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Cypen & Cypen
SEPTEMBER 16, 2010

Stephen H. Cypen, Esq., Editor

1. EARLY RETIREE REINSURANCE PROGRAM IN FLORIDA: Rising health care costs have made it difficult for employers to provide quality, affordable health insurance for workers and retirees while also remaining competitive in the global marketplace.  The percentage of large firms providing workers with retiree health coverage has dropped from 66% in 1988 to 29% in 2009.  Health insurance premiums for older Americans are over four times more expensive then they are for young adults, and the deductible these enrollees pay is, on average, almost four times that of a typical employer-sponsored insurance plan.  The Affordable Care Act creates a new program called the Early Retiree Reinsurance Program to help address this challenge that employers and older employees are facing.  The Early Retiree Reinsurance Program provides $5 billion in financial assistance to employers and unions to help them maintain coverage for early retirees age 55 and older who are not yet eligible for Medicare. (Reinsurance protects insurers from very high claims and usually involves a third-party paying part of an insurance company’s claims once they pass a certain amount.)  Businesses, other employers and unions that are accepted into the program will receive reimbursement for medical claims for early retirees and their spouses, surviving spouses and dependents.  Savings can be used to reduce employer health care costs, provide premium relief to workers and families, or both.  Applicants who are approved for the program receive reinsurance for the claims of high-cost retirees and their families (80% of the costs from $15,000. to $90,000).  The program ends on January 1, 2014, when state health insurance exchanges are up and running.  The U.S. Department of Health and Human Services has approved the following public sponsors from Florida:

  • Alachua County
  • Brevard County
  • City of Boca Raton
  • City of Clearwater
  • City of Hollywood
  • City of Jacksonville
  • City of Largo
  • City of Margate
  • City of Orlando
  • City of Palatka
  • City of Pinellas Park
  • City of Port St. Lucie
  • City of St. Petersburg
  • City of Winter Haven
  • Columbia County
  • Escambia County
  • Lake County
  • Lee County
  • Martin County
  • Orange County
  • Town of Lantana

More applications are being approved each day.

2. SLIGHT PROBLEM – JUROR “FINDS” DEFENDANT GULITY BEFORE VERDICT:  A Michigan juror who indicated in a Facebook post that she believed the defendant in her case guilty – before the case went to verdict – wound up on the hot seat, too.  The defendant was convicted of resisting arrest, after an alternate was substituted for the juror.  The 20-year-old woman had written a note to her friends on Facebook, saying she was “actually excited for jury duty tomorrow…it’s gonna be fun to tell the defendant they’re guilty.”   Meanwhile, the juror had to return to court for a contempt hearing, in which she was ordered to pay a $250 fine and required to write a five-page essay on the Sixth Amendment.  Ironically, the defense attorney’s teenage son discovered the Facebook post while researching jurors online for his mother, according to

3.  DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT:  On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Under the new legislation, the Securities Exchange Act of 1934 was amended to provide whistleblowers with a bounty if they provide information to the Securities and Exchange Commission that leads to the agency’s recovery of monetary sanctions.  The law change provides whistleblowers, including individuals, and, arguably, pension boards with a substantial monetary incentive to aid SEC’s enforcement activities.  Prior to the Dodd-Frank Act, SEC’s whistleblower program applied to insider trading cases, and limited the whistleblower bounty to a maximum of 10% of monetary sanctions recovered by the government.  Under the new provision, the voluntary submission of “original information” to SEC that results in monetary sanctions exceeding $1 million entitles the whistleblower to an award equal to not less than 10%, but not more than 30%.  Unlike the Federal False Claims Act, an SEC whistleblower cannot proceed with an action in court if SEC decides not to pursue relief.  An award is not limited to information submitted after enactment of an Act.  If violations of securities laws have been reported to by the whistleblower prior to enactment, the whistleblower has a right to collect the award if monetary sanctions are collected by SEC after date of enactment or if related to a violation for which an award could have been paid at the time the information was provided by the whistleblower.  Along with the new incentives, the Act also closes the anti-retaliation loopholes that exists under the Sarbanes-Oxley Act.  Thanks to G&E for this summary. 

