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Cypen & Cypen
NOVEMBER 4, 2010

Stephen H. Cypen, Esq., Editor

1.  IRS ANNOUNCES PENSION PLAN LIMITATIONS FOR 2011:   Internal Revenue Service has announced cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2011.  In general, these limits will either remain unchanged or the inflation adjustments for 2011 will be small.  Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans.  Section 415(d) requires that the Commissioner annually adjust these limits for cost-of-living increases.  Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415.  Under Section 415(d), the adjustments are made pursuant to adjustment procedures that are similar to those used to adjust benefit amounts under the Social Security Act.  The limitations adjusted by reference to Section 415(d) generally will remain unchanged for 2011.  The situation arises because the cost-of-living index for the quarter ending September 30, 2010, while greater than the cost-of-living index for the quarter ending September 30, 2009, is less than the cost-of-living index for the quarter ending September 30, 2008, and, following the procedures under the Social Security Act for adjusting benefit amounts, any decline in the applicable index cannot result in a reduced limitation.  Effective January 1, 2011, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(a) remains unchanged at $195,000.  For a participant who separated from service before January 1, 2010, the participant’s limitation under a defined benefit plan under Section 415(b)(1)(b) is unchanged (that is, the adjustment factor is 1.0000).  For a participant who separated from service during 2010, the limitation under a defined benefit plan under Section 415(b)(1)(b) for 2011 is computed by multiplying the participant’s 2010 compensation limitation by 1.0118 in order to reflect changes in the cost-of-living index from the quarter ending September 30, 2009 to the quarter ending September 30, 2010.  The limitation for defined contribution plans under Section 415(c)(1)(a) remains unchanged for 2011 at $49,000.  The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(a).  After taking into account applicable rounding rules, the amounts for 2011 are as follows:

The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) remains unchanged at $16,500.  (This limitation affects elective deferrals to Section 401(k) plans.)

Annual compensation limit under Section 401(a)(17) remains unchanged at $245,000. 

Annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost-of-living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken in account, remains unchanged at $360,000.

The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations remains unchanged at $16,500.

IR-2010-108 (October 28, 2010).

2. STATE STREET UNIVERSE RISES 8% IN THE THIRD QUARTER:   State Street Corporation has announced that the median return of the State Street Universe of total plans rose 8% in the third quarter of 2010.  For the twelve month period ending September 30, 2010, the universe returned 10.1%.  The SSU consists of a diverse range of funds custodied at State Street and funds provided by the Independent Consultants Cooperative.  It consists of approximately 1,100 total plans of a wide range of plan sponsors and the nearly 20,000 individual funds composing each plan.  The combined asset value of the portfolios in the SSU exceeds $1.8 trillion.   In the third quarter, Master Trust Funds of greater than $1 billion returned 8.2%, slightly higher than 8.0% returned by the smaller Master Trust Funds.  Corporate plans were up 10.7%, with highest returns for the year ending September 30, 2010, while Taft Hartley Plans gained 10.2%.  Equity funds rebounded strongly in third quarter, more than offsetting second quarter losses.  International Emerging Market Equity Funds rose 19.1% in the third quarter while US Equity Funds gained 11.3%.  Fixed Income Funds performed well over the last 12 months, with both US Fixed Income Funds and Global Fixed Income Funds up 10.2%. 

3. FIRE CHIEF ABRUPTLY RESIGNS:  Chelsea, Massachusetts, Fire Chief Herbert Fothergill abruptly resigned, but not before bringing up nearly every firefighter and fire officer on disciplinary charges over wearing the wrong uniform shirt.  Before turning in his papers, reports, Fothergill wrote up all but one firefighter after they refused on October 1 to begin wearing a winter uniform that consists of a button-down shirt.  The action culminated a long-running and bitter feud between the chief and the International Association of Firefighters.  Fothergill’s future with the department was first called into question last year, after the union gave him a vote of no confidence and questioned his handling of overtime pay and injured firefighters.  Relations grew progressively worse from there.  Union members made the symbolic gesture of not wearing the winter uniform, in violation of the chief’s orders to show city officials that Fothergill had lost control.  

