Cypen & Cypen   Miami
Home Attorney Profiles Clients Resource Links Newsletters navigation
825 Arthur Godfrey Road
Miami Beach, Florida 33140

Telephone 305.532.3200
Telecopier 305.535.0050

Click here for a
free subscription
to our newsletter

Cypen building

Cypen & Cypen
DECEMBER 29, 2005

Stephen H. Cypen, Esq., Editor

We wish you and yours a very happy, healthy and prosperous New Year!!!!


Section 286.011(3)(a), Florida Statutes, provides that any public officer who violates any provisions of the Sunshine Law is guilty of a non-criminal infraction. (Compare Section 286.011(3)(a), which makes knowing violations a crime.) Section 286.011(2), Florida Statutes, grants Florida circuit courts jurisdiction to issue injunctions to enforce the Sunshine Law upon application by any citizen of the state. At worst, the statute is ambiguous as to who may enforce. Under such circumstances, Florida courts may look to the legislature’s intent to resolve the ambiguity. Therefore, a Florida county court judge has concluded that the office of the state attorney is authorized to initiate and prosecute non-criminal civil infractions under the Florida Sunshine Law. In addition, an unnoticed meeting of city commissioners can violate the Sunshine Law despite there being no “interaction” at the meeting. Clearly, interaction can occur without commissioners talking to each other when there is a common facilitator, who is receiving comments from each commissioner in front other commissioners. State of Florida v. Foster, 12 Fla. L. Weekly Supp 1194 (Broward Co., September 26, 2005).


According to commentary in Daily Business Review, with a few improvements, a humdrum old financial product could be on the threshold of a great rebirth. We are talking about annuities here -- in particular, annuities in the simplest, old-fashioned form, providing a specified stream of income for life. What makes this 2000-year-old idea a candidate for new growth is the powerful force of demographics. A great wave of people in the United States and numerous other industrialized countries is heading into their 60's and beyond, at a time when life expectancies are expanding into unchartered territory. A U.S. baby born in 1950 could expect to live 68 years. In 2000, average life expectancy had increased to 77 years. Nobody can ignore longevity risk. By the time you find out whether you are going to live to be really old, it is usually way too late to do much about it. While the situation would seem to be ripe for financial innovation, a natural answer to it already exists, in the form of the plain-vanilla fixed annuity. An investor puts up a fixed sum now, and in return, receives a commitment from the annuity seller to pay him a specific amount at regular intervals for the rest of his life, whether that turns out to be just a little while or many years. In essence, an annuity is the flip-side of life insurance. Instead of protecting you against the risk of dying too soon, it guards against the risk of dying too late. Social Security also works on the principle of an annuity. An individual can supplement whatever Social Security he expects to get and other retirement investments with an annuity sold by an insurance company. As a rule, one should spend no more than 50% of his savings on an annuity. For their part, annuity sellers will have to reposition annuities in the public mind according to their original purpose rather than as a tax scheme. Annuities will also need much more visible price competition. To give people confidence they are getting a good deal will require greater transparency in the product; that is, a ready ability to make comparisons between company A’s annuity and company B’s. In other words, just like with mutual funds, insurance companies must provide greater fee disclosures.


Dr. Thomas A. Mackell, Jr., President of Association of Benefits Administrators, Inc., has written a very thought-provoking piece in the ABA’s Fall 2005 Newsletter. In conjunction with asset class decisions that confront pension trustees, Dr. Mackell offers, at the outset, some basic questions for trustees to think about:

1. Are your asset management strategies fueled exclusively by your hopes, wishes and enthusiasm?

2. Are you relying exclusively on long-term historic return assumptions?

3. Is your ability to service your pension and healthcare costs tied to bull market assumptions?

4. Do you have a risk management strategy?

5. Can your funds withstand another substantial stock-market downturn?

6. How will rising interest rates impact your “more conservative” assets?

After a fascinating review of the “Greenspan Era” (1987-2006), the author lists the serious challenges facing pension funds:

  • “Twin tower deficits” -- budget and trade;
  • Asian and other central banks -- own a staggering amount of U.S. Treasuries; in 2000 it was $1.1 trillion dollars, in 2005, $2 trillion dollars;
  • China and India -- growing mega economies changing the world order with low-cost mercantilism;
  • Terrorism -- about theater and competition for audience, which has had a profound debilitating effect on global economic conditions;
  • Europe -- attempting to rise from the ashes, with 12% of the world’s population and 40% of its wealth;
  • Latin America -- economic and political stabilization have successfully emerged over the last ten years, but in recent months examples of activities that may hamper success in countries like Bolivia, Venezuela and Nicaragua;
  • Corporate bankruptcies -- a strategy to downsize, outsource and erode the historical legacy costs of health care and retirement coverage, with tacit approval of investment banks and private equity/hedge funds;
  • Quality of corporate leadership -- the average tenure of a CEO is 3.5 years, and compensation packages have skyrocketed and are not necessarily tied to performance.
  • Baby Boomers -- some 77 to 80 million of them will be entering retirement rolls in a few short years and for a couple of more decades, with incredible long-term implications for health care, retirement stability and for those remaining in the work force;

The author concludes with some thoughts and questions to consider:

1. Asset class return assumptions must be challenged;

2. Multiple scenarios must be considered in light of all dynamic global variables;

3. What is the expected range of return of each investment? -- Not an absolute number based on historic assumptions but one that recognizes today’s different world.

