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Cypen & Cypen
DECEMBER 24, 2008

Stephen H. Cypen, Esq., Editor


On December 23, 2008 President Bush signed into law the Worker, Retiree, and Employer Recovery Act of 2008 (see C&C Special Supplement for December 12, 2008). The bill is designed to make technical corrections related to the Pension Protection Act of 2006. The bill was unanimously passed by the House on December 10, 2008 and by the Senate on December 11, 2008. Again, the bill can be accessed at .


GRS has published a memorandum summarizing changes to the Internal Revenue Code (and other laws) resulting from the Worker, Retiree, and Employer Recovery Act of 2008 as applied to state and local government retirement plans. Here are a few such provisions:

  • Market Rate of Return - under the Pension Protection Act certain plans could be deemed age-discriminatory unless they limited annual interest credited on accounts to no more than “market rate of return.” Such plans could include Deferred Retirement Option Programs and interest credited on picked-up member contributions. Under proposed regulations, “market rate of return” would be based on long-term, investment-grade bond rates. The Recovery Act amends the Age Discrimination in Employment Act to provide that a rate for crediting interest established under federal, state or local law (including the administrative rule or policy) will be treated as “market rate of return,” provided it does not violate any other requirements of ADEA. The provision is effective as if it had been included in the Pension Protection Act for plan years after December 31, 2007. Now, governmental plans will generally not have to change how they credit interest on DROP accounts and member contribution accounts.
  • Retired Public Safety Officer Distributions - the Pension Protection Act allows qualified retired public safety officers to exclude up to $3,000 annually from federal income taxation for distributions made from an eligible governmental plan to pay premiums for qualified health insurance or long-term care. In early 2007, IRS ruled that the exclusion only applied to coverage provided by an insurance company and not to coverage provided by self-funded plans. However, IRS later agreed to interpret the language to include self-funded plans. The Recovery Act formally corrects the statutory language to include coverage provided by self-funded plans, effective for tax years beginning after December 31, 2006.
  • 415 Mortality Table - The Recovery Act changes the mortality table used for benefit limitation calculations under IRC Section 415 from the 1994 Group Annuity Reserving Table (as adjusted) to the "Applicable Mortality Table," described under IRC Section 417(e)(3)(B). The change is effective for years beginning after December 31, 2008, but may be applied to years beginning after December 31, 2007, if a plan so elects. The change will have a marginal effect on Section 415 dollar limits.
  • Rollovers to Nonspouse Beneficiaries - The Pension Protection Act allowed (but did not require) qualified retirement plans to roll over benefits to nonspouse beneficiaries. Under the Recovery Act, rollovers to nonspouse beneficiaries are generally subject to the same rules as other eligible rollovers, including the requirement that plans allow beneficiaries to make direct rollovers of eligible rollover distributions. This provision is effective for plan years beginning after December 31, 2009.
  • Minimum Distributions - Generally, participants in qualified plans are required to take minimum distributions by April 1 of the year following (1) the year they retire or (2) the year they attain 701/2, whichever is later. The Recovery Act provides a temporary, one-year moratorium on required minimum distributions from individual retirement plans (for example, IRAs) and defined contribution plans qualified under IRC Sections 401(a), 403(a), 403(b) and governmental plans under IRC Section 457(b). The one-year moratorium is effective for minimum distributions beginning after December 31, 2008. (There had been some discussion about extending the moratorium to years beginning after December 31, 2007, but that idea is apparently a dead issue.)

The Joint Committee on Taxation's complete analysis is at


Internal Revenue Service has announced that interest rates for the calendar quarter beginning January 1, 2009 will drop by one percentage point. The new rates will be

  • Five percent for overpayments (four percent in case of a corporation)
  • Five percent for underpayments
  • Seven percent for large corporate underpayments and
  • Two and one-half percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus three percentage points. Revenue Ruling 2008-54 (IR-2008-139), December 10, 2008.


The City of Delray Beach recently received two Opinions from the Florida Attorney General on the same day.

A. A city task force or other city advisory board may conduct informal discussions and workshops using an on-line bulletin board if proper notice is given and interactive access to members of the public is provided. Such interactive access must include not only public access via the Internet, but also designation of places within the task force’s jurisdictional boundaries where computers with Internet access are made available to members of the public who may not otherwise have computers with Internet access. Notice of these workshops should include locations where such computers will be available. For any meetings where a quorum is necessary for action to be taken, physical presence of members making up the quorum will be required in the absence of a statute providing otherwise. The city should ensure that operating-type assistance is available at the library where the computers are located. Although the task force may archive full text of all workshop discussions conducted on the Internet, written minutes of these workshops must also be prepared. AGO 2008-65 (December 10, 2008).