4.     HEY, BUDDY,  CAN YOU SPARE A BILLION?:  Twenty-five U.S. states contributed less money to their retirement funds in 2009 than actuaries calculated was needed to support the plans, up from 23 a year earlier, according to a Bloomberg analysis of a Loop Capital Markets report.  Twenty states, including the lowest-rated California and Illinois, failed to make adequate payments into their pensions for teachers and public employees for any of the three years from 2007 to 2009.  Persistent underfunding, coupled with investment losses during the fiscal year that ended June 30, 2009, left 91 of the 145 state retirement funds studied with assets worth assets worth less than 80% of future benefits.  States should not be allowed to complain about their pension funds’ unfunded status when it is they that have contributed to the situation of failing to make required deposits.

5.  GM WILL MAKE $6 BILLION PENSION CONTRIBUTION...IF…:    Contingent upon completion of a public offering, General Motors will contribute at least $4 billion in cash and $2 billion in GM common stock to GM’s U.S. hourly and salary pension plans.  The stock contribution is also contingent upon Department of Labor’s review, and the number of shares contributed will be determined based on the public offering price for GM’s common stock.  The stock contribution will be valued as a plan asset for pension funding purposes at time of contribution and for balance sheet purposes when the shares become fully transferable.  Smart move. 

6. OKLAHOMA STRIKES BACK AGAINST SHARIA LAW:   Oklahoma is well known as the place where the wind comes whistling off the plains.  The rest of the country, including most of the state’s population, is unaware of its status as a hotbed of seditious activity by radical Islamists. reports that families in that great state can rest easily now that their legislators are working hard to outlaw sharia law: next month Oklahoma voters will face a ballot measure designed to outlaw sharia law—a form of law that would never be permitted under the U.S. Constitution—in the state.  This procedure will, of course, provide additional assurances that the state’s Muslim citizens, who make up less than 1% of the state’s population, will be unable to hijack the government in the dead of night.  The preemptive strike against Islamic law is the first of what is sure to be a new “first strike” legislative mentality.  If such legislation is in America’s future there is nothing to stop others from bringing forth ballot measures aimed at stopping clear and present dangers such as:

  • The awakening of dread Cthulhu and the Old Ones
  • The raising of zombies by voodoo priests
  • Creating robots that may eventually rise up and overthrow their masters
  • The adoption of the Vietnamese Dong as our national currency
  • The eventual demise of the sun

Most rational people in the world have no desire to live under sharia law.  The issue is that the highest law in the land, the U.S. Constitution, already expressly forbids adoption of sharia law or any system of religious law, for the matter.  It looks like another example of lawmakers capitalizing on paranoia and irrational fears to shore up their credentials as tough on terrorism in a decidedly-conservative state.  And when the fears being played off only involve an infinitesimal percent of the population, and even lower percentage of registered voters, it is a pretty safe bet.  So while unemployment may be high, Oklahoma’s bank-owned homes will be safe and sound from radical Islam in their backyards. 

7. SHOULD RETIREMENT BE MANDATORY?:   In light of recent unrest in France over changes to the mandatory retirement age, as well as the ongoing discussions in this country about the effect of retirement age on Social Security, Extend Health polled its retiree panel on the issue.  Here are some of what was learned: 85% do not think there should be any mandatory age.  Of the 15% minority who think there should be a mandatory retirement age, 42% say it should be 65; 31% say it should be 70; 21% say it should be 67; and the remaining 6% say it should be 72.  Of the 17% still working, 62% say they do it to stay active and engaged (and the balance work for financial reasons).  Almost three-fourths say they retired at the right time, and, surprisingly, 59% characterize their personal financial situation as excellent or good.    

8. THE FATS OF LIFE:   The Associated Press reports that a Brazilian court has ruled that McDonalds must pay a former franchise manager $17,500 because he gained 65 pounds while working there for a dozen years.  The 32- year-old man said he felt forced to sample the food each day to ensure quality standards remained high, because McDonalds hired “mystery clients” randomly to visit restaurants and report on the food, service and cleanliness.  The man said the company also offered free lunches to employees, adding to this caloric intake while on the job.  Although McDonalds can appeal the ruling, at press time McDonalds was still weighing its legal options.

