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Cypen & Cypen
September 20, 2018

Stephen H. Cypen, Esq., Editor

After years of letting the Department of Labor do all the heavy lifting, the Securities and Exchange Commission has finally swung into action a month after the 5th Circuit vacated the DOL’s Fiduciary Rule. On April 18, 2018, the SEC “voted to propose a package of rulemakings and interpretations designed to enhance the quality and transparency of investors’ relationships with investment advisers and broker-dealers while preserving access to a variety of types of advice relationships and investment products .” They call it “Regulation Best Interest” and it has been the talk of the town since this spring. Kara Stein, the lone dissenting commission in the 4-1 vote, referred to the 1,000+ page proposal as a “squandered opportunity,” which might be more appropriately called “Regulation Status Quo.” Is Stein correct? We asked financial professionals across the nation for their thoughts on the SEC’s effort. As you might imagine, it is clear Regulation Best Interest has some good points and some not-so-good points. For what it is worth, the SEC’s proposal does have the advantage of riding the momentum established by the DOL. “It is a whole additional moving force of its own on the heels of the DOL Fiduciary Rule,” says Korrine Kohm, Director of Retail Wealth Management Services, Compliance Solutions Strategies in the greater New York City area. “There is a potential to clarify to the investing public the roles and differences of brokerage firms and registered investment advisers.” In addition to learning from the lessons offered by the DOL’s Rule, the SEC has the benefit of viewing the issue from a more comprehensive perspective. “I believe the SEC’s Best Interest proposal will enjoy wider support and less resistance as most would contend that the SEC should have taken the lead on such an issue from the beginning,” says Mike Walters, CEO of USA Financial in greater Grand Rapids, Michigan area. “Also, the SEC has a much more in-depth understanding of the industry’s inner-workings so that they should be able to craft a best-interest environment that is both conducive to advancing the industry and protecting the customer that will reach beyond just retirement advice. And SEC should do so proactively rather than enduring another confused and conflicted approach that stifled everyone including the investor.” One of the acknowledged results of the DOL’s Fiduciary Rule is, though vacated, a broader understanding and appreciation of the meaning of “fiduciary.” This allows the SEC to start from a more advanced position than the DOL had to contend with. Duane Thompson, Senior Policy Analyst at Fi360 in Pittsburgh, Pennsylvania, says, “Of course there is now greater awareness by investors of the fiduciary standard -- I think Schwab included a survey demonstrating this increased consumer awareness in their comment letter to the SEC. And if Form CRS survives -- it has been heavily criticized in all quarters while it is being tested by consumer focus groups -- it is very likely to change before final adoption. If the standards are sufficiently clarified, it could lead to greater awareness of differences in conduct standards that apply to different business models.” By waiting to see how various segments of the industry responded to the DOL’s Rule -- and ultimately what did it in from a legal perspective -- the SEC has been able to formulate a proposal that can take into consideration the desires of both proponents and opponents of the Fiduciary Rule. “The DOL continues to seek a heightened standard for ERISA plan sponsors and others rendering investment advice,” says Ted McNamara, an attorney at Kaufman Dolowich & Voluck in Fort Lauderdale, Florida, says. The SEC’s ‘Best Interest’ proposal incorporates some aspects of the fiduciary rule, but not others. It can be viewed as somewhat of a compromise. The SEC seeks to implement a clear rule that affords more protections to participants and investors while allowing brokers and plan sponsors to comply without overwhelming burden. For instance, under the SEC proposed rule, a broker-dealer is required to act in the best interest of its client and protect clients from investments that increase fees. However, it does not altogether prohibit commissions or other transaction-based fees protected by the Best Interest Contract Exemption.” Still, for all the potential, Regulation Best Interest