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Cypen & Cypen
November 21, 2013

Stephen H. Cypen, Esq., Editor

1.  MOST PENSION PLANS HAVE SET THEIR INTEREST RATE ASSUMPTIONS AND MEASURED THEIR PENSION LIABILITIES IN A REALISTIC, ACTUARIAL MANNER THAT IS CONSISTENT WITH LONG TERM MARKET RETURN EXPECTATIONS: Milliman has released its latest public pension funding study, which uses an approach to measure the aggregate funded status of the 100 largest U.S. public pension plans. The study independently determines an actuarial interest rate assumption for each plan based on its unique asset allocation, and Milliman’s current outlook on future long term investment returns, then uses the actuarially determined interest rates to recalibrate each plan’s accrued liability. Total recalibrated accrued liability for the plans in the study was just 2.6% larger than the total accrued liability reported by the plans. While the challenge of funding future pension promises remains considerable, the study results indicate that most plans have set their interest rate assumptions and measured their pension liabilities in a realistic, actuarial manner that is consistent with long term market return expectations. There is more than one way to put a dollar figure on the value of future pension benefits; the focus of this study is the traditional budgeting approach of assessing liability based on the long term returns expected to be earned by plan assets. A notable finding of this year’s study is that 29 of the 100 plans in the study have lowered their interest rate assumptions. The median interest rate used by the plans decreased from 8.00% in the 2012 study to 7.75% in the 2013 study. This drop is in line with a generally declining market consensus on expected long term investment returns; the study’s median actuarially determined interest rate similarly decreased from 7.65% to 7.47%. Plans report on the size of their assets in two ways: market value, which is well understood, and actuarial value, which reflects asset smoothing techniques designed to moderate year-to-year fluctuations in contribution amounts but which may deviate significantly from market value in periods of sizeable market gains or losses. The plans in this study reported assets totaling $2.58 trillion on a market value basis and $2.73 trillion on an actuarial value basis. By comparison, reported assets in the last Milliman study stood at $2.51 trillion on a market value basis and $2.71 trillion on an actuarial value basis.
2. BEST FUNDED PLANS ALLOCATE LESS TO EQUITIES:Defined benefit pension plans that are less funded invest more aggressively, according to an analysis by Towers Watson reviewed The analysis found plans that were less than 70% funded were relatively more aggressive investors, generally allocating more to public equities (50.4%) and less to debt (36%). Plans whose funded status exceeded 90% invested somewhat more conservatively, allocating more than any other group to debt (46.3%), and only 42.3% to public equity.  

3. THE MOST DANGEROUS GOVERNMENT JOBS AND WHY THEY ARE RISKIER THAN THE PRIVATE SECTOR: Public transportation employees are far more likely to suffer an injury on the job than those working in most private transportation operations, reports  Public hospital staff do not have a hazard free work environment, either. For police and fire personnel, the risk of getting hurt is even greater. These and other occupations considered the most dangerous are often found in the public sector, where employees tend to suffer job related injuries and illnesses at higher rates than the private sector. Labor Department data suggest governments may lag behind in keeping their employees safe. Across all areas of local government, federal data estimate 6.1 nonfatal job related injury or illness cases occurred for every 100 full-time employees in 2012. State governments recorded a rate of 4.4 per 100 workers. The situation is somewhat better in the private sector, where there were 3.4 cases for every 100 workers. Injuries account for the vast majority of reported cases, ranging from slips to serious vehicle accidents.  Some of the most dangerous workplaces, including the prominent examples of police and fire departments, are unique to the public sector, and come with inherent risks, helping to explain the sector's higher incidence rates. Even so, though, governments still typically record higher injury rates for workers within the same industry.  In all, states and localities reported an estimated 793,000 recordable incidents in 2012, approximately 337,000 of which resulted in missed work days, job restrictions or transfers. For private industry, the total tally was nearly 3 million. Here is a summary of five key takeaways from an analysis of the latest data:

