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Cypen & Cypen
NEWSLETTER
for
October 18, 2012

Stephen H. Cypen, Esq., Editor

1.     ELIMINATING “DOUBLE-DIPPING” WOULD BE COSTLY:  Eliminating current "double-dipping" restrictions on retired state employees would cost the state of West Virginia millions of dollars a year in additional pension payments, its pension actuary told legislators.  Sundaygazettemail.com reports that there could be a 5-to 10 percent increase in overall costs by eliminating restrictions on retired public employees returning to work for the state.  Currently, the employer contribution to the Public Employees Retirement System is more than $60 million a year. Elimination of the current restriction, which suspends pension payments to retirees who earn more than $15,000 a year in post-retirement public employment, would encourage more public employees to take early retirement and then return to their state jobs, a practice known as “hot-seating.”  The discussion was prompted by a legislative audit last month that found at least 35 retired state employees had earned more than $15,000 in state compensation in 2011, including 31 who had worked for the state as independent contractors. In the audit, the legislative auditor's office had proposed that the Legislature should either eliminate any restrictions on post-retirement employment, completely ban retired state employees from working for the state or revise state law to come up with a compromise.  Nothing in current law prohibits retired public employees from working for the state as independent contractors. 
 
2.      SURVEY OF CONSUMER FINANCES SHOWS CHANGES IN US FAMILY FINANCES FROM 2007 TO 2010:  
The Federal Reserve Board’s Survey of Consumer Finances for 2010 provides insights into changes in family income and net worth since the 2007 survey.  The survey shows that, over the 2007–10 period, the median value of real (inflation-adjusted) family income before taxes fell 7.7 percent; median income had also fallen slightly in the preceding three-year period. The decline in median income was widespread across demographic groups, with only a few groups experiencing stable or rising incomes. Most noticeably, median incomes moved higher for retirees and other nonworking families. The decline in median income was most pronounced among more highly educated families, families headed by persons aged less than 55, and families living in the South and West regions.  Real mean income fell even more than median income in the recent period, by 11.1 percent across all families. The decline in mean income was even more widespread than the decline in median income, with virtually all demographic groups experiencing a decline between 2007 and 2010; the decline in the mean was most pronounced in the top 10 percent of the income distribution and for higher education or wealth groups. Over the preceding three years, mean income had risen, especially for high-net-worth families and families headed by a person who was self-employed.  The decreases in family income over the 2007−10 period were substantially smaller than the declines in both median and mean net worth; overall, median net worth fell 38.8 percent, and the mean fell 14.7 percent. Median net worth fell for most groups between 2007 and 2010, and the decline in the median was almost always larger than the decline in the mean. The exceptions to this pattern in the medians and means are seen in the highest 10 percent of the distributions of income and net worth, where changes in the median were relatively muted. Although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth appear to have been driven most strongly by a broad collapse in house prices.  Federal Reserve Bulletin June 2012 No. 98, No. 2.
 
3.      INDIVIDUAL ACCOUNT RETIREMENT PLANS--AN ANALYSIS OF THE 2010 SURVEY OF CONSUMER FINANCES: 
Some of the data referred to in Item 2 above have been analyzed in new issue brief from Employee Benefit Research Institute.  Here are some high-level findings:

  • The share of American families with a member in any employment-based retirement plan from a current employer increased steadily from 38.8 percent in 1992 to 40.6 percent in 2007, before declining in 2010 to 37.9 percent.
  • Ownership of 401(k) type plans among families participating in a retirement plan more than doubled from 31.6 percent in 1992 to 79.5 percent in 2007, and increased again in 2010 to 82.1 percent.
  • Although overall retirement plan participation by families declined from 2007–2010, the percentage of family heads who were eligible for defined contribution plans and chose to participate held essentially stable at 78.2 percent in 2010.
  • The percentage of families owning an individual retirement account or Keogh plan declined from 30.6 percent in 2007 to 28.0 percent in 2010. In addition, the percentage of families with a retirement plan from a current employer, a previous employer’s defined contribution plan, or an IRA/Keogh declined from 66.2 percent in 2007 to 63.8 percent in 2010.
  • Rollover IRAs account for 43.2 percent of all IRA and Keogh assets, with regular IRA assets following very closely behind at 42.7 percent, while Roth IRAs account for 11.1 percent and Keoghs 3.0 percent.
  • Defined contribution retirement plan balances accounted for 58.1 percent of families’ total financial assets in 2007, and that share grew to 61.4 percent in 2010. Defined contribution and IRA/Keogh balances increased their share as well, from 64.1 percent of total family financial assets in 2007 to 65.7 percent in 2010.
  • This study and others show that many Americans are facing the likelihood of not having sufficient income in retirement unless they increase their savings, work longer, or significantly decrease their expenditures in retirement if they hope to make ends meet.