leaves a lot of questions unanswered. “If best interest truly means ‘You must act in the best interest of your client and not put your own interest in front of theirs,’ then it is a big step forward,” says Robert Johnson, Professor of Finance, Heider College of Business, Creighton University, Omaha, Nebraska. “Of course, as was the case with the Fiduciary Rule, legislating what is meant by best interest is the difficulty.” In attempting to feature “the best of both worlds,” the SEC risks omitting requirements deemed critical by one or both sides of the issue. “The SEC’s proposal signals a desire to protect consumers through transparency but not to the extent it stymies business, commerce and transactions,” says Tad A. Devlin, a partner at Kaufman Dolowich & Voluck in San Francisco, California. “The SEC proposal does not include several disclosure requirements and restrictions on fee arrangements, as mandated by the proposed Fiduciary Rule. Proponents of the Fiduciary Rule will argue that eliminating these requirements in the interest of transacting business is a step backwards.” Not only may the final regulation leave something out, but it might not be as universally as hoped. Walters says, “The SEC’s Best Interest proposal may result in a step backwards by not being fully applicable or enforceable upon all licensed individuals equally, such as those operating with only an insurance license. Given that many of the DOL Fiduciary Rule concerns specifically targeted the sale of fixed-indexed annuities, this could leave a gaping hole in oversight that most investors will not recognize.” Thompson adds, “There will be gaps in fiduciary coverage for retail advice where the SEC does not have jurisdiction and perhaps greater confusion over the terms ‘Fiduciary’ vs. ‘Best Interest.’ As many commenters have pointed out, the title ‘Regulation Best Interest’ will be hard to explain to consumers when comparing it to the best interest standard under the Advisers Act and add to the confusion over a true, bona fide fiduciary standard. I remember many years ago I was involved with a volunteer committee at the FPA reviewing a potential fiduciary standard for financial planners, and the task force decided not to use the word ‘fiduciary’ in its final report. However, that practice area has moved forward with CFP Board’s recently adopted fiduciary standard, so I think part of the challenge -- such as we have seen with the SEC and state insurance regulators -- is wrestling with the name itself while being less reticent in adopting components of a fiduciary standard.” Needless to say, as we have learned from the DOL’s Fiduciary Rule, we are only one change in administration away from scrapping whatever current regulators create. “The rule-making process is long, and the priorities change when administrations change,” says Kohm. “The re-addressment of the solely incidental exception to the definition of investment adviser needs to catch up with the growth since the 1980s of retail/retirement investing and protecting those investors. There has been great progress safeguarding clients’ assets and prohibiting predatory fees, but the question will remain as to whether the progress is fast enough.” For some, the reliance on regulators is not seen as adding value to the industry in general and specifically to the issue of fiduciary. “Both the DOL and SEC have done more harm than good,” says Don Trone, Co-founder & CEO 3ethos in Stonington, Connecticut. “They have shifted the focus from guiding principles and best practices, to unrealistic rules and disclosures. One of the many unintended consequences -- lawyers and compliance officers now run the financial services industry, not qualified experts. Thirty years ago when we started the fiduciary management, the singular objective was to improve the management of investment decisions. Today, the regulators have turned the movement into a political cesspool that, in turn, has attracted organizations driven solely by politics, power, ego and greed.” The SEC may be trying to fill the void left by the vacated DOL Fiduciary Rule. Will it succeed? Does it matter? These are the questions readers might have more than a passing interest in. We are all accustomed to that favorite SEC phrase “you cannot guarantee future results.” Speculation, nonetheless, best prepares us for the wide variety of potential scenarios down the road. And who does not want to be prepared? Christopher Carosa, CTFA,, September 5, 2008.

