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Cypen & Cypen
NOVEMBER 18, 2004

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


U.S. securities firms may cut hiring next year because of increasing regulation-related costs and slowing revenue growth, according to the Securities Industry Association as reported by Bloomberg News. Wall Street’s trade group estimates the industry will increase employment by 2% to 3% in 2005, down from a 4.2% rise this year. The industry employs about 800,000 people, down from its peak of 840,000 in 2001. Much of the hiring is for experts in compliance, accounting and computers; demand for investment bankers will probably show no increase next year. Not much of a surprise: the SIA estimates the industry’s pretax earnings in the U.S. will drop 22% this year, to $18.9 Billion from $24.1 Billion in 2003.


In somewhat of a “rebuttal” to advice that says people should prepare for retirement (see C&C Newsletter for November 11, 2004, Item 4), Internal Revenue Service has listed “10 Reasons to Put Off Saving for Retirement.” Here is the advice set forth in that tongue-in-cheek-piece:

  1. There are so many important things I need that money for NOW. (An extra dinner, an extra outfit, a weekend trip to Bora Bora.)
  2. There will always be time to save later. (Never do today what you can put off until tomorrow.)
  3. Maybe I won’t live long enough to retire. (Life is so uncertain.)
  4. I love a challenge. (Like working into my 80's or 90's because I don’t have the money not to.)
  5. I don’t know how to begin. (There are so many ways to go about saving for retirement that I need more time to think about it.)
  6. All that talk about 401(k)’s and IRAs and the time-value of money is very confusing. (I like a simple life.)
  7. I don’t know how much I need for retirement. (But I bet it’s a huge number.)
  8. Planning for retirement is such a big undertaking. (I don’t think I can save as much as I know I should, so I just won’t start saving at all.)
  9. I might get lucky. (I may win the lottery.)
  10. Taking care of me financially will provide wonderful character-building opportunities for my children. (And so many chances for me to feel warm gratitude toward them -- Ha!)

And you thought IRS had no sense of humor.


As your editor has long written and lectured, the longer a disabled employee remains “out of sight, out of mind,” the less likely it is that he will ever return to productive employment -- representing enormous cost to employers and employees alike. Well, we now have something more than anecdotal evidence to back us up. Concerned about the financial and human toll associated with more conventional disability management practices, Weyerhaeuser Co. Ltd., the Canadian global forest products company, has taken a radically different approach, intervening within days of an accident or illness to see about accommodating the employee’s return to work. The company makes no distinction between occupational and non-occupational causes when it comes to easing its disabled employees back to work. Through a combination of better safety procedures and its new approach to disability management, Weyerhaeuser has reduced the number of productive days lost by 12,000 over the past three years! The disability management program, which is jointly administered by company and union representatives, resulted in a dramatic 47% reduction in duration of claims in 2003 and a 39% reduction in cost of claims. Early intervention is the key to a successful return-to-work policy; it saves employers money, and it provides reemployment for people who might not otherwise return to the work force. The Weyerhaeuser model works because it is a consensus-based approach that was jointly designed by union and management representatives. Historically, disabled employees do not trust unilateral systems, which are often seen as ways to get employees off claim rather than figuring out how to get them back into the work force. This program requires disabled workers to trust the system, which is why it works. Specifically, each work site has an assigned return-to-work coordinator, who is responsible to make early contact with the affected employees, their families, their physicians and their managers to develop a back-to-work accommodation. The coordinator may be a company human resources employee or a union member. Company and employee representatives at each job site are also required to develop a job bank of “transitional positions” for returning employees who have been given limited medical clearance by their doctors. The key is to enlist employee involvement in developing strategy from the outset. With a consensus-based approach, unions and employers have reserved the right to disagree in other areas -- and they do -- but, ideally, not at the expense of ill or injured employees. This really good stuff was reported by


NASD, the regulator of U.S. securities firms, announced that it is requesting public comment on a possible new rule establishing procedures and certain disclosure requirements to address potential conflicts of interest when its regulated firms provide fairness opinions in connection with corporate control transactions. Investment banks typically provide fairness opinions in corporate control transactions, including mergers and acquisitions; disposition or divestiture of material assets, divisions or subsidiaries; and buybacks of outstanding securities. Although fairness opinions are not required by statute or regulation, they have been a regular feature of corporate control transactions for nearly 20 years. Corporations disclose fairness opinions in various Securities and Exchange Commission filings and they are often referred to by investors. NASD is concerned that current disclosures in fairness opinions may not sufficiently inform investors about their potential conflicts and limitations, leaving investors unable accurately to assess the information and judgments they contain. For instance, investors may evaluate a fairness opinion differently if they know that the investment bank rendering it has acted as financial advisor to one of the companies involved, and will receive compensation when the transaction is completed. NASD is requesting comment on the best way to improve the process by which investment banks render fairness opinions and manage and disclose inherent conflicts. The public comment period expires on January 10, 2005.


Past and present Cleveland police officers appealed a United States District Court’s Summary Judgment dismissing their claims for violations of the Fair Labor Standards Act. The trial court agreed with the City that because Congress amended FLSA to reduce financial burdens upon governmental entities, that the City can deny leave where payment of overtime to substitute police officers would impose a financial burden upon the City and that granting the officers’ leave request would result in undue disruption of the City’s police services within the meaning of FLSA. The United States Court of Appeals for the Sixth Circuit reversed: the statutory phrase “unduly disrupt” is ambiguous; thus, judicial deference is due the Secretary of Labor’s opinions that payment of overtime to honor an officer’s request for compensatory time does not qualify as unduly disruptive under FLSA. Thus, the City cannot deny a timely compensatory leave request solely for financial reasons. In addition, the City did not prove that granting the police officers’ otherwise timely request for compensatory leave would result in an unreasonable financial burden and thereby cause an undue disruption of its operations. Beck v. City of Cleveland, Case No. 02-3669 (U.S. 6th Cir., November 12, 2004).


U.S. consumer confidence rose last month, as President Bush was re-elected, stocks rose and the government reported a surge in new jobs in October. The preliminary consumer sentiment index rose to 95.5 from 91.7 in October, the first increase since July. Although studies have shown confidence does not necessarily correlate to changes in spending, sales are rising at some retailers, according to the Commerce Department. Economists had predicted the sentiment index would rise only to 93.1.


We recently wrote that fund sponsors did not consider investment managers’ fees to be of paramount importance (see C&C Newsletter for November 11, 2004, Item 2). In fact, in that piece we noted that, despite an increase in “published” fees, actual fees declined by 5%. Now, Investmart’s Retirement Portfolio Cost Barometer says that investment management fees of 65 basis points or less are reasonable. The release, reported in, is designed to help participants and plan sponsors judge the competitiveness of their managers’ fees. The following represent average investment management fees for various asset categories (which, in our experience, are on the high side):

  • Large Cap US Equity - 48 basis points
  • Small/Mid Cap US Equity - 95 bps
  • International Equity - 73 bps
  • US Fixed Income - 44 bps
  • Cash Alternatives/Ultra-short Term Bonds - 45 bps

Incidentally, the study also found that the largest fee decreases were in the areas of International Equity (-14%) and International Fixed Income (-12%).

Copyright, 1996-2004, 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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