 
No. 375 – September 2012.
 
4.      ICMA-RC/SLGE BRIEF IDENTIFIES PUBLIC SECTOR RETIREMENT PLAN CHANGES:  According to a brief released by ICMA-RC and the Center for State and Local Government Excellence, one-third of human resource executives made changes to their retirement plans they offered to employees within the past twelve months.  The brief is Local Government Employment, Benefits, and Retirement Issues. State and local government leaders face difficult issues involving retirement and health care benefits.  Preparing public employees for retirement is a challenge made easier by understanding workplace priorities and behaviors. The brief may contribute to the existing dialogue and encourage public sector employers and employees to take advantage of opportunities available to them.  With a growing wave of retirements and sustained fiscal constraints, local government leaders could be surprised at how difficult it is to fill key positions.  Part of the solution is to help employees develop critically important skills. Equally important is to build 21st Century human resources practices that will appeal to the next generation of public servants.  Here are additional brief highlights: 

  • Since 2008, which was the 10-year peak, public sector employment is down three percent for all local government workers. 
  • As a cohort, local public sector workers are more educated than their private sector counterparts. Twenty-three percent of local government workers have a master's, professional or doctorate degree, compared to 8.3 percent of private sector workers. 
  • The most common retirement plan changes in 2012 for new hires, according to local government human resource respondents, was to increase age and service requirements for normal retirement and reduce pension benefits. For current workers, 23 percent of those surveyed answered that current employee contributions to pension plans had increased over the past year.

 
5.
      WORKERS' COMP CLAIMANT CAN RELY SOLELY ON MEDICAL WORK RESTRICTION TO PROVE DISABILITY FOR PURPOSES OF STATUTORY PRESUMPTION OF CERTAIN CONDITIONS:  Rocha appealed an order of the Judge of Compensation Claims finding his hypertension not compensable, and denying benefits.  In a case of first impression, the Florida District Court of Appeal held that the JCC erred as a matter of law, reversed the ruling and remanded the case.  In seeking workers compensation benefits for his hypertension, Rocha relied upon the presumption of occupational causation in 112.18, Florida Statutes, which provides as follows: 
 
Any condition or impairment of health of any Florida state, municipal, county, port authority, special tax district, or fire control district firefighter or any law enforcement officer or correctional officer as defined in s. 943.10(1), (2), or (3) caused by tuberculosis, heart disease, or hypertension resulting in total or partial disability or death shall be presumed to have been accidental and to have been suffered in the line of duty unless the contrary be shown by competent evidence. However, any such firefighter or law enforcement officer shall have successfully passed a physical examination upon entering into any such service as a firefighter or law enforcement officer, which examination failed to reveal any evidence of any such condition.
 
Rocha argued that he was disabled for purposes of section 112.18, while he was medically restricted from working as a firefighter (between November 3, 2009 and November 11, 2009).  Immediately prior thereto, Rocha had undergone a cardiac stress test, the results of which were abnormal, so that Rocha was immediately restricted to light-duty work and expressly prohibited him from firefighting. The JCC found that the work restriction "was precautionary only," that claimant Rocha had not established a period of disability entitling him to rely on the section 112.18 presumption of occupational causation.  This ruling would encourage a claimant to ignore advice of his doctor in fear that a panel of judges years hence might deem the work restriction unwarranted. Further, it would encroach upon the doctor-patient relationship, and violate both the basic tenets of public safety and the clear purposes of the Workers' Compensation Law.  Finally, it would be inconsistent with the accepted use of medical work restrictions to prove disability for other purposes under the Workers' Compensation Law. The error was not harmless, because the JCC accepted testimony that the medical work restrictions imposed on Rocha from November 3 to November 11 were reasonable and explicitly found there was clear and convincing evidence to justify rejection of the independent medical’s opinion.  Rocha v. City of Tampa/Commercial Risk Management, 37 Fla. L Weekly D2378 (Fla. 1st DCA October 10, 2012).
 