9. NEW HAMPSHIRE HIGH COURT UPHOLDS PENSION DIVESTMENT:   In 1984 voters approved an amendment to the New Hampshire Constitution, providing all contributions and payments to provide for retirement related benefits shall be held, invested or disbursed as in trust for the exclusive purpose of providing for such benefits and shall not be encumbered for, or diverted to, any other purposes.  In 2008, the New Hampshire Legislature, pursuant to Congressional authorization in the Sudan Accountability and Divestment Act of 2007, enacted the Sudan Divestment Act.  Relying upon federal government findings, the legislature concluded that the state’s financial resources should not be used to provide support for the Sudanese government, and therefore restricted publicly funded retirement systems from investing public funds or maintaining investments in certain “scrutinized companies” connected with that government.  New Hampshire Judicial Retirement Plan and New Hampshire Retirement System filed a petition for declaratory judgment seeking a ruling that the Sudan Divestment Act was unconstitutional based upon the above-quoted state constitutional provision.  The superior court enjoined enforcement of the Sudan Divestment Act, and the state appealed.  The Supreme Court of New Hampshire held the Sudan Divestment Act constitutional based upon: (1) a literal analysis of the text of the New Hampshire Constitution; (2) the clear understanding by the Constitutional Convention delegates as evidenced by their statements prior to approving the amendment; and (3) the clear language of the ballot question describing the scope of the constitutional amendment.  The sole issue on appeal was whether the act violated the New Hampshire Constitution, and the high court reversed.  The retirement systems unsuccessfully argued that the plain language of the constitution prohibited investing or diverting the systems’ funds for any purpose other than funding pension benefits for retired workers.  Accordingly, the retirement systems posited that the Sudan Divestment Act forced them to divest from investments in scrutinized companies, which they claim conflicted with their constitutional obligations.  The state successfully argued that the constitution merely prohibits the state from diverting retirement assets to fund other state budgetary needs.  (Because the trial court found that the trustees could not comply with the Sudan Divestment Act without violating their common law fiduciary duties, the Supreme Court declined to decide what standard to apply in determining whether a trustee who complies with the Sudan Divestment Act has met his fiduciary duties.  Given the absence of a definitive ruling, the court remanded the case to the trial court to determine whether the Sudan Divestment Act impermissibly interferes with the trustees’ statutory or common law fiduciary duties.)  Board of Trustees of the New Hampshire Judicial Retirement Plan v. Secretary of State, Case No. 2009-621 (N.H., Oct. 27, 2010).    Our readers know that Section 175.071(a) (Firefighters) and Section 185.06(7) (Police Officers), Florida Statutes, incorporate by reference Section 215.473, Florida Statutes (“Protecting Florida’s Investments Act”).  PFIA is similar to the New Hampshire Legislation, and also covers Iran.  We are not aware of any challenge to Florida law on the subject. 

10. NEW LOOK TO NEWSLETTER:    We hope you like our newsletter’s new look.  All comments so far have been extremely positive.  We thank you for taking the time to give us your input.  We regret taking over a decade to discover “html.” 

11. ALL PUNS INTENDED:  You never really learn to swear until you learn to drive.

12.         OXYMORON:   What do you call a fish with no eyes? A fsh.

13. AGING JOKES:   Age is an issue of mind over matter.  If you don't mind, it doesn't matter. 

14.         FABULOUS RANDOM THOUGHTS:  Why do Americans choose from just two people to run for president and 50 for Miss America?

15. QUOTE OF THE WEEK:   “Experience is what you get looking for something else.”  Mary Pettibone Poole

16. 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. 

17. PLEASE SHARE OUR NEWSLETTER:  Our newsletter readership is not limited to the number of people who choose to enter a free subscription.  Many pension board administrators provide hard copies in their meeting agenda.  Other administrators forward the newsletter electronically to trustees.  In any event, please tell those you feel may be interested that they can subscribe to their own free copy of the newsletter at  Thank you. 

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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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