B. The Delray Beach Community Land Trust, Inc. is a Florida not-for-profit corporation organized for purposes specified in Section 501(c)(3) of the Internal Revenue Code. As provided in its certificate of incorporation, the private nonprofit corporation was created to secure affordable access to land and housing, and to hold that land for benefit of the community to ensure perpetual affordability of housing units within the area served by the trust. Whether the Government in the Sunshine Law and the Public Records Law apply to a private entity depends on whether the private entity is merely providing services to the public agency or whether it stands in the shoes of the public agency. Here, the trust has contracted with the city to accomplish the city’s responsibilities to provide affordable housing for certain households. The trust also reviews and screens applicant files for those who wish to participate in the city’s affordable housing program, and so acts as an integral part of the city’s decision-making process in determining applicant eligibility. Thus, the Delray Beach Community Land Trust, Inc. is an agency within the scope of the Government in the Sunshine Law and the Public Records Law. AGO 2008-66 (December 10, 2008).


McKnight was an employee of General Motors Corporation, who accepted early retirement and also received Social Security Disability Insurance Benefits following retirement. Pursuant to provisions of the GM pension plans, retirement benefits were reduced by the amount received from the government in SSDIB benefits. The primary issue presented to a federal appellate court was whether disabled former employees have standing under Title I of the Americans With Disabilities Act to bring suit against their former employers for discrimination with respect to the payment of post-employment fringe benefits. In affirming the trial court, the United States Court of Appeals concluded that McKnight did not have such standing, and that even if he did, his claim would fail on the merits. Although there is a split among the appellate circuits, a majority of courts has held that Title I is unambiguous, and by its plain language, does not apply to former employees who are unable to perform essential functions of their jobs. And even if McKnight had standing, the benefit plans in question do not violate ADA. A plan providing different benefits for different types of disabilities does not violate ADA. McKnight had equal access to the same benefit plan, and, thus, received equal treatment from GM. McKnight v. General Motors Corporation, Case No. 07-1479 (U.S. 6th Cir., December 4, 2008).


A. United States Government Accountability Office has issued its report to Congressional Committees, entitled “Troubled Asset Relief Program - Additional Actions Needed to Better Ensure Integrity, Accountability, and Transparency.” On October 3, 2008, the Emergency Economic Stabilization Act was signed into law. The Act established the Office of Financial Stability within the Department of the Treasury and authorized the Troubled Asset Relief Program. Every 60 days, the U.S. Comptroller General is required to report on a variety of areas associated with oversight of TARP. The current report reviews (1) activities that have been undertaken through TARP as of November 25, 2008; (2) the structure of OFS, its use of contractors and its system of internal controls and (3) preliminary indicators of TARP’s performance. GAO reviewed documents related to TARP, including contracts, agreements, guidance and rules. GAO also met with OFS, contractors, federal agencies and officials from some participating institutions. GAO plans to continue to monitor these and other issues including future and ongoing capital purchases, other transactions undertaken as part of TARP (for example, capital purchases in Citigroup and American International Group) and status of other aspects of TARP. To help ensure the program’s integrity, accountability and transparency, GAO recommends that Treasury

  • work with bank regulators to establish a systematic means of determining and reporting in a timely manner whether financial institutions’ activities are generally consistent with purposes of the Capital Purchase Program;
  • develop a means to ensure that institutions participating in CPP comply with key program requirements (like executive compensation, dividend payments and repurchase of stock);
  • formalize existing communication strategy to ensure that external stakeholders, including Congress, are informed about the program’s current strategy and activities;
  • facilitate a smooth transition to the new administration by building on and formalizing ongoing activities;
  • continue to develop a comprehensive program of internal control over TARP, including policies, procedures and guidance that are robust enough to protect taxpayers’ interests and ensure that the program objectives are being met;
  • issue final regulations on conflicts of interest quickly, and review and renegotiate mitigation plans to enhance specificity and compliance; and
  • institute a system effectively to manage and monitor mitigation of conflicts of interest.

Treasury generally agreed with GAO’s recommendations, but had a different prospective on need to monitor how participating institutions are spending CPP funds. GAO believes that monitoring aggregate information across participants would help ensure an appropriate level of transparency and accountability. GAO-09-161 (December, 2008).