The fiduciary rule is dead, but its spirit lives on. The rule, which the Department of Labor first proposed in 2015, required brokers to act as fiduciaries -- to put their clients’ interests ahead of their own -- when handling retirement accounts. It sounded simple, but it meant that brokers would have to rethink the way they do business. Mutual fund companies routinely pay brokers to sell their funds to clients. That payment is often an annual fee for as long as the client is invested in the fund -- a particularly pernicious conflict of interest that gives brokers incentive to keep clients in high-priced and often poorly performing funds. As fiduciaries, brokers would most likely have to abandon the practice or at the very least disclose it to their clients. Brokerage firms scrambled to comply with the rule, and no one made more sweeping changes than Bank of America Corp.’s Merrill Lynch. It publicly supported a fiduciary standard and introduced more investment options for clients than ever before. The company stopped offering traditional brokerage accounts to retirement savers and rolled out conflict-free alternatives, including discount brokerage, fee-based advisory accounts and a low-cost automated investing, or robo-adviser, service. Given Merrill’s size and influence, other brokers were likely to follow. It looked as if the fiduciary rule was having its intended effect: cleaning up conflicts, broadening investment options and lowering costs. Then came a bombshell. A federal appeals court in New Orleans struck down the fiduciary rule in March 2018. The Labor Department said it would no longer enforce it. When the agency later declined to appeal the decision, the fiduciary rule was officially dead. Brokers were no doubt overjoyed, but the celebration proved to be short-lived. A month later, the Securities and Exchange Commission proposed  rules requiring brokers to disclose money they receive for selling financial products, whether from purveyors of those products or their own firm, and to make sure that whatever they sell is in their clients’ best interests. And unlike the fiduciary rule, the SEC’s proposal applies to all investment accounts, not just retirement ones. Importantly, the SEC stopped short of imposing a fiduciary standard on brokers, which means they can keep their conflicts if they disclose them to clients. Merrill, the company that led the way on the fiduciary rule, is doing just that. The firm announced  last week that it would reinstate traditional brokerage for retirement accounts in October, giving new life to the conflicts it had eliminated. It cannot undo the good work it has already done for investors, however. Merrill says it is bringing back traditional brokerage accounts because some clients are clamoring for it, but it is hard to see why. Investors who want to execute trades can do so far more cheaply through Merrill Edge, the company’s discount broker. And those who want a fiduciary to manage their portfolio can turn to Merrill’s low-cost robo-adviser or human advisers. Traditional brokerage, with its conflicts and high commissions, seems like the worst alternative. And it is not just Merrill. JPMorgan Chase & Co. recently introduced a brokerage platform with free trading and research. An automated investing service is expected early next year. While JPMorgan has not yet provided details, CEO Jamie Dimon said in 2016 that the company was working on a free robo-adviser. I suspect similar options will soon be available everywhere. The conflicts that pervade the mutual fund and brokerage industries are too big for any one firm to clean up, and they’ve survived attacks by the Labor Department and the SEC. But thanks to the legacy of the fiduciary rule, investors no longer have to settle for conflicted financial advice. Nir Kaissar, Bloomberg, September 4, 2018.
The state of California has passed a landmark bill requiring two of the country’s biggest pension funds to consider “climate-related financial risk” when making investment decisions. Senate Bill 964 was passed last week. It requires the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) to identify climate risk in their portfolios and report on that risk to the public and to the legislature every three years. The first report is due before 2020. The two funds -- which oversee $590bn (€508bn) between them -- must also report their portfolios’ carbon footprints and their progress towards meeting the goals of the 2015 Paris agreement on climate change, as well as California climate policy goals. They should also include a summary of engagement activities undertaken by the pension funds in connection with climate-related financial risks. The bill was the first of its kind passed in the US, according to campaign group and co-sponsor of the bill Fossil Free California, and provided a statutory definition of climate-related financial risk. Under the state’s new definition, climate-related risks include material financial risk posed to the fund by the effects of the changing climate. These included intense storms, rising sea levels, higher global temperatures, and economic damages from carbon emissions. The bill also covered other financial and transition risks emanating from public policies to address climate change, shifting consumer attitudes, and the changing economics of traditional carbon-intense industries. The bill must get the approval of California governor Jerry Brown before it can become law. Fossil Free California, which campaigns to end financial support for fossil fuels, co-sponsored the bill with environmental advocacy organization Environment California. “The risk the changing climate poses to the solvency of large institutional investors, including pension funds and insurance companies, is both inevitable and unpredictable,” said Janet Cox, director at Fossil Free California. “Fund beneficiaries need and deserve the peace of mind that comes from knowing their future security is protected from that risk.” CalPERS and CalSTRS are actively involved in a number of climate change initiatives, including Ceres and the Investor Network on Climate Risk. Most recently, both funds were part of a coalition of investors voting for improved governance at Rio Tinto’s annual general meeting, relating to the company’s membership of lobbying organizations in relation to climate change -- although this resolution was defeated. However, both CalPERS and CalSTRS slipped down the Asset Owners Disclosure Project’s 2017 ranking of investors’ climate risk management. CalPERS was ranked 28th out of more than 300 pension funds, 19 places lower than a year before. Investors in Europe  and the UK  are also facing legislation over climate change and sustainability investment issues. Gail Moss, Investment & Pensions Europe, September 3, 2018.
