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Cypen & Cypen
NOVEMBER 1, 2007

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


The U.S. Government Accountability Office, on September 24, 2007, issued “State and Local Government Retiree Benefits: Current Status of Benefit Structures, Protections, and Fiscal Outlook for Funding Future Costs.” State and Local Retiree benefits are not subject, for the most part, to federal laws governing private sector retiree benefits. Nevertheless, there is a federal interest in ensuring that all Americans have a secure retirement, as reflected in the special tax treatment provided for both private and public pension funds. In 2004, new government accounting standards were issued, calling for the reporting of liabilities for future retiree health costs. As these standards are implemented and the extent of the related liabilities becomes known, questions have been raised about whether the public sector can continue to provide the current level of benefits to its retirees. GAO was asked to provide an overview of state and local government retiree benefits, including the following: (1) the types of benefits provided and how they are structured, (2) how retiree benefits are protected and managed and (3) the fiscal outlook for retiree benefits and what governments are doing to ensure they can meet their future commitments. For this overview, GAO obtained data from various organizations, used its model that simulates the fiscal outlook for the state and local sector, and conducted site visits to three states that illustrate a range of benefit structures, protections and fiscal outlooks. Cognizant agency officials provided technical comments, which were incorporated as appropriate. The systems for providing retiree benefits to state and local workers -- who account for about 12% of the nation’s workforce -- are composed of two main components: pensions and retiree health care. These two components are often structured quite differently. Importantly, state and local governments generally have established protections and routinely set aside monies to fund their retirees’ future pension costs, but this typically has not been the practice for retiree health benefits. A model GAO developed to simulate the fiscal outlook for state and local governments indicates that, for the sector as a whole, (1) estimated future pension costs, currently about 9% of employee pay, would require an increase in annual government contribution rates of less than a half percent and (2) estimated future retiree health care costs, currently about 2% of employee pay, would more than double by the year 2050 if they continue to be funded on a pay-as-you-go basis. Because the estimates are very sensitive to the assumed rates of return and projected rates of health care inflation, the model also indicates that if rates were to fall below historical averages, the funding requirements necessary to meet future pension and health care costs could become much higher. Nevertheless, state and local governments generally have strategies to manage future pension costs. In contrast, many are just beginning to respond to the newly-issued standards calling for reporting of retiree health liabilities, and they generally have not yet developed strategies to manage escalating health care costs. Across the state and local government sector, the ability to maintain current levels of retiree benefits will depend, in large part, on the nature and extent of the fiscal challenges that lie ahead -- challenges driven primarily by the growth in health-related costs for Medicaid, and for active employees as well as retirees. In future debates on retiree benefits, policymakers, voters and beneficiaries will need to decide how to control costs, the appropriate levels of benefits and who should pay the costs -- especially for health care.


