Cypen & Cypen
OCTOBER 19, 2006
Stephen H. Cypen, Esq., Editor
1. WORKERS GET DOUBLE JOLT ON PENSION BENEFITS:
This subject is one about which we have been complaining for a long time (see Cypen & Cypen Newsletter for May 1, 2003, Item 2; Cypen & Cypen Newsletter for December 16, 2004, Item 1 and Cypen & Cypen Newsletter for June 16, 2005, Item 1): Some teachers and other government employees find themselves penalized by two provisions of Social Security. Both were amendments to the Social Security Act, adopted in 1983. One, called the “Windfall Elimination Provision,” reduces benefits for public employees who receive pensions and have “substantial earnings” from Social Security-covered jobs of less than 30 years. The other, known as the “Government Pension Offset,” adjusts spousal and widow or widower’s Social Security benefits when the recipient in question has a government pension. Legislation has been regularly introduced in Congress to repeal the provisions, but hearings have not been held. According to latimes.com, the Social Security Administration says the principle is to insure that teachers and others with government pensions are not receiving higher benefits than they deserve. The purpose is to give a realistic benefit based on the person’s true career, so as not to give him an unearned additional benefit as if he were a low-income worker. Similarly, the Government Pension Offset is supposed to give the same spousal benefits to pension-covered workers that those under Social Security could expect. Under the Windfall Elimination Provision, the average monthly reduction is about $200, with the highest possible cut being about $328. As of July, about 880,000 workers nationwide were affected by that provision -- out of a total of 35 million individuals who have retirement benefits. Some 443,000 were affected by the Government Pension Offset. Actually, about 100,000 retired California teachers receive lowered benefits, losing $3,900 a year just from the Windfall Elimination Provision. The regular formula for calculating benefits determines workers’ average monthly earnings using the highest-paid 35 years of their careers. Social Security pays 90% of the first $656 of that average, then 32% of the next $3,299 and finally 15% of anything above that amount. The Windfall Elimination Provision can lower that 90% to 40% if workers have less than 20 years in private industry. The Government Pension Offset takes two-thirds of workers’ pensions and then subtracts that amount from spousal or widows’ or widowers’ benefits, sometimes completely eliminating them. C’mon, Congress, get on the stick.
2. PILOTS ASSOCIATION ASSAILS “AGE 60 RULE”:
The Federal Aviation Regulations currently place an age limitation on commercial airline pilots of 60 years. Commonly referred to as the “Age 60 Rule,” the limitation requires commercial airline pilots to retire from their airline pilot jobs upon turning 60 years of age. Recently, a document entitled A Cost Benefit Analysis of S.65 and Reforming the Age 60 Rule on the Federal Government dated July 24, 2006 was circulated among members of Congress and other interested parties. The analysis reached the conclusion that an increase in the commercial pilot age limitation from 60 to 65 years would result in a net “benefit” to the United States Federal Government of $10 Billion or more over the next fifteen years. While the Allied Pilots Association strongly believes the Age 60 Rule is preliminary a safety issue -- not one of economics -- APA feels compelled to respond to the analysis because of its many errors. The APA Rebuttal and Analytical Review, entitled “Fatal Flaws Invalidate Conclusions of Jenkins Report on the Age 60 Rule,” concludes that the proposed change to the Age 60 Rule will not achieve any economic benefit to the United States Government. APA deems the original analysis so materially flawed as to have no place in the debate on the merits of the Age 60 Rule. The original analysis makes fundamental mistakes in three primary areas:
Planes do not fly without pilots in the cockpit. When one pilot retires, another pilot takes his place. The total number of airline pilot jobs, total wages and total taxes paid to the government are largely unaffected by the existence of a commercial pilot age limitation/retirement age. The PBGC is a federal corporation that finances its operation independent of the government. The government is not obligated for any shortfall the PBGC might someday experience.