4.  SEC ADOPTS TEMPORARY RULE REQUIRING MUNICIPAL ADVISORS TO REGISTER:  Meanwhile, the Securities and Exchange Commission announced that it has adopted a temporary rule requiring municipal advisors to register with SEC by October 1, 2010, a deadline established the newly-enacted Dodd-Frank Wall Street Reform and Consumer Protection Act. Municipal advisors provide advice to state and local governments and other borrowers involved in the issuance of municipal securities.  The advice typically relates to municipal derivatives, guaranteed investment contracts, investment strategies or the issuance of municipal securities.  Municipal advisors also solicit business from a state or local government for a third party.  Muncipial advisors are encouraged to begin the registration process (on Form MA-T) as soon as possible, because of the impending registration deadline and requirement that applicants first obtain an ID and password.  This regulation is the first adopted by SEC to implement requirements of the Dodd-Frank Act. SEC implemented the registration provision on a interim basis in order to meet the new law’s October 1 registration deadline, and expects to propose a permanent rule later this year.  SEC Release 2010-162 (September 2, 2010)

5.  RACE QUESTIONS COMPLICATE LAW ENFORCEMENT ON INDIAN LAND:  Shane Maggi terrorized a Native American couple at their home on the Blackfeet Indian Reservation, pistol whipping them and firing bullets above the husband’s head.  Maggi, who says suspected the couple had stolen his drugs, was convicted by a federal jury and sentenced to more than 42 years in prison. The 9th US Circuit Court of Appeals overturned Maggi’s conviction in March, finding that he did not meet its definition of a Native American, and, as a result, had been prosecuted under the wrong federal statute.  The case illustrates a hazard of the complex legal system used to mete out justice on American Indian reservations–a system that relies largely on race to determine jurisdiction, and then charges police and prosecutors with the sometimes delicate task of determining a person’s race.  The whole system is premised upon being an Indian defendant or Indian victim, and yet there is no clear-cut definition of who an Indian is.  In most states, federal and tribal authorities can arrest and prosecute Indians on Indians lands.  But criminal offenses by non-Indians are handled by federal or state authorities, depending on whether the victim is Indian.  Thus, when a crime is committed on Indian lands, authorities must determine the suspect and victim’s race before they can answer fundamental questions like which agency can make the arrest and try the case…and sometime which law applies.  This process creates confusion that can lead to delayed cases and even overturned convictions on reservations, which already endure high crime rates and shortages of law enforcement officers.  Federal legislation signed into law in July aims to increase powers of those tribal police who are unable to arrest non-Indians on their reservations.  Still, Congress has not yet established the universal definition for who is an Indian, and tribes have varying requirements for who constitutes a member.  However, courts have generally held that a person is Native American if he has Indian blood and is enrolled in a federally-recognized tribe. 

6.  DON’T TREAD ON ME:  Despite all of the advancements in tire design and technology over the last 20 years, the “Lincoln penny” test is still recommended as the best way to determine whether you have enough tread left –or whether it is time to buy new tires and send “old baldy” to the land fill.  For those who do not recall this time-honored method, insert the edge of a penny into the tread, upside down, that is, with the top of Honest Abe’s noggin going in first.  If the top of Lincoln’s head is covered by tread, it means you still have an acceptable and safe amount of tread.  Do this test at various points around the perimeter of the tire.  If the top of Lincoln’s head is visible at any point around the tire, the tire is ready for the recycling center – and it is time for you to go tire shopping.  While you are doing the penny test, also look for signs of uneven wear or damage, such as cuts, cracks, splits, punctures and bulges.  Any of these conditions can significantly shorten the tire’s life span and if not corrected, more damage or less pressure can occur.  Happy (and safe) motoring.

7.  TEN THINGS THE GOVERNMENT COULD DO TO CUT UNEMPLOYMENT IN HALF:  Unemployment, according to a number of government officials and economists, has become intractable, and the August jobless rate hit 9.6% as non-farm payrolls dropped 54,000.  That cannot be said about any other US post-war-recession, according to  Joblessness would reach about 9% or 10% at the peak of each of those recessions and as the economy improved, the percentage would fall to under 7% fairly quickly.  In the 1980 to 1983 recession, unemployment was 10.1% in June of 1983.  It dropped to 7.2% a year later.  By contrast, the Congressional Budget Office recently reported that unemployment increased by the 2008/2009 recession will probably remain above 9% for the next year-and-a-half.  That forecast will almost certainly be too optimistic if the economy slows or slips into another recession.  Here are ten things the government could do to decrease unemployment to the 5% level that most economist think is healthy and normal for an expanding economy:

A. Tax Credits.  Tax credits will almost certainly be part of any program to improve unemployment because businesses need a concrete reason to hire during a difficult economic period.

