Cypen & Cypen
DECEMBER 14, 2006
Stephen H. Cypen, Esq., Editor
1. PBGC ANNOUNCES MAXIMUM INSURANCE BENEFIT FOR 2007:
The Pension Benefit Guaranty Corporation
announced that the maximum insurance benefit for participants
in underfunded private pension plans terminating in 2007
is $49,500 per year for those who retire at age 65. The
amount is higher for those who retire later and lower for
those who retire earlier or elect survivor benefits. If
a pension plan terminates in 2007 but a participant does
not begin collecting benefits until a future year, the 2007
maximum insurance limits still apply. The maximum insurance
benefit is set by law. Two additional legal limits on PBGC’s
insurance coverage can also affect participants’ benefits.
The first prohibits PBGC from guaranteeing benefits that
exceed the amount payable at the plan’s normal retirement
age. The second limits PBGC’s guarantee of benefit
increases made within the five years prior to plan termination.
More than 90% of participants in plans taken over by PBGC
face no reduction in benefits due to legal limits on coverage.
The largest reductions occur in cases where participants
earn pensions that 1) significantly exceed the maximum insurance
benefit or 2) provide generous early retirement subsidies.
Under PBGC’s single-employer insurance program, retirees
can sometimes receive more than the maximum guaranteed benefit.
In general, three conditions must apply: 1) the participant
earned a benefit in excess of the maximum guaranteed amount;
2) the participant retired or was eligible to retire three
years prior to plan termination; and 3) the plan had sufficient
assets to pay benefits above the guaranteed amount. The
entire release, including the chart of benefits for various
ages of retirement, is located at
2. APPOINTED OFFICER FAILING TO SUBMIT REQUEST IS NOT MEMBER OF RETIREMENT PLAN:
Palermo was employed as Tampa City Attorney from October, 1967 until April, 2003. He filed suit against the City and the pension board, seeking a declaration that he was entitled to “Division B” retirement benefits under the General Employees Retirement Plan. He was not included in “Division A” because he was an appointive officer. However, “Division B” included all general employees employed on or after October 1, 1981 and all employees of “Division A” who elected to become members of “Division B.” The trial court granted summary judgment in favor of the City and the pension board. On appeal, the judgment was affirmed. Although the lower court erroneously interpreted the “Division A” language “employed on or after” to mean “hired on or after,” Palermo still cannot prevail. The pension act clearly provided that appointive officers (and others), working with the City prior to October 1, 1981, who are not members of the General Employees Pension Plan, may elect to become members of “Division B,” if they do so in writing on or before October 1, 1981. Palermo acknowledged that he never submitted such written request. Palermo v. City of Tampa, 31 Fla. L. Weekly D2953 (Fla. 2d DCA, November 29, 2006).
3. GOOD NEWS ON EMPLOYER HEALTH-CARE COSTS:
In 2007, employers could enjoy the smallest health-care cost increase since 2000, according to CFO. The bad news: the increase is still likely to be much higher than the rate of inflation. Health-care premiums rose just 7.7% in 2006, compared to 9.2% in 2005 and 13.9% in 2003. Experts expect the slowdown in cost growth to continue. The slowdown is partly due to companies shifting more of the burden to employees, and to moderating medical costs. But don’t get too excited yet. Prices will creep up again over the next few years due to new high-tech products and aging baby boomers.
4. NEW YORK GOVERNOR VETOES RETIREMENT BILLS:
The New York Times reports that New York Governor George Pataki has vetoed two bills that would have increased retirement and pension payments for New York City’s police officers and firefighters. The bills were opposed by New York City Mayor Michael Bloomberg, who said they would cost the City almost $25 Million a year. The bills would have allowed retirees to take lump-sum payments for terminal leave instead of letting them stay on the payroll for an extra month or two. Many retiring police officer and firefighters are reluctant to stay on the payroll because it keeps them from earning overtime in their final months, which can be used to increase pensions based on their final year’s salary.
5. EX FUND MANAGER CATCHES SMALL BREAK:
We previously reported that former Maryland state pension fund manager Nathan Chapman, Jr. was sentenced to more than 7 years in prison and ordered to pay a $5 Million fine for conviction of fraud on the system and looting his own firm (see C&C Newsletter for November 4, 2004, Item 3). A federal appeals court has now turned back Chapman’s request to reverse his conviction. However, the United States Court of Appeals for the 4th Circuit did rule that Chapman was improperly sentenced because the United States District Court should have stayed within the federal sentencing guidelines, which provide for a maximum sentence of 6 1/2 years.
6. FLATULENCE FORCES PLANE TO LAND:
We have heard of running out of gas, but this one from The Associated Press sheds a new light on things -- literally. It is considered polite to light a match after passing gas. But not while on a plane. An American Airlines flight was forced to make an emergency landing after a passenger lit a match to disguise the scent of flatulence. All 99 passengers and 5 crew members were taken off and screened while the plane was searched and luggage was examined. The FBI questioned a passenger, who admitted she (yes, a female) struck the matches in an attempt to conceal a “body odor.” She claimed to have an unspecified medical condition. The flight took off again, but the woman was not allowed back on the plane. Post Script: the woman was not charged in the incident. We guess she was just expelled.
7. QUOTE OF THE WEEK:
“We hate to have some people give us advice because we know how badly they need it themselves.” Laurence Peter
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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.