Cypen & Cypen
NOVEMBER 10, 2011
Stephen H. Cypen, Esq., Editor
1. POLICE UNION SUES HOLLYWOOD OVER CHANGES TO PENSIONS: Sun-Sentinel.com reports that Hollywood’s police union has filed suit over drastic changes made to its pensions, alleging the city violated an agreement going back to 2006, and never should have put the issue to voters this September. The lawsuit, filed in Broward Circuit Court, is the first of what will likely be several challenges to legality of the pension changes, according to the Police Benevolent Association. Hollywood voters approved a referendum that slashed pension benefits for police, fire and general employees. Changes included: eliminating the Deferred Retirement Option Program (DROP), increasing the number of years officers had to work before being eligible to retire from 22 years to 25 years and reducing the multiplier to calculate pension benefits. In 2006, the union agreed to give up a portion of state premium tax money intended to fund their police pensions to the city of Hollywood. In exchange, Hollywood agreed to reduce the number of years an officer had to work before being eligible for retirement from 25 years to 22 years. The city also agreed to allow an officer to be in the DROP program for eight years. The union contends the city failed to fulfill its obligations under the 2006 bargaining agreement, in that it accepted state money but now reneged on its portion of the contract.
2. MOST FLORIDA PUBLIC DB PENSION PLANS IN GOOD SHAPE: Leroy Collins Institute has issued a Report Card on Florida Municipal Pension Plans. The report includes liability and asset levels of 208 pension plans in the largest 100 cities in Florida, grades each plan based on its funding level. Thirteen of the largest 100 cities are not included in the data because they do not offer a defined benefit plan. Each DB plan is graded on a scale from A to F, based on funding level:
Grade Percent Number of Plans Percentage
A More than 30 14%
B 80 to 90% funded 48 23%
C 70 to 80% funded 63 30%
D 60 to 70% funded 36 17%
F Less than 60% funded 31 15%
In other words, even using the arbitrary levels selected by the Institute, 67 percent of Florida public DB plans were graded “C,” or higher, with a minimum funding level of 70 percent.
3. DB PENSION PLANS INCREASE QUALITY OF EDUCATION, REDUCE TURNOVER COSTS IN FLORIDA: If we had read the recent National Institute on Retirement Security survey more closely (see C&C Newsletter for November 3, 2011, Item 2), we would have been able to pluck out a few interesting statistics specifically relating to Florida teachers. DB pensions helped to retain 905 teachers throughout the state. Because longer-tenured teachers are more effective teachers, the increased retention that DB pensions brought increased the overall quality of Florida public education. The retention effects of DB pension plans also saved school districts money. DB pensions saved school districts across Florida $11,017 per teacher, for a total savings of $9,972,947. Quite impressive.
4. PUBLIC-PRIVATE PAY GAP WIDENS: The pay gap between government employees and private sector workers grew 2.25 percent this year, in favor of private sector workers, according to Government Executive. The average pay gap in 2011 was about 26.3 percent, compared to 24.05 percent in 2010. The disparity is largely due to the two-year pay freeze enacted in January affecting federal civilian employees. According to the Employment Cost Index, private sector pay increased about 1.6 percent between March 2010 and March 2011. Miami and Washingtonwere the only locality pay areas that experienced a decrease in the pay gap between government employees and private sector workers.
5. STATES’ TAX REVENUE RISES: The Great Recession drove state budgets into a long dark tunnel. Now, according to The Fiscal Times, after four years of painful measures to close some $500 Billion in budget shortfalls, state legislatures are starting to see a glimmer of light. Revenues are picking up smartly and broadly, while the biggest and most painful spending cuts are already on the books. Many states remain far from a full recovery, but unless the U.S. economy slides back into recession, state finances finally appear to be headed in the right direction. Stronger revenues are driving the turnaround. Receipts in nearly all states are now either stabilizing or improving. Tax revenues in the second quarter rose by a strong 10.8 percent from a year ago, and receipts have nearly returned to the peak level reached four years ago. Every state except New Hampshire reported revenue increases for the quarter, and preliminary data for the third quarter show continued gains. The figures reflect tax receipts in the final quarter of fiscal year 2011, which ended on June 30, for 46 states, and the rise in revenues during the entire fiscal year was the strongest since 2005. The economy might even provide a bit more help in fiscal year 2012, which began July 1, 2011. Economic growth in the third quarter picked up to a 2.5 percent annual rate after averaging only 0.9 percent in the first half, and economists have raised their fourth-quarter forecasts. Job growth in recent months also looks firmer than it did in the spring.