B. Funding Reduced Pay.  Germany has a government policy that provides tax credits to companies that shorten work hours rather than lay off employees.  Enterprises that want to increase the number of workers have the ability to fund a portion of the cost by cutting the hours of existing workers with financial aid from Berlin.  The German government is effectively decreasing unemployment by aiding the private sector when it needs to bring down costs. 

C. Saving Small Business.  Economists have repeatedly made the point that small businesses are and have been the primary engine of job creation in America.  Companies with work forces under 500 create nearly half of private non-farm GDP.  Large companies have had easy access to capital markets even with the depressed economy.  The idea that the federal government should shoulder some of the risk of small business loans has been proposed several times, but no legislation has been passed to support small business bank aid on a wide-scale basis.

D. Working for the Government.  Many of the FDR economic stimulus programs of the 1930s were failures when viewed through the lens of permanent job replacement.  But, giving people work, even if its not permanent, helps buoy the economy during sharp downturns. 

E. Jobs Not Projects.  A second stimulus program has been mentioned several times by the White House as the most likely option to reverse the slide in the economy.  A stimulus package as large as the first one, nearly $800 billion, would encompass some of the other programs on this list.

F. China.  It will be hard for the economy to recover and for the jobs picture to improve if China keeps its currency advantage compared to the US.  The federal government must do two things to get China to rethink its trade and currency policy: one, the Treasury Department has to make a direct threat to label Beijing as “currency manipulator,” a designation that carries with it a number of trade sanctions; and two, the American government has to require that “strategic imports” from China be taxed.

G. Underwriting Exports.   The Administration has said that the economy needs to evolve from a consumer-based economy to one that relies more on exports. 

H. The Minimum Wage.  The part of the work force that usually has no savings and no visible means of withstanding a long period of unemployment is the lower class, those who live at or below the poverty level.  The government could choose to reimburse some part of the minimum wage paid to each American who is compensated at this level.  Many workers who are among the lowest paid in the country would then have a chance to keep their jobs.

I. Construction Jobs.  The industry that has been hit as hard if not harder than any other during the recession is construction.  Those construction workers without money cannot afford to move to areas where there is still some work in this sector, creating large pools of unemployed workers in California, Nevada and Florida.  The current stimulus package has reserves for work on infrastructures products and improvement of government-owned facilities. 

J. Immigration.  There is an extent to which the immigration argument that undocumented workers from abroad take American jobs is reasonable.  It is equally hard to say that immigrants, even those with illegal status, should be sent back to the nations where they came from immediately and without any provision for their economic futures.  The most logical solution to the problem is to provide supplemental aid to states that have large illegal immigration populations to create more public sector-jobs, which the states and municipalities within them may find essential but cannot be performed due to the recession. The emotion surrounding the immigration issue makes it one of the most difficult unemployment issues of all to solve.

Another hurdle is more immediate: many economist believe that America’s national debt will reach levels that will become progressively more difficult to fund over the next ten years.  The situation could produce a long period of austerity that would change the lives of tens of millions of Americans who rely now or will rely on the social safety net.  The federal government and the voters are then left with a decision.  Either the US can choose to do as little as possible to address unemployment or it can take the risk of spending hundreds of billion of dollars to get the jobless rate back to recovery levels and hope the economy grows in tandem.  Pretty simple, eh?

8. JUDGE IN $67 MILLION DOLLAR LAW SUIT AFTER NAKED SHOTS OF HER POSTED ONLINE:    A female judge has stepped down from the bench after shocking x-rated photos of her were posted online –and her lawyer/husband tried to get a client to have sex with her. reports that Lori Douglas, an associate chief justice in a Canadian court, was in naked photographs on an adult website.  And her husband, divorce lawyer Jack King, has admitted trying to persuade a client to have sex with his wife – saying it was purely because she wanted interracial sex.  The sex scandal has led to an explosive $67 million lawsuit by the client, which has rocked the legal system in Winnipeg, Canada.  Mr. King has admitted posting the explicit photographs, and asking a client to have sex with his wife, but insists she did not know he was doing it.  King stepped down from his firm and Douglas stepped down from active duty on the family court.  One other interesting tidbit:  the client, who wanted to “puke” at the “disgusting” photographs, extorted $25,000 from King’s law firm to keep the incident under wraps.  Sounds a little like “Boston Legal” to us.