B. On December 4, 2008 GAO’s Director of Financial Markets testified before a U.S. Senate Subcommittee on Status of Efforts to Address Defaults and Foreclosures on Home Mortgages. A dramatic increase in mortgage loan defaults and foreclosures is one of the key contributing factors to the current downturn in the U.S. financial markets and economy. In response, Congress passed and the President signed in July the Housing and Economic Recovery Act of 2008 and in October EESA, which established the Office of Financial Stability within the Department of Treasury, and authorized the Troubled Asset Relief Program. Both Acts established new authorities to preserve homeownership. GAO analyzed quarterly default and foreclosure data from the Mortgage Bankers Association for the period 1979 through the second quarter of 2008. GAO also relied on work performed as part of its mandated review of Treasury’s implementation of TARP, which included obtaining and reviewing information from Treasury, federal agencies and other organizations (including selected banks) on homeownership preservation efforts. OFS initially intended to purchase troubled mortgages and mortgage-related assets and use its ownership position to influence loan services and to achieve more aggressive mortgage modification standards. However, within two weeks of EESA’s passage, Treasury determined it needed to move more quickly to stabilize financial markets and announced it would use $250 Billion of TARP funds to inject capital directly into qualified financial institutions by purchasing equity. Recitals in the standard agreement with Treasury require institutions receiving capital injections to state that they will work diligently under existing programs to modify terms of residential mortgages. It remains unclear, however, how OFS and banking regulators will monitor the way these institutions are using capital injections to advance purposes of the Act, including preserving homeownership. While Treasury and others will face a number of challenges in undertaking loan modifications, including making transparent to investors the analysis supporting value of modification versus foreclosure, rising defaults and foreclosures on home mortgages underscore importance of ongoing and future efforts to preserve homeownership. GAO will continue to monitor Treasury’s efforts as part of its mandated TARP oversight responsibilities. GAO-09-231T (December 4, 2008).

C. On December 10, 2008, the acting Comptroller General of the United States testified before a House Committee on Additional Actions Needed to Better Ensure Integrity, Accountability and Transparency of the Troubled Asset Relief Program. In essence, the acting Comptroller General discussed the December GAO report (Item A above). GAO conducted a performance audit of TARP in October and November 2008, in accordance with generally accepted government auditing standards. Those standards require that GAO plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for its findings and conclusions based on its audit objectives. The acting Comptroller General believes that the evidence obtained provides a reasonable basis for GAO’s findings and conclusions based on its audit objectives. GAO-09-266T (December 10, 2008).


Internal Revenue Service has announced an expedited process that will make it easier for financially distressed homeowners to avoid having a federal tax lien block refinancing of mortgages or sale of a home. If taxpayers are looking to refinance or sell a home and there is a federal tax lien filed, there are options. Taxpayers or their representatives, such as their lenders, may request that IRS make a tax lien secondary to the lien of the lending institution that is refinancing or restructuring a loan. Taxpayers or their representatives may request that IRS discharge its claim if the home is being sold for less than the amount of the mortgage lien, under certain circumstances. The process to request a discharge or a subordination of tax lien takes approximately 30 days after submission of the completed application, but IRS will work to speed those requests in wake of the economic downturn. To apply for a certificate of lien subordination, one must follow directions in Publication 784, How to Prepare an Application for a Certificate of Subordination of a Federal Tax Lien. IR-2008-141 (December 16, 2008).


You “can” get away with all sorts of hijinks when things are going well. Resist the temptation, because it will come back to haunt you when things go sour (as they inevitably will). So don’t let success pump you full of hot air. Skip the tiny arrogances of power. First, they make you a pain in the butt and less respected. Second, when the yogurt [hah!] hits the fan, “they” will get even. People have long memories. Very long memories. Infinitely long memories. If you slight them or pull a childish prank, they’ll remember. They’re not creeps, just normal, human beings -- who don’t like to be put down. Interesting stuff from The Pursuit of WOW!


The great majority of matchups between boss and subordinate are made in neither heaven nor hell. According to How to Manage Your Boss, they are simply pairs of human beings thrown together for the purpose of accomplishing certain goals. Your challenge is to understand all you can about your boss, assess your alternatives and make intelligent choices that will enable you to manage the relationship to your mutual advantage. Be alert to understanding as much as you can. Get what you want by helping your boss get what he wants. And remember, you run far less risk by giving your boss more credit than he deserves than by giving him less.


Sometimes, when I look at my children, I say to myself, “Lillian, you should have remained a virgin.” Lillian Carter (mother of Jimmy Carter)


“Television enables you to be entertained in your home by people you wouldn’t have in your home.” David Frost (one subject in the current movie hit “Frost/Nixon.”)

We wish you and yours a very Merry Christmas!!!!

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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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