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Miami

Cypen & Cypen
NEWSLETTER
for
DECEMBER 18, 2008

Stephen H. Cypen, Esq., Editor

1. FUNDING STATUS OF LOCALLY-ADMINISTERED PENSION PLANS:

A new Issue in Brief from Center for Retirement Research at Boston College treats the funding status of locally-administered pension plans. Are big city pensions and other locally-administered pension plans in trouble? While state-administered plans are about as well funded as private sector plans, stories circulate about the perils facing Philadelphia, Omaha, Atlanta and other cities. To answer the question about locally-administered pensions, the Center collected data on 84 plans from 38 states. The Brief describes the results of that survey, reporting the funding status of these locally-administered plans and the extent to which their sponsors have a funding strategy and are sticking to it. The main finding is that the sample of locally-administered plans, which includes plans from the problem cities previously mentioned, has funding strategies that are as good as or better than state plans. Specifically, in 2006, contrary to conventional wisdom, local plans were at least as well funded as state plans:

  • Funding ratio - 85% for local plans vs. 84% for state plans.
  • Making required contributions - 69% for local plans vs. 54% for state plans.

Caveat: Despite the relatively positive outlook, some jurisdictions may face serious shortfalls and the financial crisis could produce a gloomier picture going forward.

2. PHILADELPHIA POLICE RADIO SYSTEM NEEDS $40 MILLION FIX:

A series of human errors caused a 40-minute failure in Philadelphia’s police radio system in July, according to a report from the Philadelphia Inquirer. The report also said the problem-plagued Motorola system would cost $40 Million to upgrade -- almost as much as it cost to install in 2002. The system has been hobbled by dozens of malfunctions, from momentary glitches to systemwide crashes of almost an hour. The 800-megahertz digital radio system, which cost the city over $60 Million to install and maintain, is no longer manufactured by Motorola, and replacement components may not be readily available. The city could decide to scrap the Motorola system and go with something else. However, that process could take a minimum of five years to accomplish. Rock vs. hard place.

3. ILLINOIS GOVERNOR INDICTED:

This item is apropos of absolutely nothing, other than to show the class of Illinois Governor Rod Blagojevich. Indicted on efforts to obtain personal benefits for himself in return for his appointment of a United States Senator, the good governor refers to the president-elect (and fellow Illinoisan) as a “mother-----er.” Read the entire 78-page indictment, without blanks or bleeps, at http://fl1.findlaw.com/news.findlaw.com/hdocs/docs/crim/ilgovblagojevich1208cmp.pdf. And he’s a governor?

4. COMPENSATION COSTS IN STATE AND LOCAL GOVERNMENTS:

Bureau of Labor Statistics, United States Department of Labor, has issued its Employer Costs for Employee Compensation - September 2008. In September 2008, employer costs in state and local governments averaged $39.18 per hour worked. State and local governments wages and salaries averaged $25.77 per hour (65.8%), while benefits averaged $13.41 (34.2%). For state and local government employees, employer costs for insurance benefits ranged from $3.55 per hour (12.4% of total compensation) for service occupations, to $4.89 per hour worked (10.1%) for management, professional and related occupations. For sales and office occupations, employer insurance costs averaged $3.97 (14.9%). The largest component of insurance costs was health insurance, which averaged $4.21, or 10.8% of total compensation for state and local government employees. In September 2008, the average cost for retirement and savings benefits was $3.09 per hour worked in state and local governments (7.9% of total compensation). Included in this amount were employer costs for defined benefit plans, which averaged $2.75 per hour (7.0%) and defined contribution plans, which averaged 34 cents (0.9%). As our readers know, defined benefit plans specify a formula for determining future benefits, while defined contribution plans specify employer contributions but do not guarantee the amount of future benefits. A major component of benefit costs is paid leave, including vacations, holidays, sick leave and personal leave. The average cost for paid leave was $3.25 per hour worked for state and local government employees. Among occupational groups, the average cost for paid leave for management, professional and related workers was $3.85, significantly higher than costs for sales and office workers, which averaged $2.42, and for service workers, which averaged $2.56.

5. IT DOESN’T TAKE MUCH TO APPLY FOR BAILOUT BUCKS:

Ever need a college loan? Then, you’ve probably poured through the notorious eight-page FAFSA application. A likely home buyer? Try the five-page Uniform Residential Loan Application. But, according to The Associated Press, if you are a bank looking for a few billion dollars from the federal government’s new Capital Purchase Program: two pages! That’s all the nation’s financial institutions had to fill out to request money from the government’s $700 Billion Troubled Asset Relief Program. (In fact, the first page only requires bank contact information.) The simple request form has come to symbolize a government financial bailout plan in need of more accountability and oversight. In all fairness, the application process is not particularly easy. By November 14, 2008, applicants had to submit their forms to banking regulators, who have access to vast amounts of data about the banks seeking the money. These regulators are generally well-acquainted with applicants and then make a recommendation to the Treasury on whether to provide the capital infusion. The Treasury reserves the right to come back to the bank and ask additional questions. What’s more, if a bank gets preliminary approval, it must also provide a security purchase agreement and a warrant agreement -- paper work that by far exceeds the original two-page application.

6. GAO SAYS U.S. GOVERNMENT’S 2008 FINANCIAL REPORT DEMONSTRATES SIGNIFICANT PROBLEMS:

For the 12th year in a row, the U.S. Government Accountability Office was prevented from expressing an opinion on the consolidated financial statements of the U.S. government -- other than the Statement of Social Insurance -- because of numerous material internal control weaknesses and other limitations. While significant progress has been made in improving financial management since the federal government began preparing consolidated financial statements 12 years ago, three major impediments have continued to prevent GAO from rendering an opinion on the accrual basis consolidated financial statements over this period of time. These stumbling blocks include serious financial management problems at the Department of Defense, the federal government’s inability adequately to account for/reconcile intragovernmental activities/balances among federal agencies and the federal government’s ineffective process for preparing consolidated financial statements. Three additional material weaknesses related to improper payments, information security and tax collection activities. At least three major agencies themselves did not get clean opinions: the Department of Defense, the Department of Homeland Security (duh) and the National Aeronautics and Space Administration. The Secretary of the Treasury, in coordination with the Director of Office of Management and Budget, is required annually to submit financial statements for the U.S. government to the President and to Congress. GAO is required to audit these statements. In case you have the slightest bit of interest, the complete fiscal year 2008 financial report (194 pages) is available at http://www.gao.gov/financial/fy2008financialreport.html.

7. QUOTE OF THE WEEK:

“America will never be destroyed from the outside. If we falter and lose our freedoms, it will be because we destroyed ourselves.” Abraham Lincoln.

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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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