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Miami

Cypen & Cypen
NEWSLETTER
for
OCTOBER 2, 2008

Stephen H. Cypen, Esq., Editor

1. RULE DEVELOPMENT WORKSHOP RESCHEDULED:

Continuation of the 60T Rule Development Workshop that was to be held on September 10, 2008 has been rescheduled. It will now be held on Tuesday, October 21, 2008, from 9:00 A.M. to Noon, at Valencia Community College -- Criminal Justice Institute Campus in the CJI Auditorium, located at 8600 Valencia College Lane, Orlando, Florida 32825. (Readers may call 407.582.8200 for directions.) Although not mandatory, if you plan to attend the workshop, please e-mail REP@dms.MyFlorida.com, so the Division will have an idea of anticipated attendance. Written comments will be accepted through close of the workshop. During the first phase of the workshop on July 14, 2008, there were questions about why the draft rules were created. Readers will find an agenda for the continuation and a background summary at http://www.cypen.com/pubs/10-08/60T_Rules_Workshop.pdf. Let’s go get ‘em.

2. EARLY RETIREES NOT VESTED IN EMPLOYER-PROVIDED HEALTH BENEFITS:

Simpson Paper Company closed its mill for economic reasons. Early retirees, who retired at ages over 55 and under 65, sued in Federal Court. They sought continued healthcare benefits that were made available through a collective bargaining agreement in force at time of their retirement. The collective bargaining agreement provided that the early retirees’ healthcare insurance would continue until the earliest of eligibility for medicare, attainment of age 65 or death. During the period, the cost was to be paid on the same basis as active employees. Finally, Simpson reserved the right to alter, amend, delete, cancel or otherwise change the benefits at any time, subject to negotiation with the union. The early retirees claim that Simpson breached its duties under Employment Retirement Income Security Act of 1974 by terminating health benefits without having obtained the union’s agreement or having bargained to impasse. They also asserted breach of contract claims under Labor Management Relations Act. The District Court granted summary judgment to Simpson, concluding that the early retirees had no vested rights to the benefits they sought. On review, the appellate court dismissed for lack of jurisdiction. To establish standing to sue under ERISA, the early retirees must show that they are plan participants. ERISA defines a participant as any employee or former employee of an employer who is or may be eligible to receive a benefit of any type from an employee benefit plan. The former employees satisfied this definition if they have a reasonable expectation of returning to covered employment or a colorable claim to vested benefits. However, ERISA does not require that welfare benefits, including health benefits, actually vest. Whether such benefits are vested is a matter of private contract. A vested right is commonly defined as a right that is so completely and definitely belongs to a person that it cannot be impaired or taken away without the person’s consent. Here, the lower court was correct in concluding that the early retirees’ health benefits were not vested. The CBA expressly reserved to Simpson the right to alter, amend, delete, cancel or otherwise change welfare plan benefits at any time, subject to negotiation with the union. A duty to negotiate is not of the same character as a duty to secure consent. Regardless of what Simpson is required to do in satisfying its obligation to negotiate, it ultimately retains exclusive authority to change retirement health benefits irrespective of the outcome of such negotiations. The claims for breach of contract under LMRA are similarly flawed, LMRA confers federal jurisdiction over suits for violation of contracts between an employer and a labor organization representing employees in an industry affecting commerce. As discussed above, the retirees’ rights to health benefits under the now-expired CBA were not vested. Thus, their claims seeking recovery of such benefits does not arise under a contract sufficient to trigger LMRA’s grant of federal subject matter jurisdiction, because their contractual rights to such benefits no longer exists. The one dissenting judge concluded that, because the early retirees had a vested contractual right requiring Simpson to negotiate with the union before changing benefits, their claims alleging Simpson failed to satisfy this requirement arose under the parties’ contracts sufficient to confer federal jurisdiction. Poore v. Simpson Paper Company, Case No. 05-36060 (US 9th Cir. September 22, 2008).

3. STATE AND LOCAL PENSION PLANS NAVIGATE THE STORM:

National organizations representing the nation’s largest public pension plans announced that state and local retirement systems remain sound amid the current downturn in financial markets, and retirement benefits of the nation’s teachers, firefighters, police officers and other public workers remains safe and secure. Public pension plans are intentionally designed to withstand market fluctuations, even ups and downs as dramatic as those in recent days and in years past, according to National Association of State Retirement Administrators. Retirement benefits for the nation’s public workforce are safe and secure because they are highly diversified and invested with a focus on the long term. National Council on Teacher Retirement echoed those sentiments. Public pension benefits are pre-funded with more than $2.5 Trillion in assets, which are professionally managed and broadly diversified -- about 60% of assets in global stocks; 30% in government and corporate bonds; 5% in real estate; and the remainder in cash and alternatives. Government Accountability Office recently reported that public pensions on the whole are financially sound and positioned to meet their long-term pension obligations. Moreover, another recent GAO report focusing on pension funds’ alternative investments found that states take a variety of commendable approaches to overseeing and monitoring public pension plan investment, including documentation of due diligence steps in selection of fund managers; and public information on investment decisions, fund performance and reporting. Additionally, public pension funds are subject to well-structured accounting rules that promote transparency and allow the funds to focus on the long term rather than requiring them to react to short-term volatility. Public pensions have liquidity needed to pay promised benefits for the near term, and the accumulated assets in funding mechanisms that will allow them to continue to do so indefinitely. These funds are positioned to provide short- and long-term solutions to help markets recover. For example, many public funds halted securities lending and other practices prior to institution by Securities and Exchange Commission of additional regulations designed to curb predatory short sales in their efforts to settle market volatility and restore investor confidence. Public pensions have endured many past financial market crises. For example, state and local plans successfully survived the market crash of 1987, where the 500 point one day drop in the Dow Jones Industrial Average equaled a 20% loss, not the 5% loss it means today. Recent reports of investment banks and investment companies going bust may sound new, but public pension funds have weathered past ones. Going back to the 1970s, there was a string of back-to-back years when the inflation rate was substantially higher than the rate of return on investments. Public pensions survived the Enron and WorldCom debacles and bursting to the tech stock bubble early this century. Not only are state retirement systems expected to withstand the latest market turmoil, but they are expected again to be a source of essential liquidity and patient capital, helping to stabilize markets as they did following 9/11 and following the market crash in 1987. Comforting words.