The Roman Catholic Archdiocese of San Juan, Puerto Rico, filed for bankruptcy following a $4.7 million judgment in a case brought by pension plan participants against the Superintendence of Catholic Schools of the Archdioceses of San Juan. Before the bankruptcy filing, the Puerto Rico Supreme Court authorized the immediate seizure of church assets from across the island, including bank accounts, cars, works of art, furniture and real estate to pay the judgment, prompting the archdiocese's bankruptcy filing to stay all litigation. An earlier attempt by the pension plan to declare bankruptcy was denied by the court. The archdiocese's filing for Chapter 11 protection in the U.S. Bankruptcy Court for the District of Puerto Rico listed both total assets and total liabilities as from $10 million to $50 million each. A petition to the U.S. Supreme Court to stay the pension case was also denied Wednesday, without explanation. In addition to the case filed in Puerto Rico court that resulted in the $4.7 million judgment, several groups of past and current participants in the catholic teachers' pension plan sued the archdiocese in 2016 in U.S. District Court in San Juan for terminating the plan in violation of the Employee Retirement Income Security Act, and then claiming exemption from ERISA as a church plan. The plaintiffs alleged that since 2009, plan officials have failed to send annual financial reports and other documents required by ERISA, and to pay premiums to the Pension Benefit Guaranty Corp. Participants were led to believe the plan was covered by ERISA. The lawsuit also sought to recover $50 million in unpaid benefits, plus statutory penalties for the disclosure lapses, and court costs, as well as a temporary restraining order. The lawsuit also sought $50 million in alleged losses related to the plan investing more than 80% of its assets in Puerto Rican bonds, which lost significant market value. On Monday, U.S. Magistrate Judge Bruce McGiverin denied the plaintiff's motion for summary judgment on the church-plan issue, saying they did not provide sufficient proof. "The court may not grant summary judgment 'if the evidence is such that a reasonable jury could return a verdict for the non-moving party,' " Mr. McGiverin said. Hazel Bradford, Pensions & Investments, August 30, 2018.
Why is Chicago pursuing issuing $10 billion in bonds to remedy its pension funds' woeful underfunding? The answer, we are told, is that the city hopes to earn money with an investment return greater than the interest rates they will be paying to investors for these bonds. But the real reason -- or a significant contributor to their motivation -- may be entirely different: due to the nature of pension accounting for government benefits, their real objective may be to keep the plans' valuation interest rates high by avoiding a poorly-funded-plan "penalty" interest rate. Pension plans sponsored by the private sector are required to use a corporate bond rate (originally representing the rate at which the liabilities could hypothetically be settled by buying group annuities) for their accounting valuations, but that public pension plans use for their own valuations a rate based on their own determination of their long-term expected asset return. But there is a catch: if a plan is wholly unfunded, the index rate of a 20-year tax-exempt municipal bond rate is used instead; and if a plan is underfunded to such a degree that, taking into account both current and future benefit accruals, and assets as well as contributions per the entity's future funding plan (e.g., scheduled contributions as enacted by law), then a blended discount rate is used. Also, the requirement to use this blended rate came into effect in 2015 (with a phase in), which is why we saw a number of very poorly plans experience spikes in their level of underfunding at this time (see the original eye-popping Wirepoints report ). The Chicago pension plans, specifically the Laborer's Fund and the MEABF, also took a heavy hit in terms of liability increase due to low discount rates in their 2016 valuations, but managed to restore the expected-asset-return-based valuation interest rates by 2017, due to a new pension funding plan which claims to increase pension contributions in future years to ensure that pensions can be paid out. The effect of this valuation rate change was a decrease in liability of $7.7 billion -- a huge impact for a legislative promise to fund in the future. So what is the benefit of the pension obligation bonds boosting the pension assets at the expense of debt, and risk, in the city's overall budget? It is $10 billion in protection against being obliged to use the lower valuation rates again in the future. Now, as a reminder, a pension liability valuation is a calculation of the present value of the promises being made to workers and pensioners for future benefits -- and how an actuary calculates these liabilities does not actually change these future benefit amounts. It is all just accounting. Of course, that is not necessarily the only reason, since pension obligation bonds have been used often enough before the 2015 rate requirement. Here is another, even more cynical explanation:
     Required taxpayer contributions are set to double to  $2.2 billion by 2022. Absent some “solution,” property taxes will have to go up dramatically and Emanuel will not be able to defend himself on the campaign trail. It is a loser position.  The city will then take the $10 billion and pour it into its four city-run pension funds. The funded levels of the pension funds will increase from a collective 26 percent to more than 50 percent — a dramatic jump. By pre-funding the pension funds with such a large amount, the higher funding ratios will lower the city’s required taxpayer contributions over the next few years significantly, thus removing the pressure for tax hikes. But this plan will not work if the massive taxpayer pension contributions disappear only to have them replaced by equally big repayments toward the $10 billion borrowing. So expect Emanuel to structure the repayment of the $10 billion debt so it is far, far off into the future. All of which serves to explain why the city is willing to take the risk of such a massive bond issue. Elizabeth Bauer, Forbes, August 28, 2018.