3. PUBLIC EMPLOYEES CAN BE HELD INDIVIDUALLY LIABLE FOR FMLA VIOLATIONS:
Modica filed suit against the Texas Cosmetology Commission and certain individual employees alleging wrongful termination for taking leave under the Family and Medical Leave Act, 29 USC §2601-2654. In response, Humphrey, an individual defendant, filed a motion for summary judgment asserting qualified immunity. The district court concluded that Humphrey was not entitled to qualified immunity, and that there were genuine issues of material fact precluding summary judgment. On appeal, the Fifth Circuit reversed. The doctrine of qualified immunity immunizes government officials acting within their discretionary authority from civil damages if their conduct does not violate clearly established statutory or constitutional law of which a reasonable person would have known. The qualified immunity determination is a two-step inquiry. First, the court must decide whether a plaintiff’s allegations, if true, establish a violation of a clearly established right. Second, if the plaintiff has alleged a violation, the court must then decide whether the conduct was objectively reasonable in light of clearly established law at the time of the incident. Even if the government official’s conduct violates a clearly established federal right, the official is nonetheless entitled to qualified immunity if her conduct was objectively reasonable. Individual public employee liability is a subject of much debate among the courts of appeal. Although the court joined those courts holding that public employees are subject to individual liability under FMLA, in the absence of a prior ruling by the Supreme Court, this court or a consensus among sister courts, it cannot be said that the law was clearly established when the events giving rise to Modica’s allegations occurred. Therefore, Humphrey is entitled to qualified immunity against Modica’s FMLA claim because it was not clearly established that public employees were subject to individual liability under FMLA when Humphrey terminated Modica’s employment, and the district court erred in failing to grant Humphrey’s motion for summary judgment on this ground. Modica v. Taylor, Case No. 05-50075 (U.S. 5th Cir., September 13, 2006).
4. ASSET ALLOCATION RISES ON INVESTMENT TIME HORIZON:
The following basic (but important) information comes from Employee Benefit News’ Retirement Benefit Counselor. Asset allocation is a diversification technique that can help you manage the risks and returns of your investments. One of the biggest factors that should influence your asset allocation strategy is the amount of time you have to hold your investment. Diversification means dividing your investment capital among different asset classes such as stocks, bonds and cash. Research shows that the way you apportion your capital among the various asset classes is a better predictor of how your investments will perform than specific stocks and bonds you happen to buy. Asset allocation helps you manage the risks and returns of your investments to meet your needs and investment goals. Along with your ability to handle investment risk emotionally and financially, the biggest factor that should influence your asset allocation decisions is time. The longer you can hold an investment, the more likely that long-term growth and returns will overcome short-term ups and downs and performance. Being able to hold an investment long-term helps you tolerate more volatile investment instruments and take advantage of the higher returns such investments usually produce. Likewise, the less time you have to hold a volatile investment, the more likely it is that a short-term drop in value will limit or erase the gains of your investments. The amount of time you have to hold an investment in order to meet your investment goal is called the investment time horizon. Stocks, for example, are more volatile -- and therefore riskier -- investments than instruments like U.S. Treasury Bonds. Long investment time horizons allow you to take advantage of the higher returns possible with more volatile investments. As your time horizon becomes shorter, however, the risk of losing capital on a volatile investment becomes greater; investing in lower-risk instruments like bonds can lower your exposure and protect your capital. Your investment time horizon needs to be factored into investment considerations. Diversifying your portfolio to cover short-term, intermediate-term and long-term needs makes wise investment sense. As far as getting the maximum gain from your investments is concerned, time is on your side. Your investment time horizon has a major impact on your asset allocation strategy. The longer you have to hold an investment before you cash it in, the more your risk is decreased when investing in volatile assets like common stocks. The shorter your time horizon, the more your risk is increased when investing in volatile assets, and the greater is your need to invest in more stable assets such as government bonds and certificates of deposit. As your investment time horizon changes, you may want to adjust your asset allocation strategy either to increase growth or decrease risk.
5. MORE ON PENSION FREEZES:
The following general information on pension freezes was published by Pension Rights Center:
6. RETIREMENT CHALLENGES IN THE 21ST CENTURY:
At the recent International Foundation of Employee Benefit Plans Annual Employee Benefits Conference, David M. Walker, Comptroller General of the United States, made a presentation on retirement challenges in the 21st century. Mr. Walker believes the pension system faces the following challenges:
The complete 46-page slide presentation is available at www.gao.gov/cghome/d07125cg.pdf.
7. AN EXPENSIVE LITTLE TYPO:
Ottawa County, Michigan officials will have to spend about $40,000 to correct a typographical error regarding the upcoming November 7, 2006 election. Approximately 170,000 new ballots will have to be printed. What’s the big deal with a little typo? Well, this one had to be done, because the letter “l” was left out of the word “public.” A pretty hairy situation, we’d say.
The SEC link we furnished in Item 7 of our October 12, 2006 Newsletter had a typographical error. The correct link is: http://www/sec.gov/rules/interp.shmtl. We apologize for the error.
9. QUOTE OF THE WEEK:
“There is no stigma attached to recognizing
a bad decision in time to install a better one.” Laurence
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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.