4. FRS SENDS “COMFORT” LETTER TO PARTICIPANTS:

By letter dated September 17, 2008 (which, by now, is ancient history), Linda South, Secretary of Department of Management Services, has written a letter to all members of the Florida Retirement System. Most importantly, Ms. South emphasizes that the vast majority of state employees are in the Florida Retirement System Pension Plan, which is a defined benefit plan. Members of a DB plan know well in advance what their retirement benefits will be upon retirement. The State Board of Administration manages the investments in the DB plan. According to SBA, the overwhelming majority of assets are conservatively invested for the long term in highly diversified portfolios. SBA reports 1.76% of plan assets were invested in high profile companies like Lehman Brothers, AIG, Washington Mutual, Merrill Lynch and Bank of America. SBA’s professional investment staff and external investment managers work for members in a relationship of trust and confidence to manage money properly during historical periods of financial stress. SBA recognizes that such periods continue to occur due to the normal ebb and flow of global economic and financial forces. As an example, despite deep declines in global stock markets in 2001 and 2002, the conservative, diversified approach continues to keep the Florida Retirement System Pension Plan extremely healthy. As of July 1, 2008, the plan has more assets than currently needed to pay future benefit retirements by about 106%, or $6.9 Billion. Under SBA’s stewardship, FRS is one of only a handful of public pension systems to maintain full funding. During these financial times, Ms. South wants members to understand that under Florida law, accrued FRS pension plan benefits are guaranteed, regardless of investment performance. (The foregoing statement is true for virtually every municipal plan in Florida, including all fire and police plans that participate in Chapters 175 and 185.) And what is Ms. South’s advice to those unfortunate souls who opted out of the FRS Pension Plan and chose the Investment Plan, which is a defined contribution arrangement? “[M]ake sure you are putting money away for your retirement by investing in a well-diversified portfolio. ... Members should consult their personal financial advisers for guidance.” In other words, you’re on your own. Oh, well.

5. ADA AMENDMENTS ACT OF 2008:

Apparently not everything in Washington has come to a screeching halt, as President Bush signed into law the ADA Amendments Act of 2008. S. 3406/H.R. 3195 is designed to restore the intent and protections of the Americans with Disabilities Act of 1990. The following is part of a summary written by the Congressional Research Service, a nonpartisan arm of the Library of Congress:

Section 4 -

Amends the Americans with Disabilities Act of 1990 to redefine the term "disability," including by defining "major life activities" and "being regarded as having such an impairment."

Sets forth rules of construction regarding the definition of "disability," including that: (1) such term shall be construed in favor of broad coverage of individuals under the Act; (2) an impairment that substantially limits one major life activity need not limit other major life activities in order to be a disability; (3) an impairment that is episodic or in remission is a disability if it would substantially limit a major life activity when active; and (4) the determination of whether an impairment substantially limits a major life activity shall be made without regard to the ameliorative effects of specified mitigating measures.

Section 5 -

Prohibits employment discrimination against a qualified individual on the basis of disability. (Current law prohibits employment discrimination against a qualified individual with a disability because of the disability.)

Prohibits the use of qualification standards, employment tests or other selection criteria based on an individual's uncorrected vision unless the standard, test, or other selection criteria, as used by the covered entity, is shown to be related to the position and is consistent with business necessity.

Section 6 -

Declares that nothing in the Act: (1) alters the standards for determining eligibility for benefits under state worker's compensation laws or under state and federal disability benefit programs; (2) alters the requirement to make reasonable modifications in policies or procedures, unless such modifications would fundamentally alter the nature of the goods, services, facilities or accommodations involved; or (3) provides the basis for a claim by a person without a disability that he was subject to discrimination because of lack of disability.

Declares that the authority of the Equal Employment Opportunity Commission, the Attorney General and the Secretary of Transportation to issue regulations includes authority to issue regulations implementing definitions of the Act.

Section 7 -

Makes conforming amendments to the Rehabilitation Act of 1973.

The law, which specifically overturns several United States Supreme Court decisions, is effective January 1, 2009.

6. ON DEVELOPMENT:

President Kennedy was fond of a quote by Confucius: “Victory has a thousand fathers; defeat is an orphan.” We tend to take credit for successes while spreading the blame for failure on the shortcomings of others. Indeed, when people are asked to attribute successes and failures, to explain how things happened, they are seven times as likely to focus on the significance of their efforts when describing a success as they are when describing a failure. But if we overstate our role in a success, we will be ill-prepared to duplicate it in the future. And by ignoring our role in a failure, we won’t learn much from our mistakes. Words of wisdom from Simple Secrets of Successful People.

7. APHORISM:

The nicest thing about the future is it always starts tomorrow.

8. QUOTE OF THE WEEK:

“Forgive your enemies, but never forget their names.” John F. Kennedy (again). And we always thought Nixon said that.


Copyright, 1996-2009, all rights reserved.

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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