6.      THE GUARDIAN WORKPLACE BENEFITS STUDY:  TheGuardian Workplace Benefits Study establishes the benefits value index as an industry metric to gauge the perceived value of employee benefits among today’s American workers. It aims to foster a better understanding of worker attitudes and the underlying drivers of benefits satisfaction, with the ultimate goal of helping companies better realize the power of benefits to increase productivity and worker engagement.  Every employer wants employees to make the most of their workplace benefits. However, this study shows that the majority of workers do not place a high value on benefits. So, a key conclusion is that there is a tremendous opportunity to increase workers’ satisfaction with their benefits and help them feel more confident about benefits decisions.  It is also evident that American workers have not fully recovered from the financial crisis of 2008.  With a focus on making ends meet, their financial security gap has widened as they struggle to give longer-term financial needs the attention they deserve. Thus the imperative to help employees take advantage of benefits that increase financial protection is perhaps greater than ever before.  Putting workers “front and center” and treating them like customers in terms of what is offered to them, how they are communicated with and, most importantly, by giving them tools to make better financial decisions, is the key. This shift in philosophy will ultimately make employee benefits better understood and more successful — for workers and their companies.  The study shows that an effective employee benefits experience can contribute to a workforce that ultimately is more confident, more satisfied and more engaged.  Some specific results from the inaugural study show that while many workers do value their employee benefits, the average benefits value index score for American workers is 6.8 (based on a scale of 1 to 10, where 10 is “high value” and 1 is “low value”).   Furthermore, 20% of workers fall within the “high” range, 15% within the “low” range and the majority fall in the “moderate” range. These results indicate that while many workers do value their benefits, there is considerable room for improvement.  In addition, this study finds that several factors, including socio-economic status and life stage, influence the degree to which workers value their employee benefits.  There are several cities in Florida that ought to take heed. 
 
7.      FEDERAL AGENCIES SHOULD COLLECT DATA AND COORDINATE OVERSIGHT OF MULTIPLE EMPLOYER PLANS: 
According to a report from Government Accountability Office to the Chairman, Committee on Health, Education, Labor and Pensions, U.S. Senate, little is known about the characteristics of private sector multiple employer plans, especially information regarding the employers that participate in them. Although no participating employer information is currently collected on the Form 5500, the primary source for pension information reported to the government, some plan-level information on MEPs is available. GAO’s analysis of 2009 plan-level data shows that the bulk of MEP participants and assets resided in the largest 25 private-sector MEPs. Three major sponsor types emerged among the top 25 plans: large corporations, associations and professional employer organizations, which are firms that provide payroll and other human resources services to clients. These sponsor types differ in various ways, but notably, associations and PEO sponsors GAO interviewed tended to have a large number of employers participating in their plans. Little is also known about a fourth category of sponsor type called “open” MEPs, a type of MEP in which employers in the plan share no common relationship or affiliation with the other employers in the plan. This sponsor type appears to have come about in response to 2002 IRS guidance that allowed certain PEOs to avoid tax disqualification of their pension plans if they were converted to MEPs. Soon after this guidance was issued, practitioners began offering open MEPs.  MEPs are marketed as providing several advantages for employers over single-employer plans, but GAO found that these advantages may not always be unique to MEPs. MEPs are marketed as providing reduced fiduciary liability, administrative responsibility and cost. However, other types of single-employer plans may also offer reduced fiduciary responsibility, and third-party administrators can reduce administrative responsibilities. Overall, among MEP representatives and pension experts, there was no consensus on whether or not open MEPs or PEO-sponsored MEPs could substantially expand pension coverage. Given that employers do not directly oversee the plan, there was also some concern from Labor officials regarding the risk of MEP abuses, such as charging excess fees or mishandling the plan’s assets. Additionally, because all of the participating employers are responsible for maintaining the MEP, if one employer becomes noncompliant with the tax requirements the plans of all the employers in the MEP may lose their tax-qualified status.  Labor regulates MEPs for participant protections under the Employee Retirement Income Security Act of 1974 (ERISA), while the IRS regulates them for preferential tax treatment under the Internal Revenue Code (IRC). However, ERISA places requirements on plans that are not required under the IRC, and Labor and IRS do not coordinate to reduce the impacts of defining a MEP differently. For example, although Labor recently opined that open MEPs are a collection of single plans, each separately sponsored by participating employers for their employees, open MEPs still qualify for preferential tax treatment under the IRC. Pension experts told GAO that such differing treatment can create compliance challenges. For example, an open MEP may be able to file a single annual report for the IRS but may also have to file annual reports for each of its component plans for Labor.  Pension experts agreed that compliance guidance from either agency would be helpful.  GAO-12-665 (September 2012).

8.      A BAD DAY AT HALLMARK:  As the days go by, I think of how lucky I am...that you're not here to ruin it for me.
 
9.      PUNOGRAPHICS:  
The earthquake in Washington obviously was the government’s fault. 
 
10.    QUOTE OF THE WEEK:  
Politics is supposed to be the second-oldest profession.  I have come to realize that it bears a very close resemblance to the first.   Ronald Reagan
 
11.    THIS DAY IN HISTORY:  
In 1948, Operation 10 Plagues – Israeli offensive against Egyptian army.  
 
12.    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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