The U.S. tax system operates on a pay-as-you-go basis. This means that taxpayers need to pay most of their tax during the year, as the income is earned or received. Taxpayers must generally pay at least 90 percent of their taxes throughout the year through withholding, estimated or additional tax payments or a combination of the two. If they do not, they may owe an estimated tax penalty when they file. Taxpayers can pay their taxes throughout the year anytime. They must select the tax year and tax type or form when paying electronically. Filers paying by check should make it out to the “United States Treasury” and indicate the tax year and type of taxes they are paying. Taxpayers who pay taxes through a combination of withholding and estimated tax payments should do a Paycheck Checkup . They can do a checkup using the Withholding Calculator  on Doing so now can help the taxpayer avoid an unexpected tax bill and possibly a penalty when the taxpayer’s 2018 tax return is filed next year.

Here are some examples of people who may need to make estimated tax payments:

Individuals — including sole proprietors, partners and S corporation shareholders — may need to pay quarterly installments of estimated tax if:

  • they expect to owe at least $1,000 when they file their tax return
  • they owed additional tax when they filed their tax return last year  

Other taxpayers who may need to make estimated payments include those who:

  • have more than one job, but do not have each employer withhold taxes
  • are self-employed
  • are independent contractors
  • are representatives of a direct-sales or in-home-sales company
  • participate in sharing economy activities where they are not working as employees

For tax year 2018, the remaining estimated tax payment due dates are Sept. 17, 2018 and Jan. 15, 2019. IRS Tax Tips, Tax Reform Tax Tip 2018-142.

Private equity funds have relatively been on the same pace with the bull market in public equities, according to a PitchBook report. PitchBook uses the Kaplan-Schoar public market equivalents method in which a value greater than 1.0 implies outperformance of the public index net of fees. PitchBook found that private equity funds raised in 2006 through 2015 just barely produced a Kaplan-Schoar public markets equivalent of more than 1.0, indicating slight outperformance relative to the S&P 500 Total Return index. The Kaplan-Schoar public markets equivalent of all funds raised in 2006 to 2015 ranged from 0.91 for 2010 funds to a high of 1.07 for 2012 funds. "Whereas an investor in PE two decades ago could essentially pick a GP at random and have a better than 75% chance of 'beating the market,' for vintages since 2006 those odds are worse than a coin flip," the study noted. One reason is the stock market's nine-year bull run, the study indicated. Overall, alternative investment -- which includes private equity, venture capital, private debt, real assets, fund of funds and secondaries fund -- has provided an internal rate of return of 15.95% for the year, 12.85% for the five years and 8.44% for the 10 years ended Dec. 31. Private equity produced an IRR of 17.85% for one year, 12.87% for the five years and 12.9% for the 10 years ended Dec. 31. Meanwhile, venture capital IRRs were 9.87% for the year, 11.96% for the five years and 7.48% for the 10 years ended Dec. 31, PitchBook data shows. By comparison, the S&P 500 index was up 13.6% for the year, 13.69% for the five years and 9.06% for the 10 years ended Dec. 31.  The report is available for download on Pitchbook's website . Arleen Jacobius, Pension & Investments, September 7, 2018.