9. JURY AWARDS $8.1 MILLION DOLLARS TO FIRED CANCER VICTIM :    Still recovering from a double mastectomy and sick from the follow-up chemotherapy, Kara Jorud reported to work as manager of the Michael’s Arts and Crafts store in Boca Raton, fearing that if she did not she would be fired.  When she told her supervisor that she needed another day off soon for more treatment, the Palm Beach Post reports, that he became incensed.  The on-going harassment of the 47-year-old Delray Beach resident suffered and her ultimate firing violated federal employment laws, a jury found, and ordered the Texas-based arts and crafts chain to pay Jorud $8.1 million, roughly half for pain and suffering and half to punish the company for discriminating against a worker with cancer.  She could also be entitled to about $1 million in lost wages (past and future), and that amount could be increased because the jury found the company acted with malice and reckless indifference.  And what is the company slogan?  “Michael Cares.”  Apparently they forgot to add “Not.”

10. CASH BALANCE PLANS HAVE HIDDEN RISKS FOR PLAN SPONSORS:     Legislative and accounting changes that require faster funding and balance sheet pension cost disclosure–not to mention a 2008 market that devastated funding ratios–have given rise to a new respect for risk and volatility on the part of defined benefit plan sponsors.  Plan sponsors who move to cash balances from a traditional DB plan may not always realize they are trading interest rate risk for investment risk, according to Vanguard’s Strategic Retirement Consulting.  Generally, cash balance plan sponsors have the same goals and desires as any other plan; they are looking into ways that they can reduce risk.  But reducing investment risk is actually easier with a traditional plan, because while cash balance plans are technically DB plans since they provide a guaranteed level of benefit payable to a participant, the benefit is expressed as a lump sum amount.  However, a traditional pension plan expresses its benefit as an annuity, payable over the participant’s lifetime.  As a result, it is more difficult to invest in assets that match the liability of the cash balance plan than it is to invest in assets that match the liability of a traditional pension plan.  A traditional plan’s liability acts as a long-term bond, which means long bonds can be used to hedge the risk inherent in pension funding levels, which can be a powerful risk-management tool because pension liabilities and bond both change in value the same way when interest rates change.  Investing in long-term bonds minimizes risk, but also allows for potentially a relatively high return.  On the other hand, liability for a typical cash balance plan is not very sensitive to interest rates.  The liability itself is more stable and predictable, especially because final average pay and early retirement provisions add volatility to a traditional plan.  Nevertheless, because there are no specific assets that will match the liability, the funded status of a cash balance plan is difficult to control.  The original concept for cash balance plans was to credit a relatively low rate of interest to participant accounts, and invest in a balance portfolio that would generate investment earnings higher than the interest crediting rate.  That scenario is likely (but not certain) to work fine over a very long period of time, but does not allow for substantially eliminating uncertainty and volatility.  The reason is that most cash balance plans invest in a traditional balance portfolio and cannot take advantage of liability-driven strategies that effectively reduce risk.  Understandably, some employers have moved to cash balance plans.  Many employees seem to understand the account balance concept offered in cash balance plans and appreciate the value of an account balance more than the value of the promised annuity.  However, the potential to reduce risk and make costs predictable has to be considered along side potential advantages. 

11. ALL PUNS INTENDED:  I have a fear of needles.  They really get under my skin.

12. OXYMORON:  I have this nagging fear that everyone is out to make me paranoid.

13. AGING JOKES: I've still got it, but nobody wants to see it. 

14. FABULOUS RANDOM THOUGHTS:  If everything is going well, you have obviously overlooked something.

15. QUOTE OF THE WEEK: “You have brains in your head.  You have feet in your shoes.  You can steer yourself any direction you choose.”  Dr. Seuss

16. KEEP THOSE CARDS AND LETTERS COMING:  Several readers regularly supply us with suggestions or tips for newsletter items.  Please feel free to send us or point us to matters you think would be of interest to our readers.  Subject to editorial discretion, we may print them.  Rest assured that we will not publish any names as referring sources. 

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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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