4. What if the next 10 years are at the low range of assumptions?

5. What investment strategies should you be considering?

6. Are your consultants up to the challenge?

7. All consultants are not created equal;

8. There are potential conflicts of interest: the “pay to play” consultants and soft-dollar relationships must be closely-monitored;

9. Can your consultant demonstrate past successes with similar clients in today’s investment climate?

10. Is your consultant keeping pace with the new and better ideas or is it the same old song?

Trustees should talk to their peers in other industries or between public and private sector funds to find out how they are dealing with these issues. Reasonable return assumptions can be met, but only with serious study and a realistic and leading-edge approach to asset allocation Trustees should equip themselves with the tools, because their participants are relying upon them. Well said, Tom.


That’s the question asked by Money Magazine. To find the answer, ask people with the clearest view of the landscape -- like, say, executives at the ten largest real estate investment trusts. The answer? In 2005 (through November 30), REIT insiders sold $427 million dollars worth of shares. And how much did insiders buy during the same period? About $3 million dollars. You do the math. Money Magazine January 2006, Page 26


In the twelve months ending July 1, according to, Florida gained more people (404,434) than any other state, for the first time in fifteen years. Florida added an average of 1,100 people a day, bringing its population to 18 million. For the first time since 1995, California failed to head the list of gainers. New York lost population for the first time since 1980. And, largely because of strong job growth, Virginia gained more people (86,133) than the nine northeastern states combined (59,880).


On December 19, 2005 the Department of Labor published its final rules under the Uniform Services Employment and Reemployment Rights Act of 1994, as amended. Congress enacted USERRA to protect the rights of persons who voluntarily or involuntarily leave employment positions to undertake military service. USERRA authorizes the Secretary of Labor to prescribe rules implementing the law as it applies to states, local governments and private employers. The Veterans’ Employment and Training Services proposed rules under that authority in order to provide guidance to employers and employees concerning their rights and obligations under USERRA. The agency invited written comments on the proposed rules, and any specific issues related to the proposal, from members of the public. The Department received eighty timely comments from a wide variety of sources. The rules are set out in convenient question and answer format. Our readers should be directed to the sections involving pension plan benefits (§§1002.259-267). The rules are effective January 18, 2006, and can be accessed at Separately, the Department of Labor published its final rule regarding notice of rights and duties under USERRA.


A recent “Issue in Brief” from Center for Retirement Research at Boston College reports key findings from a forum of experts on the subject of projecting mortality. Mortality is an important determinant of Social Security’s long-term financial condition. Over the past century, mortality has declined dramatically at all ages. Today, most people survive to age 65, and life expectancy at age 65 has risen from 12 years for men and 13 years for women in 1940 to 16 and 19 years, respectively, today. Over the past two decades, however, improvements have slowed considerably in the United States compared to other industrial countries. This disparity has been the source of significant debate among demographers, who fall roughly into two camps. The first gives greater weight to more recent experience when projecting the future, while the second believes it is an aberration and that U.S. life expectancy will improve much more rapidly in coming decades. At a forum earlier this year held at The Brookings Institution, more main conclusions emerged:

1. Among those who use age-specific rates to project mortality, relatively small differences exist between the projections of the Social Security Administration and outside demographers.

2. The outliers in terms of optimistic mortality forecasts use projections of life expectancy of birth rather than age-specific death rates directly.

3. Regardless of which projections are used, over the 75-year time horizon of the Social Security Trustees (see C&C Newsletter for April 4, 2005) the differences have no major impact on the program’s financial outlook. Over a longer time span, however, differences between projections become more important.

4. Social Security benefits could be indexed to life expectancy to take mortality risk out of the system.


Standard & Poor’s reports that underfunded liability for other postemployment benefits of the S&P 500 Companies is significantly higher than that of underfunded pensions. OPEB, part of total compensation offered to attract and retain services of qualified employees, consists mostly of medical costs paid for benefit of retired workers. According to Standard & Poor’s data, at $292 Billion, the S&P 500 underfunded OPEB balances 95% higher than the underfunding of pensions, at $150 Billion. OPEB may be contractual or implied, and usually requires retiree contributions in form of monthly premiums and direct co-payments for services and products rendered. Unlike pensions, however, which are regulated, OPEB has no legal requirement to create a trust entity to fund current or future costs. Additionally, specific tax treatments and credits, set up to encourage pension funding, do not exist for OPEB funds. Standard & Poor’s data show that pensions, while underfunded, have 88% of their obligations set aside in pension trusts, compared to only 22% for OPEB obligations. Specifically, Ford and General Motors account for 32% of the underfunded OPEB amount in the S&P 500, compared to 13% of the pension underfunding. Together, the two automakers are a combined $20 Billion underfunded in pensions and $94 Billion underfunded for OPEB. Perhaps Governmental Accounting Standards Board’s Statement No. 45, which establishes standards for measurement, recognition and display of OPEB expense/expenditures and related liabilities (assets), note disclosures and, if applicable, required supplementary information and financial reports of state and local governmental employers, will help the situation -- but we doubt it (see C&C Newsletter for June 30, 2005, Item 2). Oh, well, there’s something else to worry about.


