Cypen & Cypen
NOVEMBER 24, 2011
Stephen H. Cypen, Esq., Editor
1. MICHIGAN SUPREME COURT UPHOLDS STATE INCOME TAX ON PUBLIC PENSIONS: The Supreme Court of Michigan has answered as follows questions requested by the Governor concerning a law scheduled to go into effect January 1, 2012:
Because the unconstitutional portions of the law could reasonably be severed from the remainder, the unconstitutional provisions would be severed, and the rest of the law sustained. The law will impose a 4.35% personal income tax on pensions. In re Request for Advisory Opinion Regarding Constitutionality of 2011 PA 38, Case No. 143157 (Mich., November 18, 2011) (en banc).
2. JERSEY APPELLATE COURT WILL NOT STAY RULING ON JUDGES’ SALARIES: On October 17, 2011, a New Jersey State Superior Court Judge ruled that the recent Pension and Health Care Benefits Act violated the New Jersey Constitution by diminishing judges’ salaries, which are set by statute (see C&C Newsletter for October 27, 2011, Item 5). The state took an appeal, and asked the appellate division to stay the lower court’s ruling pending appeal. The appellate division denied the motion, finding that the state failed to meet the four-pronged test for issuance of a stay, but, focused on the state’s failure to show the public interest would not be harmed. The polestar in the trial court and on appeal is the issue of judicial independence. Whatever result on the merits of the appeal of constitutionality of Chapter 78, an issue not before the appellate court, is the Supreme Court’s review of the merits will necessarily address impact of such legislation on the constitutional principle of judicial independence. Judicial independence is not a meaningless catchphrase but the keystone of the third independent branch of government in our tripartite system of governance. To ensure integrity and sanctity of this critical principle, the framers of the constitution carefully crafted a judicial article to ensure independence. Among the array of constitutional provisions, including appointment, tenure and a prohibition against judges engaging in practice of law or other gainful pursuits, the framers and citizenry adopted the New Jersey Constitution. Its mandate was to secure beyond any question a strong, competent, easily functioning but always independent, judiciary, and, therefore, a judiciary in a position to curb any tendency on part of the other two branches of government to exceed their constitutional authority. The public’s interest in maintaining a strong and independent judiciary is imperiled by any violation of the New Jersey Constitution, no matter how extensive and regardless of its duration. Meanwhile, the Supreme Court of New Jersey has granted direct certification, which means review will be expedited. DePascale v.State of New Jersey, Docket No. A-000897-11 (N.J. App., November 18, 2011).
3. FIDUCIARY DUTY JUST A FANTASY?: Gordon L. Clark, Oxford University Center for the Environment, has written a piece entitled “Fiduciary Duty, Statute, and Pension Fund Governance: The Search for a Shared Conception of Sustainable Investment.” Published in Social Science Research Network, Clark says fiduciary duty is the golden rule regulating the relationship between trustees and beneficiaries. In principle, it regulates behavior by pre-empting those actions that would harm the interests of beneficiaries while promoting duties of care consistent with the interests of those who stand to gain from well-intentioned and responsible decision-making. But, in many respects fiduciary duty is a fantasy: it looks to convention rather than forward to innovation in investment management. As such, governance policies and practice must provide the instruments that simple recipes of fiduciary duty are ill-equipped to provide. In the paper, Clark argues that the design and governance of investment management institutions is, actually, more important than honoring the principle fiduciary duty, which, in context of Anglo-American statute, is increasingly empty. In doing so, Clark re-read the classic cases defining the principle while identifying problems the golden rule has been unable to resolve, a back-drop for reconsidering virtues or otherwise of a governance-focused regulatory regime. In the penultimate section of the paper Clark focuses on the mechanisms currently used to cultivate a regulatory regime that is at once long-term oriented and responsive to the climate change challenge that confronts humanity. A provocative view from across the pond.
4. IRS AND TREASURY REQUEST COMMENTS ON POSSIBLE APPROACHES TO GOVERNMENTAL PLAN GUIDANCE: To initiate a dialogue with the governmental plan community, the Internal Revenue Service (IRS) has published an advance notice of proposed rulemaking relating to the definition of the term “governmental plan” under section 414(d) of the Internal Revenue Code. The notice describes guidance under consideration on how to determine whether a retirement plan is a governmental plan. The notice contains an appendix setting forth a draft of possible proposed regulations. The Department of Treasury (Treasury) and the IRS invite comments on this guidance under consideration, other possible approaches, and other issues that should be taken into account. In addition to soliciting comments, the IRS will engage in outreach, including meetings in different geographical locations, in order to receive input from the governmental plan community. By way of background, governmental plans are exempt from certain qualification requirements and are deemed to satisfy certain other qualification requirements. In addition, titles I and IV of Employee Retirement Income Security Act of 1974 (ERISA) (within the jurisdiction of the Department of Labor (DOL) and the Pension Benefit Guaranty Corporation (PBGC), respectively) do not apply to governmental plans. Thus, these plans are also exempt from requirements relating to certain participant protections, fiduciary requirements and PBGC termination insurance. Currently, there are no regulations defining the term “governmental plan” under section 414(d). The IRS, DOL, and the PBGC (the Agencies) share almost identical definitions of the term “governmental plan.” As a result, the Agencies have historically attempted to coordinate their ruling and opinion letters to achieve a level of conformity among governmental plan determinations. The Agencies have become increasingly concerned with the growing number of requests for governmental plan determinations from plan sponsors whose relationships to government entities are increasingly remote. These relationships raise novel issues. Although the guidance under consideration only applies for purposes of section 414(d), DOL and the PBGC were consulted in developing this proposal. Any comments received by the IRS will also be forwarded to DOL and the PBGC. Section 414(d) generally defines the term “governmental plan” as a plan established and maintained for its employees by the government of the United States, the government of any State or political subdivision thereof, or by any of their agencies or instrumentalities. Key provisions of the notice include
5. GOLF WISDOMS: It takes 17 holes to really get warmed up.
6. 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.): Change is inevitable, except from a vending machine.
7. QUOTE OF THE WEEK: “A good listener is usually thinking about something else.” Kim Hubbard
8. ON THIS DAY IN HISTORY: In 1954, for the first time, the Dow Jones Industrial Average closes above the peak it reached just before the 1929 crash.
9. 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.
10. 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 http://www.cypen.com/subscribe.htm. Thank you.
BEST WISHES FROM OUR FAMILY TO YOURS
FOR A VERY HAPPY THANKSGIVING
Copyright, 1996-2011, 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.