Moore and his wife were convicted of twenty-eight counts of theft of government property. The factual basis for the charge was that they received and converted to their own use monthly Veterans Administration benefits that had been payable to Moore’s mother after the death of her husband, Moore’s father. At the time of the mother’s death, the benefits were being paid by direct deposit into a joint account that she and Moore had in a local bank. When she died, the deposits should have stopped, because they were widow’s benefits, not an annuity or asset that would continue after the widow’s death. But payments did not stop after her death. Instead, as before, every month a direct deposit in the amount of her VA benefit was made into the same bank account, event though her name was removed from the account shortly after her death and Moore’s wife’s name was added. The Veterans Administration finally discovered -- no thanks to Moore and his wife -- that Moore’s mother had died, and stopped the flow of payments, but not before $73,000 or so had been erroneously deposited and spent. The Moores have never denied that they received and spent the VA benefit money after his mother’s death. Their defense had been that they did not know, because no one ever told them, that Moore was not entitled to the benefits after his mother died. In legal parlance, they put the government to its burden of proving the knowledge element of the statute -- that they knew the funds belonged to the government when they used them for their own purposes. (An element of the defense is that the defendant acted “knowingly and willfully with the intent either temporarily or permanently to deprive the government of the property.”) At close of the government's case, Moore and his wife each moved for a judgment of acquittal, pinpointing the willful, knowing and intentional requirements of the offense. The district court reserved ruling on their motions. Federal Rule of Criminal Procedure 29(b) specifically provides that if the district court reserves ruling on a motion for judgment of acquittal, the court must decide the motion on the basis of the evidence at the time the ruling was reserved. Before the amendment, a defendant deprived of an immediate ruling on sufficiency of the evidence had to decide between freezing the evidence at that point in order to preserve the issue or presenting additional evidence in his own case and risking filling any holes in the government’s case that had existed up until then. The amendment, entitling defendant to a snapshot of the evidence at the point when the court reserves its ruling, frees defendant to present additional evidence without fear of doing himself harm on the sufficiency issue. So, Moore testified that he had believed he was entitled to the funds after his mother’s death, because she had told him payments resulted from an annuity his father had purchased, which would go to Moore after her death. The jury convicted Moore and his wife on all counts, and the court finally denied their motions for judgment of acquittal. On the Moores’ appeal, the government urged that the court consider the testimony of Moore and the adverse credibility determination the jury obviously made regarding it. However, because Rule 29(b) applies, the court reviewed sufficiency of the evidence only as it stood at end of the government’s case. Considering only that evidence, the appellate court concluded the government failed to present enough to prove beyond a reasonable doubt that either Moore or his wife knew they were not entitled to the continuing VA benefits after his mother’s death. What was not established by the evidence was that either Moore or his wife had any knowledge that they were not entitled to keep receiving his mother's VA benefits after her death. There is no evidence that the Veterans Administration ever notified Moore and his wife they were not entitled to continue receiving his mother’s benefits after she died or that they were required to notify the agency of her death. Instead, the government's evidence merely established that the monthly direct deposits into the joint account Moore and his wife shared had continued until the Veterans Administration discovered the mother's death and terminated the benefits. Considering only the evidence admitted during the government's case, and viewing that evidence in light most favorable to the government, there was insufficient evidence for a reasonable jury to have found beyond a reasonable doubt that Moore or his wife knew that they were not entitled to continue receiving VA benefits that his mother had been receiving before she died. The district court should have granted the motion for judgment of acquittal that each defendant filed. Thus, the appellate court reversed the convictions. United States of America v. Moore, Case No. 07-10237 (U.S. 11th Cir., October 26, 2007).


NFL owners voted unanimously to commit $10 Million to a program that will help pay for joint replacements, cardiovascular screenings and assisted living care for retired players in financial need. The New York Times reports that the money is in addition to the $7 Million given in May by a coalition of teams, the players union, the Pro Football Hall of Fame and the league’s alumni association. That coalition, known as the Alliance, was formed to address concerns about medical care for retirees, particularly those who did not make a lot of money during their playing careers and now endure the devastating physical effects of their sport. The medical-care fund will be supplemented by players’ fine money and by other contributions. The NFL and the players union have been criticized by a number of former players over their treatment of retired players in need. The former players have especially criticized the union chief for focusing too much on current players. The program approved was created to try to help players who could not afford top-notch care for an array of problems that frequently afflict them. The joint replacement operations for hips, knees and shoulders will be available at no cost to retired players without insurance or with financial need. The money does not affect funds for players’ pensions (a separate point of contention).


A working paper from Center for Retirement Research at Boston College examines how changes in worker capabilities and job requirements over the past few decades affect ability of older workers to work past the Social Security Early Retirement Age of 62. The issue arises because a possible reform of Social Security would raise the early retirement age. This change might be made in conjunction with raising the Normal Retirement Age in order to offset reduction in annual benefits that workers would receive when retiring at the Early Retirement Age. Fairness is one aspect of the issue of raising Social Security's Early Retirement Age. Would such a change be fair to demographic groups with relatively short life expectancy, to people with physically demanding jobs or to people at older ages unable to work or to find work? The issue of fairness can be addressed in terms of cross-sectional equity or intergenerational equity. Because workers worked to older ages early in the history of Social Security, the past becomes a natural comparison. The paper focuses on intergenerational equity, comparing different demographic groups over time. The intergenerational question has two parts. First, have older workers' capabilities changed over the last few decades in ways that would affect continued employment? Second, have job requirements changed in ways that would affect continued employment for older workers? The paper examines changes over the past several decades in worker capabilities and job requirements. The paper looks back over the past twenty to 40 years, depending on availability of data, focusing on people in their late fifties and sixties because those are the ages where increased years of work would occur.


