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Cypen & Cypen
NOVEMBER 17, 2005

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


Confidence in the economy among wealthy Americans, according to Bloomberg News, fell to a 30-month-low in October because of concern over effects of hurricanes, increased energy prices, politics and the war in Iraq. The proportion of affluent Americans who are positive about the economy declined to 42% from 52% in a recent private survey. The survey results echo those of broader consumer confidence gauges, which dropped after Hurricane Katrina struck the gulf coast on August 29. They suggest consumer spending on purchases other than fuel may slow this holiday season, providing less support for economic growth. Hurricanes Katrina, Rita and Wilma caused as much as $77 Billion in insured losses. The storms have resulted 521,400 initial claims for unemployment benefits so far, as per the U.S. Department of Labor.


Building on the positive movement of the second quarter, the median performance of public pension funds was up 3.98% in the third quarter, while private plans gained slightly less, at 3.74%, according to Wilshire’s Trust Universe Comparison Service. The one-year performances for public and private pensions funds were, respectively, 13.63% and 13.73%.


Potter was a firefighter until she was diagnosed with ventricular ectopy (arrhythmia) and hypertension. The city accepted both conditions as compensable under workers’ compensation. However, after a dispute arose with respect to the proper impairment ratings for Potter’s conditions, the judge of compensation claims apportioned half of the impairment rating for the ventricular ectopy, because the expert testimony that some activities can trigger increased arrhythmia, like lack of sleep, intake of caffeine, cigarette smoking and increased level of stress. On appeal, Potter successfully contended that the judge of compensation claims erred in apportioning the impairment rating for her ventricular ectopy because the city had previously accepted the condition as compensable pursuant to Section 112.18(1), Florida Statutes (the so-called Heart/Lung Bill). (Curiously, this case is the third recent one dealing with the Heart/Lung Bill -- see C&C Newsletters for November 10, 2005, Item 8 and October 20, 2005, Item 4) We will not repeat the statutory presumption here. However, the Florida Supreme Court has held that the presumption affects the burden of persuasion. It embodies the social policy of the state, which recognizes that firefighters are subjected during their careers to hazards of smoke, heat and nauseous fumes from all kinds of toxic chemicals, as well as extreme anxiety derived from the necessity of being constantly faced with possibility of extreme danger. The legislature recognized that this exposure could cause a firefighter to become the victim of tuberculosis, hypertension or heart disease. Contrary to the city’s argument, it did not rebut the presumption through expert testimony, because it had previously acknowledged the compensable nature of ventricular ectopy pursuant to the statute. It is unreasonable to apportion a part of Potter’s impairment rating for the ventricular ectopy as being work-related and a part as being nonwork-related, when the city had previously accepted the entire condition as compensable by virtue of Section 112.18(1), Florida Statutes. Potter v. City of Ormond Beach, 30 Fla. L. Weekly D2473 (Fla. 1st DCA, October 25, 2005).


A new “Issue in Brief” from Center for Retirement Research at Boston College asks the question “Do today’s retirees have sufficient income to meet their needs?” One common way to address this question is to determine a household’s “replacement rate.” The replacement rate, defined as the ratio of post-retirement income to pre-retirement income, gauges the extent to which retirement income allows workers to maintain their pre-retirement standard of living. In the United States retirement income system, Social Security is the single most important source for most people. It provides a basic level of replacement, upon which individuals can build through additional saving. Three interesting conclusions emerge from the instant analysis. First, the median replacement rate for newly retired worker beneficiaries according to both the Health and Retirement Study and the Social Security Administration is about 42%. These replacement rates would be higher if so many individuals did not receive their benefits before normal retirement age. Second, the median replacement rate for a female worker is 52% and for a male worker 37%, due to their different earnings histories. Third, on a household basis, Social Security benefits provide on average about a 44% replacement rate for both couples and single individuals. The range of actual Social Security replacement rates is narrower, however, for couples than for individual workers. In some sense, the Social Security replacement rates represent the “golden age” of retirement income. Today’s retirees are claiming Social Security benefits before the extension in the retirement age to 66 and then 67, which is equivalent to an across-the-board cut in benefits. Today’s retirees also do not face the huge deductions in their Social Security checks to cover Medicare premiums that tomorrow’s retirees will. And today, average retirees do not pay personal income tax on their Social Security benefits, whereas future retirees will increasingly see a portion of their benefits subject to taxation. The relatively comfortable circumstances of today’s retirees make it very hard to call attention to the challenges that future retirees will face.

5. IS CASPER THE GHOST REALLY FRIENDLY?: reports on a pretty scary ruling in a spooky case involving unemployment benefits. A security guard told his supervisor that ghosts were haunting a neighborhood that he was patrolling. He even pointed out to the supervisor a place where the ghosts were standing, but not so apparently to the supervisor, who fired the security guard. In the security guard’s action for unemployment benefits, a judge ruled that the termination for “misconduct” was erroneous: such beliefs do render a claimant unfit as a security guard. Surely, an employer cannot have security guards who see ghosts and apparitions. Nevertheless, the judge found that seeing ghosts is not the type of misconduct that can disqualify one from receiving benefits. No sheet!