6. BONDS BEAT STOCKS OVER 30-YEAR PERIOD FOR FIRST TIME IN 150 YEARS!: The biggest bond gains in almost a decade have pushed returns on Treasuries above stocks over the past 30 years, for the first time since 1861, according to businessweek.com. Fixed-income investments advanced 6.25 percent this year, almost triple the 2.18 percent rise in the Standard & Poor’s 500 Index through last week. Debt markets are on track to return 7.63 percent this year, the most since 2002. Long-term government bonds have gained 11.5 percent a year on average over the past three decades, beating the 10.8 percent increase in the S&P 500. The combination of a core U.S. inflation rate that has averaged 1.5 percent this year, the Federal Reserve’s decision to keep its target interest rate for overnight loans between banks near zero through 2013, slower economic growth and the highest savings rate since the global credit crisis have made bonds the best assets to own this year. Not only have bonds knocked stocks from their perch as the dominant long-term investment, their returns proved virtually every expert wrong.
7. MAINTAINING AND IMPROVING SOCIAL SECURITY FOR POORLY COMPENSATED WORKERS: Center for Economic and Policy Research has issued a report dealing with the millions of American workers who are poorly compensated for the work they do. This situation arises not because they do not work hard or deserve adequate compensation, but, rather, due to a political failure to ensure that increases in economic growth and productivity over the last several decades have been fairly distributed. One consequence of such failure is that many working-class Americans do not enjoy the living standards they deserve, either during their working years or when they retire. Without the earned benefits provided by Social Security, along with Medicare and related health insurance benefits for the elderly, these workers would see their already modest living standards in old age fall even further below typical ones. The federal government should strengthen Social Security in ways that increase the retirement security of middle- and working-class Americans. Particular attention should be paid to improving the living standards in retirement of workers in poorly compensated jobs, who typically have little or no retirement savings outside of Social Security. Some recent proposals to cut Social Security would put the retirement security of workers in poorly compensated jobs at further risk. While it would be wise to shore up the long-term finances of Social Security, this can be done without cutting benefits for working- and middle-class retirees. Finally, it is important to remember that Social Security by itself cannot be the sole vehicle for addressing an economy that is out of balance. Much more is needed to improve job quality in the United States by ensuring that poorly compensated workers get a better deal. The report examines the essential role that Social Security plays in bolstering the retirement security of poorly compensated workers.
8. FEDERAL APPEALS COURT UPHOLDS OBAMACARE: Four United States citizens and federal taxpayers, sought declaratory and injunctive relief to prevent various U.S. Government officials and agencies from enforcing the minimum essential coverage provisions of the Patient Protection and Affordable Care Act. They argued that the mandate exceeds Congress’s authority under the Commerce Clause and substantially burdens the challengers’ religious exercise, in violation of the Religious Freedom Restoration Act. The district court granted the Government’s motion to dismiss. It upheld the minimum essential coverage provisions under the Commerce Clause and the Necessary and Proper Clause as a regulation of economic activity that substantially affects the health insurance and health care markets and as an essential element of a broader regulatory scheme. It also rejected the challengers’ Religious Freedom Restoration Act claim. In a comprehensive 103-page opinion, the United States Court of Appeals for the District of Columbia Circuit affirmed. Seven-Sky v. Holder, Case No. 11-5047 (U.S. DC Cir., November 8, 2011).
9. GOLF WISDOMS: The stages of golf are Sudden Collapse, Radical Change, Complete Frustration, Slow Improvement, Brief Mastery, and Sudden Collapse.
10. PARAPROSDOKIAN: (A paraprosdokian is a figure of speech in which the latter part of a sentence or phrase is surprising or unexpected in a way that causes the reader or listener to reframe or reinterpret the first part. It is frequently used for humorous or dramatic effect.): Before you criticize a man, walk a mile in his shoes. That way, you will be a mile away and he won't have any shoes.
11. QUOTE OF THE WEEK: “If you have a talent…spend it lavishly like a millionaire intent on going broke.” Brendan Francis
12. ON THIS DAY IN HISTORY: In 1940, Walt Disney begins serving as an informer for the Los Angeles office of the FBI; his job is to report back information on Hollywood subversives.
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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.