaries to pension programs. However, the state reduced what it paid into pension funds by a smaller amount. The shift saved the state $40 Million a year, helped deal with a budget shortfall but did not change the flow of money to public pension funds. The higher contributions reduce take-home pay of workers and will remain in effect through next budget year, ending June 30, 2011. The lawsuit was brought by about 500 part-time state district court workers who have been required to pay the higher pension contributions although they earn less than $20,000 a year. The employees allege that the state has improperly relied on a provision in the budget to require workers paid more than $9.579 an hour to make the higher pension payments regardless of how many hours they work. Under the state's pay system, an hourly wage above that rate translates into a yearly salary of $20,000 or more for full-time employees. The pension legislation states that the higher contributions are required for employees whose salary is greater than $20,000. Nevertheless, the Legislature used the budget to give additional directions to the state on how to apply the pension shift. The budget says workers will be deemed to have a salary of more than $20,000 if their full-time equivalent base salary is greater than that amount or if the employee's base hourly wage is greater than $9.579. The lawsuit concludes that the budget provision brazenly vetoes the substantive and more specific provisions of the law that exempted workers earning less than $20,000 from higher pension contributions. Under the state Constitution, the budget must deal only with appropriations and cannot be used to nullify general legislation. The lawsuit requests the court to stop the state from taking additional pension deductions from workers earning less than $20,000 and to order previous payments returned to the employees with interest.
Securities and Exchange Commission Chairman Mary Schapiro has announced that University of Texas School of Law Professor Henry Hu (who?) has been named Director of the newly-established Division of Risk, Strategy, and Financial Innovation. The new division combines the Office of Economic Analysis, the Office of Risk Assessment and other functions to provide the Commission with sophisticated analysis that integrates economic, financial and legal disciplines. The division's responsibilities cover three broad areas: risk and economic analysis; strategic research; and financial innovation. The new division will perform all functions previously performed by OEA and ORA, along with (1) strategic and long-term analysis; (2) identifying new developments and trends in financial markets and systemic risk; (3) making recommendations as to how these new developments and trends affect the Commission's regulatory activities; (4) conducting research and analysis in furtherance and support of the functions of the Commission and its divisions and offices; and (5) providing training on new developments and trends and other matters. With creation of the new division, SEC now has five divisions, including Division of Corporation Finance, Division of Enforcement, Division of Investment Management and Division of Trading and Markets. How do we know that Professor Hu (who?) is qualified? Well, he holds a B.S. in Molecular Biophysics & Biochemistry, an M.A. in Economics, and a J.D., all from Yale University. SEC Release 2009-199 (September 16, 2009).
A report presented to Gov. Charlie Crist and the Cabinet noted that Florida's pension fund has fewer people overseeing it than most other states, and that annual independent audits may improve public confidence in investment decisions. The findings add new momentum for state officials to ask voters to expand the three-member oversight board to add diversity, to include financial experts and to conduct more aggressive audits of the fund. The report analyzed the setup of a powerful but little-noticed agency, the State Board of Administration, which oversees more than $110 Billion in investments, according to the Miami Herald. SBA reports to three trustees: Crist, Chief Financial Officer Alex Sink and Attorney General Bill McCollum. (How about this quote from Sink? “Because the three of us have so many other duties and responsibilities, we do have limited time to ‘spend’ on overseeing the fund.” To read the results of this “limited time” overseeing the fund, see C&C Newsletter for September 10, 2009, Item 7 and C&C Newsletter for September 3, 2009, Item 12.) The report compared Florida's pension fund governance to 15 other retirement systems, including those in the states of New York, Texas and California. Some states, such as New York (a perfect example of what happens when a trustee has absolute power), have a single trustee, but most states have more than Florida's three. Colorado, for instance, has a 16-member board. The report also recommended more training for trustees. Funny how everyone recommends training/continuing education for trustees -- and Section 112.661(14), Florida Statutes, actually requires it for local plan trustees -- but cities still give trustees a hard time about attending programs relating to investments and board responsibilities. Penny wise.
WSJ.com reports that policies setting pay for tens of thousands of bank employees nationwide would require approval from the Federal Reserve as part of a far-reaching proposal to rein in risk-taking at financial institutions. The Fed's plan would, for the first time, inject government regulators deep into compensation decisions traditionally reserved for the banks' corporate boards and executives. Under the proposal, the Fed could reject any compensation policies it believes encourage bank employees -- from chief executives, to traders, to loan officers -- to take too much risk. Although bureaucrats would not set the pay of individuals, they would review, and, if necessary, amend each bank's salary and bonus policies to make sure they do not create harmful incentives. A final proposal is still a few weeks from completion, and could be revised along the way. And although a vote is required by the central bank's board, no congressional approval is necessary. The U.S.'s largest banks, about 25, would get especially close scrutiny. The Fed intends to compare these banks as a group to see if any practices stand out as unusually dangerous to their firms. The latest move marks another striking exertion of power by the Fed since the financial crisis struck with ferocity two years ago. It has bailed out firms such as American International Group, and has flooded the financial system with money. The proposal will likely please congressional Democrats, but look for opposition from Republicans and industry leaders. Closing the barn door?
The Securities and Exchange Commission today voted unanimously to take several rulemaking actions to bolster oversight of credit ratings agencies by enhancing disclosure and improving quality of credit ratings. Credit rating agencies are organizations that rate creditworthiness of a company or a financial product, such as a debt security or money market instrument. In particular, the Commission voted to adopt or propose measures intended to improve quality of credit ratings by requiring greater disclosure, fostering competition, helping to address conflicts of interest, shedding light on rating shopping and promoting accountability. (See C&C Newsletter for July 23, 2009, Item 2 and C&C Newsletter for August 6, 2009, Item 2). SEC Release 2009-200 (September 17, 2009).
In the current recession, millions of Americans have lost their jobs. Unemployment has increased nationwide to levels not witnessed since the 1980s, according to an Issue Brief from Center for Economic and Policy Research. Much of the job loss has occurred in private industries, but the public sector has also felt the sting of layoffs. Decreasing tax revenues and expanding budget deficits have forced public officials to make difficult decisions regarding their payroll. According to the authors’ analysis, more than 110,000 jobs have been shed from state and local governments in the last two years. The number includes over 40,000 teachers, as well as nearly 4,000 uniformed police officers and firefighters. Certain regions of the country have been more heavily impacted by the current economic downturn, and their state and local governments have experienced proportionally more job loss, than others. The most populous states have suffered most: California, Florida, Michigan, New York and Illinois account for nearly half of the public sector job loss nationwide. In California alone, extended deliberation over the government’s budget has resulted in nearly 28,000 layoffs, including more than 13,000 teachers. However, job loss numbers do not tell the whole story. Several states have issued hiring freezes and mandated pay cuts in their departments. Others have offered buyout schemes in order to encourage more senior employees to retire early. Still more states have instituted furlough plans in order to cut costs in their budget (but, see, C&C Newsletter for September 17, 2009, Item 4).
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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.