  • Governments record higher incidence rates than private companies within the same industries.  Governments have historically registered higher incidence rates than the private sector -- not a surprising fact considering the nature of some public employee jobs. Taking a closer look at the data, though, reveals public employees also are at a greater risk of suffering an injury or illness than private sector employees working in the same industries.  In six of the seven most narrowly defined subsector industries with comparable data, local governments recorded higher rates than the private sector.
  • Industries with the highest injury risk.  State operated nursing and residential care facilities registered the highest injury and illness rate (13.6 per 100 employees) of any industry with published data last year. Hospital and nursing staff confront a variety of hazards on the job -- some of the more common incidents include slips, splashes from blood or bodily fluids and needle punctures.
  • Some of the riskiest industries report recent declines.  The good news is that nearly for all occupations – public and private – injury rates are not climbing.  In fact, a few of the more risky occupations reported statistically significant declines. While the local government utilities rate remains high, for example, it has steadily dropped from its rate of 16.8 cases per 100 employees in 2008.  When called out to a scene, firefighters quickly transition from waiting in stations to carrying heavy equipment, often leading to sprains and strains. Cardiac-related health problems also frequently stem from the overexertion that comes with working in extremely hot environments. 
  • Rates have mostly leveled off nationally.  Across the sector, local governments' overall injury and illness rates have not budged for three years, remaining at 6.1 cases per 100 workers. In the private sector, not a single industry recorded an increase in the annual combined injury and illness rate last year. As a whole, the sector’s injury rate declined slightly over the year (from 3.3 to 3.2 cases per 100 workers), while the illness rate was statistically unchanged.
  • Most common injuries.  The nature and type of injuries employees incur vary greatly among different occupations. For cases involving days away from work, local government employees missed a median of eight days of work in 2011. Sprains, strains and tears are a few of the most common injuries, often caused by overexertion or falls. 

4. RETIRED PROVIDENCE, R.I., POLICE OFFICERS AND FIREFIGHTERS SUE CITY OVER AMENDMENTS TO RETIREMENT PLAN: Sixty-six retired police officers and firefighters have filed a civil action against the city of Providence, Rhode Island, requesting injunctive, declaratory and other relief to prohibit the unconstitutional and otherwise unlawful implementation of certain ordinances enacted by the City Council of the City of Providence, insofar as they relate to suspending and reducing, on a retroactive basis, certain vested retirement benefits of already retired Providence public employees.  Plaintiffs seek:

  • A declaratory judgment pronouncing that the Medicare Enrollment Statute, as applied, is repugnant to the Constitution of the United States and the Constitution of the State of Rhode Island, and further that such statute is void as to plaintiffs. 
  • A declaratory judgment against the city, pronouncing that the health benefits is repugnant to the Constitution of the United States and the Constitution of the State of Rhode Island, and further declare that such statute is null void ab initio.
  • A declaratory judgment against the city, pronouncing that the health benefits ordinance, as applied, is repugnant to the Constitution of the United States and the Constitution of the State of Rhode Island, and further declaring that such ordinance is void as to plaintiffs.
  • A declaratory judgment against the city, pronouncing that the city is in breach of its contractual obligation with plaintiffs insofar as refusing to provide them with health benefits to which they are entitled, and any attempt by the city to enforce the health benefits ordinance, as against plaintiffs is a breach of the city’s contractual obligations.
  • A permanent injunction directing the city to provide health care benefits wrongfully withheld, prohibiting the city from terminating or suspending health care benefits to which plaintiffs are entitled under the terms of the Collective Bargaining Agreements in effect at the time each retired, or to which each is entitled under authority of any other statute, ordinance, arbitration, settlement agreement, judgment, consent judgment, court order, or other. 

Plaintiffs demand a trial by jury.  Andrews v. Lombardi, Case No. 13-4128 (Sup. Ct. R. I. October 22, 2013.)

5.  MORE GOVERNMENTS BANNING CRIMINAL HISTORY FROM JOB APPLICATIONS: More than one in four adults has a criminal record, according to National Employment Law Project. reports that for a number of public sector positions across the country, job applications with the criminal history box checked are automatically screened out before ever being thoroughly reviewed by someone. But during the past decade, a movement has been growing to encourage state and local governments to defer questions about criminal history until later in the hiring process.  Criminal history takes into account anything that has led to a conviction -- from a simple misdemeanor to a felony charge resulting in jail time. In the job market, it can mean that the majority of those 65 million American adults with a criminal record (many of whom have never served time in prison or jail) are being excluded from potential employment. Overlooking otherwise qualified candidates not only hurts employers' drive to hire the best and brightest but it also hurts recidivism rates because gainful employment is considered one of the best ways to keep people from returning to crime. As of mid-2013, more than 50 municipal governments and 10 state governments have passed varying degrees of so-called "ban-the-box" legislation. Some defer questions about criminal history until a candidate's qualifications have been reviewed or until a conditional offer of employment has been made and a background check ordered. Law enforcement and jobs in which employees work directly with children and the elderly, though, are often excluded. Most federal agencies have banned the box for several years now. 