The Family and Medical Leave Act creates both substantive and proscriptive rights. The substantive rights include an employee’s right to take up to 12 weeks of unpaid leave in any one-year period in order to care for a parent who has a serious health condition. The proscriptive rights include an employee’s right not to be discriminated or retaliated against for exercising substantive FMLA rights or for otherwise opposing any practice made unlawful by FMLA. Under FMLA, “parent” is defined as the biological parent of an employee or individual who stood in loco parentis to an employee when the employee was a son or daughter. (No, in loco parentis does not mean that your folks are nuts.) Persons who are in loco parentis include those with day-to-day responsibilities to care for and financially support a child, or, in the case of an employee, who had such responsibility for the employee when the employee was a child. Dillon sued her employer under FMLA, claiming a breach thereof in connection with a serious health condition involving Dillon’s grandmother. A federal trial court has ruled that, although Dillon bore the burden of putting forth sufficient evidence to demonstrate that her grandmother qualifies as her “parent” under FMLA, the evidence presented was sufficient to avoid summary judgment and require a full trial on the issue. Dillon v. The Maryland-National Capital Park and Planning Commission, Case No. DKC 2004-0994 (D. Md., August 18, 2005).


The National Council on Teacher Retirement (an association of 74 state, local, university and territorial retirement systems), has released its fifth edition of “Protecting Retirees’ Money.” Included are 50 statewide retirement systems that cover teachers and other public employees, offering retirement security to about 17 million current and future retirees and holding $1.75 Trillion in assets. The publication explains the structure of the retirement systems that serve teachers and other public employees. It details the composition of the boards that oversee most of the systems. It describes whether a board administers the pension plan and invests its assets or whether some other entity carries out the investments. A broad array of laws protects assets of the retirement systems. These laws regulate conduct of fiduciaries who invest the assets. Because these fiduciaries are responsible for the money that will be paid to retirees, they are subject to the most stringent laws possible. They must adhere to prudence rules, conflict of interest laws and codes of ethics. As in previous editions, the publication provides citations to all statutes, as well as relevant case law and regulations, so readers can obtain further information. The survey shows the considerable extent of oversight and reporting that ensure accountability of the retirement systems. They are subject to legislative and executive oversight. They also prepare and widely disseminate a variety of reports that show their financial position and other critical data. Finally, the survey summarizes the protection of plan participants’ rights to their pensions. Some protections are in state constitutions (9) or statutes (20, including Florida). Others arise from court decisions (18). In many states, more than one type of protection exists. Hopefully, the publication will assist federal policymakers in evaluating the extent of protection afforded to retirement systems that serve teachers and other public employees. It should also aid state legislators and other policymakers who wish to learn more about the subject retirement systems.


A recent Wall Street Journal front page story on the legendary Warren Buffett carried his tips for individual investors. As with most advice from the Sage of Omaha, we thought it worthwhile to reproduce them here:

1. Look at stocks as parts of businesses. Ask yourself, “How would I feel if the Stock Exchange was closing tomorrow for the next three years?” If I am happy owning the stock, under that circumstance, I am happy with the business. That frame of mind is important to investing.

2. The market is there to serve you and not to instruct you. It is not telling you whether you are right or wrong. The business result will determine that. (Buffett admits to having stolen this one from famed value investor Ben Graham.)

3. You can’t precisely know what a stock is worth, so leave yourself a margin of safety. Only go into things where you could be wrong to some extent and come out OK.

4. Borrowed money is the most common way that smart guys go broke.

5. The stock doesn’t know you own it. You have feelings about it, but it has no feelings about you. The stock doesn’t know what you paid. People shouldn’t get emotionally involved with their stocks.

One short part basically says it all: “Mr. Buffett has relied on gut instinct for decades to run Berkshire Hathaway Inc. Watch him at work inside his $136 Billion investment behemoth, and what you see resembles no other modern financial titan. He spends most of his day alone in an office with no computer. He makes swift decisions, steers clear of meetings and advisers, eschews set procedures and doesn’t require frequent reports from managers. Occasionally he picks up the phone, calls his broker and trades $100 Million or more of stock. On a recent Wednesday, he received only13 phone calls, including one wrong number. There were no urgent confabs with his staff. He found time to work on new lyrics to ‘Love Me Tender’ for a birthday party for his friend Bill Gates, and to demonstrate a newspaper-throwing technique he learned while delivering papers as a boy in Omaha.” What a lesson.


In a commentary from Miami Daily Business Review, the author posits that real estate is an asset class would be a dubious honor. “Asset classifiers” are making noises about proclaiming property investments an investment class unto itself, along with present big three: stocks, bonds and money-market securities. Real estate would then become prime material to be sliced, chopped and squeezed into all sorts of packaged portfolios. Next thing you know, all sorts of people will be buying, holding and selling without a whole lot of concern for any fundamental reasons why. By the time official imprimaturs are bestowed, the best chance for getting in on a good thing early is probably long past. The conferring of “asset class” status also may turn the category of investments into a kind of financial football, to be kicked around in the markets with little seeming regard for its real-world investment merits. Another problem: like hedge funds and some other forms of alternative investments, real estate in no way represents a homogeneous species. Under the real estate umbrella may dwell such disparate creatures as home-building stocks, REITs that specialize in owning properties and REITs that specialize in property loans or leasing. In today’s markets, price-consciousness has drastically increased. Once any type of investment starts to trade on price more than some sense of underlying value, the door swings wide open to increased risk and volatility. Years before anybody sought to label it an asset class, of course, real estate established itself as a solid means of building and preserving wealth. It is unlikely anything would ever threaten that status, not even the bursting of a speculative bubble. However you see them categorized, though, real estate investments will never be exempt from the forces that rule all kinds of markets everywhere. Past performance is no sure guide to future results -- and if prices get too high they will sooner or later fall.


A seat on the New York Stock Exchange recently sold for a record $3.025 Million. (Probably an aisle seat.)

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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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