With tax reform bringing major changes for the year ahead, the Internal Revenue Service urged retirees to make sure they are paying in enough tax during the year by using the Withholding Calculator , available on During this series, the IRS is highlighting resources and tools available to taxpayers to help avoid a surprise at tax time. This is part of the Paycheck Checkup  campaign to encourage people to check their tax situation as soon as possible. The Tax Cuts and Jobs Act, enacted in December 2017, changed the way tax is calculated for most taxpayers including retirees. Among other reforms, the new law changed the tax rates and brackets, increased the standard deduction, removed personal exemptions and limited or discontinued certain deductions. As a result, many taxpayers may need to raise or lower the amount of tax they pay in during the year. For retirees who receive a monthly pension or annuity check, this may mean changing the amount of federal income tax they have withheld. The easiest way to do that is to use the Withholding Calculator. Though primarily designed for employees who receive wages, this useful online tool can also be helpful to those who receive pension or annuity payments on a regular schedule, usually monthly or quarterly. Like employees, retirees can use this online calculator to estimate their total income, deductions and tax credits for 2018. As noted in the Withholding Calculator’s step-by-step instructions, retirees should treat their pension like income from a job by entering the gross amount of each payment, how often they receive a payment (monthly, quarterly, etc.) and the amount of tax withheld so far this year. To protect taxpayer privacy, the IRS emphasized that the Withholding Calculator does not request any personally-identifiable information such as name, Social Security number, address or bank account numbers. Additionally, the agency does not save or record any of the information entered on the calculator. To use the Withholding Calculator most effectively, users should have a copy of last year’s tax return at hand. In addition, knowing or having a record of the total federal income tax withheld so far this year will also make the tool’s results more accurate. After filling out the Withholding Calculator, the tool will recommend the number of allowances a pension recipient should claim. If the number is different from the number they are claiming now, they should fill out a new withholding form. Claiming more allowances reduces the amount of tax taken out; claiming fewer allowances increases tax withholding. If claiming zero allowances still does not cover their expected tax bill, the tool will recommend that they ask their payor to withhold an additional flat-dollar amount from each payment. Pension recipients can make a withholding change by filling out Form W-4P , available on, and giving it to their payer. This form is similar to the more familiar Form W-4  that employees give to their employers. To give payors time to apply any required withholding changes to as many payments as possible, the IRS urges retirees to submit revised Forms W-4P to their payors as soon as they can. Because of the limited amount of time left in 2018, some retirees may be unable adequately to cover their expected tax liability through withholding. In that case, another option is to make a quarterly estimated or additional tax payment directly to the IRS. Because the U.S. tax system operates on a pay-as-you-go basis, everyone is required, by law, to pay most of their tax liability during the year. Doing so will help avoid a surprise year-end tax bill and in some instances, a penalty. For more information about the penalty, including details on exceptions and special rules that may apply, see Publication 505 , Tax Withholding and Estimated Tax, available on Individuals who receive income not subject to withholding may need to make estimated tax payments. This includes individuals who receive unexpected income late in the year, such as capital gains on the sale of stock or property, stock or mutual fund dividends or income from the sharing economy. Form 1040-ES , available on, is designed to help taxpayers figure their estimated tax payments simply and accurately. The estimated tax package includes a quick rundown of key tax changes, income tax rate schedules for 2018 and a useful worksheet for figuring the right amount to pay. The fastest and easiest way to make estimated tax payments is to do so electronically, using IRS Direct Pay  or the Treasury Department’s Electronic Federal Tax Payment System (EFTPS ). For information on other payment options, visit . Whether or not retirees receive a pension, there is another option, available to most of them, for paying their income tax liability during the year. They can ask the Social Security Administration  to withhold tax on their Social Security benefits. Unlike wages and pensions, withholding on Social Security benefits and other government payments is voluntary and not based on withholding allowances. Instead, beneficiaries can choose to have income tax withheld at one of four flat rates -- 7 percent, 10 percent, 12 percent or 22 percent. To request voluntary withholding and for more information, get Form W-4V  , available on IRS Newswire, Issue Number: IR-2018-180.