Amid disagreement over the depth of public pension underfunding, defined contribution plans represent the camel’s nose under the seat of government, according to a PlanSponsor article. State and local governments have been forced to act more like Corporate America now that they are required to account for retiree medical benefits on an accrual rather than pay-as-you-go basis under Governmental Accounting Standards Board’s Statement 45. However, a larger question remains about whether the public sector could be under the gun to follow the lead of private enterprise when it comes to transitioning from the old-line defined benefit pension model to the more transparent and adaptable defined contribution approach. If so, the trick would be to offer retirement benefits that are still palatable enough to recruit and retain top talent without a high price tag that might anger taxpayers. While a substantial number of state legislatures have considered replacing their DB plans with DC plans over the past two decades, only two have made the switch for new hires: Michigan and Alaska, both of which have frozen their DB plans for new hires. More common has been the movement of several states -- including Florida, South Carolina, Ohio, Montana, North Dakota and Kansas -- to restructure their retirement plans by adding a DC option to the mix. While the move is viewed by many as more benevolent than phasing out a traditional pension, it brings with it the same employee education and communication challenge that the private sector has experienced since the 401(k) plan was introduced. The Florida Legislature paved the way for a 401(a) plan offering for Florida Retirement System employees, just as economic recession, plummeting stock market and the largest corporate bankruptcy in U.S. history took hold. With about 692,000 actives and 250,000 retirees in Florida, the nation’s fourth largest pension plan and second largest public DC plan introduced the DC option between June 2002 and February 2003. An alternative option was made available for employees with five or more years of prior FRS service who preferred a hybrid option featuring elements from both plans. The DC plan was offered to benefit short-term employees, as well as give the entire workforce an ability to manage their own retirement benefits. Also, it was allegedly introduced as a way to provide better budgeting for more than 900 employing agencies and to be used as a recruiting tool. FRS officials concede that most new hires, particularly younger employees, consider retirement planning a low priority -- as evidenced by the reality that 60% of this segment neglects to take action and, thereby, defaults into the traditional pension plan. Twenty six percent chose the DC plan and 16% chose the DB plan. (There is proposed legislation to change that situation, so that those not taking any action will be thrown into the DC plan. Nice little move.) Let’s face it: defined benefit plans provide employers, employees and retirees with significant advantages over defined contribution plans. For us, the bottom line will always be that you can never outlive your defined pension benefit.

6. NEW YORK CITY TO SETTLE LONG-STANDING PENSION DISPUTE: reports that New York City will pay $160 Million to about 40,000 retired and active teachers to settle a dispute over whether the City was making proper pension contributions. By the way, the matter has been pending for 37 years!


Ever feel like playing hooky, but nervous about getting caught? Well, the Excused Absence Network has got you covered, according to Associated Press. For about $25, students and employees can buy excuse notes that appear to have come from doctors or hospitals. Other options include a fake jury summons or an authentic-looking funeral service program, complete with comforting poem and list of pallbearers. Some question whether the products are legal or ethical, but the company’s owners say they are just helping people do something they would have done anyway. The company’s customers receive templates so they can print the notes after typing the name and address of a local doctor or emergency room. Those who choose jury duty as an excuse to miss work enter their county courthouse information on the form. Although the company’s disclaimer advises the notes are “for entertainment purposes only,” its website shows pictures of people sunbathing and playing golf, using the fabricated excuses. This piece reminds us of the young boy who was absent and the next day brought in a written excuse from his mother. When the teacher asked him why he had been absent, he replied, “I don’t know. I didn’t read the note.”


“Charm has a way of getting the answer yes without asking a clear question.” Albert Camus


I don't approve of political jokes. I've seen too many of them get elected.

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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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