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Cypen & Cypen
NEWSLETTER
for
September 20, 2012

Stephen H. Cypen, Esq., Editor

1.     NOTICE:   Due to our editor’s being on vacation and because of the Jewish holidays, the newsletter will be abbreviated this week. 
 
2.      FRS TELLS STATE TO PUT UP MORE AND EXPECT LESS:  Ash Williams and Florida's State Board of Administration, which he heads, returned 22.1% on their largest mandate last year—and they know it is not nearly enough.  Williams has been publically urging state legislators to increase contributions to the SBA, which manages 25 funds totaling $149.4 billion dollars.  He has written to elected leaders twice in the past four months, and included his recommendations in the board’s most recent annual report, according to aicio.com.  The Florida Retirement System has 87.1% of its liabilities funded as of the 2011 fiscal year’s end, which is consistent with many other public mega-funds in the United States.  But, unlike SBA’s peers, this number is getting worse, not better. The system reached peak funding in 2000 at 118%.  Contributions and funding level have been falling ever since.  For the plan to regain its fiscal footing, actuaries call for contributions to be higher than the normal cost level.  If Williams’s campaign is successful, the funded ratio will drop even further in the short term.  In addition to higher contributions, he is advocating to lower the system’s assumed rate of return from 7.75% to 7.25%.
 
3.      THE FUTURE OF DEFINED BENEFIT PLANS WILL CHANGE DRAMITICALLY—FOR THE BETTER:  The last 10-15 years have been difficult for employers that maintained a defined benefit plan as part of their overall retirement program.  This situation is all about to change.  The factors and economics that caused significant increases in required contributions to DB plans are showing signs of slowing down and reversing themselves.  The impact of the Pension Protection Act of 2006 is behind us, as the provisions of this law have been fully phased in.  Historically low interest rates, which cause plan liabilities to increase every time they drop, appear to have nearly hit bottom, and are poised to begin rising as soon as the Federal Reserve suspends the accommodative support of growth through an expansionary monetary policy.  In fact, the Fed has given indication that it may end its current policy as soon as late 2014. Other underlying macroeconomic trends such as the 30-year bull market in bonds, the decade-long stagnation in the equity markets and the lack of viable options to extend duration for pension investment managers, all exhibit signs of changing for the better.  Most DB plan sponsors have struggled with the costs of maintaining these plans for several years.  Various actions have been taken by employers to reduce and control the cost increases.  These actions included reducing benefits, soft freezes and hard freezes.  But these trends are slowing down.  The financial crisis that began in 2008 caused sponsors of retirement programs to begin to rethink their strategies.  It became clear that relying solely on defined contribution plans like 401(k) plans provided inadequate retirement benefits, and resulted in participants being unprepared for their retirement years.  In addition, terminating a DB plan at this time was, and still is, analogous to selling out of the market after a major downturn.  What we have all needed was a change in the influences impacting employer costs, and those changes are underway.  Even Congress recognizes the importance of DB plans, as a recent bill passed by Congress will permit plans to use a higher liability interest rate in determining minimum required contributions, thus lowering employer contributions (see C&C Newsletter for July 19, 2012, Item 10).  The forgoing comes from Executive Summary of a new White Paper released by Pentegra Retirement Services. 
 
4.      EMPLOYEE WHO TERMINATED HIS EMPLOYMENT FROM FRS-COVERED AGENCY, AND TOOK TOTAL DISTRIBUTION HAD NO VESTED RIGHT TO RENEWED MEMBERSHIP IN FRS: Blaesser sought review of a final order of the State Board of Administration that denied his request for renewed membership in the Florida Retirement System upon concluding he was a retiree who was ineligible for reemployment in the FRS pursuant to section 121.122(2), Florida Statutes (2010).  On September 30, 2005, Blaesser was hired by the Seminole County School Board and enrolled in the Public Employee Optional Retirement Program (Investment Plan) of the FRS. Appellant terminated his employment on November 16, 2006. On March 29, 2007, appellant took a total distribution from his Investment Plan account after being advised he could leave the funds in the Investment Plan, and not take a distribution.  In 2009, Section 121.122(2) was enacted to prohibit retirees who return to work with an FRS-covered agency on or after July 1, 2010, from participating in the FRS.  When Blaesser retired from the FRS, he did not have a vested right to renewed membership in the FRS.  At most, he had an expectant or contingent right insofar as his right to renewed membership in the FRS depended on the continued existence of that right if he ever returned to FRS-covered employment at some point in the future.  Even if retirees had a right to renewed membership in the FRS prior to the 2009 amendment, the legislature had the inherent authority unilaterally to alter that right as it applied to retirees who returned to state service after the amendment.  Absent the existence of a vested right to renewed membership in the FRS, Blaesser cannot assert the application of the amendment impaired his contractual rights under Article I, Section 10, Florida Constitution; constituted an improper taking of property under Article X, Section 6, Florida Constitution; or violated any other constitutional limitation.  Blaesser’s almost-laughable argument that he was not a “retiree” because he took a total distribution rather than periodic payments was rejected out of hand.  Court affirmed final order.  Blaesser v. State Board of Administration, Case No. 1D12-285 (Fla 1st DCA September 19, 2012). 
 
5.      GOLF WISDOMS:  The only thing you can learn from golf books is that you can't learn anything from golf books, but you have to read an awful lot of golf books to learn it
 
6.      PUNOGRAPHICS:    A cartoonist was found dead in his home.  Details are sketchy.
 
7.      QUOTE OF THE WEEK:  “Those who are too smart to engage in politics are punished by being governed by those who are dumber.”
Plato
 
8.      ON THIS DAY IN HISTORY:  In 1976, Playboy releases Jimmy Carter’s interview that he lusts for women. 
 
9.      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. 
 
10.    PLEASE SHARE OUR NEWSLETTER:  Our newsletter readership is not limited to the number of people who choose to enter a free subscription.  Many pension board administrators provide hard copies in their meeting agenda.  Other administrators forward the newsletter electronically to trustees.  In any event, please tell those you feel may be interested that they can subscribe to their own free copy of the newsletter at http://www.cypen.com/subscribe.htm.  Thank you.

 

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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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