The purpose of this memo is to alert clients about the potential impact of Amendment 6, which has been placed on the November 6, 2018 general election ballot in Florida. Amendment 6 contains several unrelated proposals which have been bundled together. Because of the deceptively short title of Amendment 6, and the large number of items on the lengthy ballot, many voters may not understand that the proposal may have an adverse impact on administrative agencies, including pension boards. For this reason, we encourage clients to carefully study Amendment 6, which is summarized below. Every twenty years the Florida Constitution Revision Commission (CRC) meets to examine and recommend updates to the Florida Constitution. After holding fifteen public hearings across the state over the past two years, the CRC has recommended eight amendments to the Florida Constitution. Each amendment would need to separately obtain 60% voter approval to be adopted. After studying the eight proposals, our office is advising pension clients of the potential adverse impact of Amendment 6. Our office has no opinion on the other seven proposed amendments. Amendment 6 would add a new Section 21 into Article V of the Florida Constitution as follows:
SECTION 21. Judicial interpretation of statutes and rules.
In interpreting a state statute or rule, a state court or an officer hearing an administrative action pursuant to general law may not defer to an administrative agency’s interpretation of such statute or rule, and must instead interpret such statute or rule de novo.
Discussion of the potential negative impact of Amendment 6: 
Since 1952, the Florida Supreme Court has recognized the doctrine of judicial deference. In general, courts will defer to administrative agencies, including pension boards, due to their expertise and familiarity dealing with a particular statute, rule or ordinance. The doctrine is generally beneficial for pension boards. As described by the CRC, Amendment 6, “requires judges and hearing officers to independently interpret statutes and rules rather than deferring to government agency’s interpretation.” Admittedly, Amendment 6 only directly addresses judicial deference to judicial interpretations of state statutes. Nonetheless, several municipal plans were created by special act of the Florida Legislature. Importantly, all local public safety plans operate under Chapter 175 and 185, which are state statutes. Moreover, Amendment 6 potentially creates a precedent which will weaken judicial deference to municipal and special district boards. The counter argument, of course, is that the weakening of the doctrine of judicial deference will strengthen the judiciary. To the extent that clients want a more powerful judicial branch, this would be an advantage. Rather than presenting Amendment 6 as a stand-alone amendment, the proposal is combined with other amendments having nothing to do with judicial deference. For example, Amendment 6 also contains detailed provisions expanding victim’s rights in the criminal justice system, which are beyond the scope of this memo. Nevertheless, the CRC is presenting Amendment 6 under the seemingly innocuous title, “Rights of Crime Victims; Judges.” The Florida Supreme Court is currently considering whether or not to strike Amendment 6 from the ballot. A lower court judge in Leon County has held that Amendment 6 was misleading and improperly bundled unrelated proposals (a practice known as “logrolling”). We anticipate a ruling shortly. Our office is happy to answer any questions about Amendment 6. We encourage clients carefully to study Amendment 6 and look beyond the brief, five word title. This memo was written by Klausner, Kaufman, Jensen & Levinson, our associate firm.

If all the world is a stage, where is the audience sitting?
What great thing would you attempt if you knew you could not fail? - Robert H. Schuller
On this day in 2001,  in an address to a joint session of Congress and the American people, U.S. President George W. Bush declares a "war on terror".








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