6. AMERICA’S BIG CITIES IN VOLATILE TIMES: The Pew Charitable Trusts issued a new report about America’s big cities meeting fiscal challenges and preparing for the future.  The Great Recession created fiscal challenges for the 30 cities at the centers of the nation’s most populous metropolitan areas that continued well past the recession’s official end in June 2009. (Florida cities included Miami, Orlando and Tampa.) For most of these cities, the fiscal brunt was borne later than for the national and state governments, and recovery has been slow. Cities dealt with fiscal strain in a variety of ways: dipping into reserve funds, cutting spending, gaining help from the federal/state governments and increasing revenue from tax/nontax sources. Although these strategies offered short term solutions, many cities still faced declining revenue in 2011, the consequence of reduced spending, shrunken reserves and rising pension/retiree health care costs.  Property taxes, which can be slow to respond to economic swings, helped delay the early fiscal effects of the Great Recession for most of these cities, but they began to decline in 2010, reflecting a deferred impact of the housing crisis. This trend was compounded by increasingly unpredictable aid from the federal government and the states, which were dealing with their own budgetary constraints. The report examines key elements of each city’s fiscal conditions, including revenue, expenditures, reserves, long term obligations, and adjusted them for inflation to facilitate comparison across the years. Although each city had its own distinct experience, looking across all 30 revealed several notable findings:

  • The 30 cities felt the recession’s fiscal effects late: most hit their lowest revenue in 2010 or 2011, a year or more after the end of the downturn and the low point in revenue for state governments in 2009.
  • By 2011, revenue had rebounded to or above previous peak levels in less than one-third of the cities studied. But even those improvements were tenuous because revenue increases in many of these cities were heavily driven by aid from other governments, not by growth in their own revenue streams.
  • More than two-thirds of the cities had not recovered to their previous revenue peak by 2011.
  • Fluctuations in aid between 2007 and 2011 from the federal and state governments -- a source that city policymakers do not control -- were the leading factor in 14 cities’ revenue declines and rebounds.
  • Declines in smaller revenue sources, like income from investments or from sale or lease of assets, such as parking meters or facilities, played an outsized role in driving budget shortfalls in most cities.
  • Property tax collections remained relatively robust until 2010 and 2011. Further projected declines of this key revenue source suggest that cities may face new challenges in coming years.

As cities look ahead, ongoing fiscal constraints at the state and federal levels could further diminish aid to local governments and add to an already shaky fiscal picture. Cities’ also must meet unfunded retirement obligations. American cities have a significant impact on the economies and long term prosperity of states and the nation. The 30 cities in this study and their metropolitan areas account for 49% of the nation’s gross domestic product. Collectively, they have nearly 34 million residents -- more than 1 in 10 Americans -- with an additional 108 million living in the regions they anchor, and those populations depend on the core functions of municipalities, such as fire/police protection, parks/libraries and infrastructure investments. Addressing demands for local services, claims on existing revenue from unfunded liabilities, and other commitments with fewer dollars will mean tough choices for local leaders, and have serious implications for the national economy.

7.  PBGC RELEASES 2013 ANNUAL REPORT: Pension Benefit Guaranty Corporation released its fiscal year 2013 Annual Report, highlighting its efforts to preserve pensions, maintain quality customer service but noting that its deficit increased to $36 billion.  In 2013, the PBGC deficit in the single-employer program declined from $29.1 billion to $27.4 billion. Multiemployer plans provide lifetime income to more than 10 million people in 1,400 plans. Because more plans will fail within the next decade, the PBGC multiemployer program deficit rose to more than $8.2 billion, compared with $5.2 billion in 2012 -- well over 50%. 

8. JUDGE REFUSES TO CERTIFY CALPERS APPEAL OF SAN BERNARDINO BANKRUPTCY:  U.S. Bankruptcy Judge Meredith Jury (yes, apparently, she is both judge and jury) dismissed CalPERS’ request to certify its direct appeal to the 9th U.S. Circuit Court of Appeals.  (See C & C Newsletter for October 24, 2013, item 7). The judge said CalPERS’ plan would have been a poor use of court resources.  The procedure is duplicative and not an efficient use of judicial resources. If the court had granted certification, CalPERS had proposed also to file a motion for leave in the 9th Circuit. This duplication is inefficient and possibly may lead to inconsistent results.  The judge said CalPERS should instead allow the district court to rule, then request the district court to certify the direct appeal.

9. JEWISH WISDOMS: Television is a medium because it is neither rare nor well done.  Ernie Kovacs


11. TODAY IN HISTORY: In 1963, President John F. Kennedy flies to Texas.  (The rest is history.)

12. 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.
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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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