On December 21, 2005 Internal Revenue Service announced release of the Fall 2005 issue of the Statistics of Income Bulletin (IR-2005-147). The Bulletin contains an in-depth look at the 130.4 million individual income tax returns filed for the tax year 2003, a slight increase from the 130.1 million returns filed for tax year 2002. The adjusted gross income less deficit reported on these returns totaled just over $6.2 Trillion, while taxable income totaled $4.2 Trillion. The largest component of AGI was salaries and wages totaling just over $4.6 Trillion. A total of $268.6 Trillion in business net income was reported on 14.4 million returns. There are some specific bits of information that might be of interest. The total foreign tax credit claimed by U.S. corporations for tax year 2000 fell by 14.5%, to $41.4 Billion. As a result of foreign tax credit benefits, such corporations were able to reduce their U.S. tax liabilities by 31.9%, from $129.3 Billion to $87.9 Billion. Corporations claiming a foreign tax credit in 2001 reported worldwide taxable income of $368.1 Billion, with 44.8% of it earned from foreign sources.


Center for Retirement Research at Boston College has issued a new working paper, investigating how statutory limits effect contribution rates. The share of workers who participate in employer-sponsored tax-deferred plans has been growing, but is still only a minority of workers. Most workers do not contribute the maximum allowed by law to employer-sponsored plans. Maximum contributors are more prevalent among high-income compared with low-income workers, college graduates compared with those less educated, non-Hispanic whites and others compared with non-Hispanic blacks and Hispanics, and single and married people, compared with those who are widowed or divorced. The percentage of participants who contribute the maximum to employer-sponsored plans almost doubled between 1990 and 2003, but virtually all the growth in maximum participation came from groups with high shares of maximum contributors in 1990. The share of participants who are large contributors -- those contributing the maximum or 10% of earnings -- also nearly doubled. For large contributors, the growth came from all income and demographic groups, although growth also increased most (as a percentage) for groups with large shares in 1990. All other factors being constant, the authors found an upward trend in the share of large contributors among high-earners, but not among low-earners. Shares of both maximum and large contributors are increasing more over time for higher than for lower earning groups. Recent increases in contribution limits can be expected to reduce shares of maximum contributors, but raise relative shares of maximum contributors among high-earning and education groups. Increases in contribution limits do little to increase retirement preparedness among lower-income groups.


Harvard University closed the book on Jack Meyer, the money manager whose market-beating returns built the world’s biggest endowment, with a pay cut. According to a brief item in Daily Business Review, Meyer earned $6 Million as head of Harvard Management in the fiscal year ended June 30, 2005, down from $7.2 Million the year before. In fact, Meyer and his top five lieutenants made a combined $56.8 Million, a 28% reduction. (Our trusty calculator tells us that means in 2004 they earned about $79 Million.) The university was criticized by alumni last year for paying excessive salaries to its investment staff, wasting money that could have been used for scholarships, new buildings and teachers’ pay. Meyer will now have to put his money where his mouth is, as he starts a new hedge fund, along with 30 colleagues who left with him. Harvard’s $26 Billion endowment earned 19.2% in 2005, third among the 25 richest U.S. colleges. Yale University’s $15 Billion fund topped the list at 22.3%, followed by Stanford University at 19.5%.


So you think being a judge is such a great idea? Wrong again, Poverty Breath. Although trial court judges in 17 states have received pay raises in the last six months, on average the salaries remain about the same as first-year associates at the nation’s largest law firms. And appeals court judges generally do not fare much better. For general jurisdiction trial courts, the pay range is $88,000 to $164,000, averaging $117,000. Associate justice salaries in courts of last resort range from $95,000 to $182,000, with an average of $130,000. The average starting salary for the largest 250 law firms is almost $100,000. However, year-end bonuses at many firms in 2004 added as much as $60,000 to first-year associates’ income. Of course, judges’ salaries do not reflect various costs of living in different states. (For example, New York’s trial court judges rank number 8 in actual salary, but 28th when adjusted for cost of living.) Incidentally, New York judges haven’t had a raise since 1999, although the cost of living has increased more than 25% since then. Maybe becoming a beauty contest judge is a better idea.

Copyright, 1996-2006, 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.

Site Directory:
Home // Attorney Profiles // Clients // Resource Links // Newsletters