Cypen & Cypen
DECEMBER 3, 2009
Stephen H. Cypen, Esq., Editor
1. JACKSONVILLE FINDS THAT PUTTING OFF PENSIONS IS COSTLY: For years, Jacksonville violated its city charter by unfairly restricting access to its pension system, and to fix the problem, the city may have to pay millions more in payroll contributions. According to Florida Times Union, hundreds of new employees who failed physical examinations were denied pensions -- arguably the most attractive benefit offered to city workers. They were told they would have to rely on Social Security for their retirement safety net, a move that saved the city millions. But the bill is about to come due, as city officials have recently discovered more than 1,500 of the city's 8,100 employees were funneled away from the pension plan. A surprised Chief Financial Officer said the city's policy of denying pensions to people who failed physicals violates the city charter. By law, a small group of about 200 appointed employees were eligible to choose Social Security over the pension plan, but city records show more than 1,500 actually enrolled. Moving people from Social Security has the potential to cost the city a lot in increased payroll contributions -- currently 6.2 percent vs. 13.52 percent. So far, nearly everyone is opting for the pension, which is a defined benefit plan, meaning the employee receives a certain percentage of his pay monthly in retirement. Employees in Social Security can buy into the pension plan by paying 8 percent of salary for each year of service; the city pays nothing. (Gee, we wonder why it costs so much later.) If the trend continues, the city is looking at $5 Million in increased payroll contributions.
2. PBGC REPORTS DEFICIT OF $22 BILLION: Pension Benefit Guaranty Corporation ended fiscal year 2009 with an overall deficit of $22 Billion. The result compares with the $11.2 Billion deficit recorded as of September 30, 2008. The deficit in PBGC's insurance program for single-employer pension plans widened to $21.1 Billion for the year, $10.4 Billion more than the prior-year's $10.7 Billion shortfall. The separate insurance program for multiemployer pension plans posted a deficit of $869 Million, exceeding last year's $473 Million shortfall by $396 Million. PBGC is a federal corporation established under Employee Retirement Income Security Act of 1974. It currently guarantees payment of basic pension benefits earned by more than 44 million American workers and retirees participating in more than 29,000 private-sector defined benefit pension plans. The corporation receives no funds from general tax revenues. Operations are financed largely by insurance premiums paid by companies that sponsor defined benefit pension plans and by investment income and assets from terminated plans.
3. TRULY PRAYING FOR RELIEF: A New York Supreme Court (which is a trial court) was recently presented with an issue whether a Rabbinical Court's arbitration award made pursuant to its requirement that the attorney chosen by any of the parties would have to be approved by the Rabbinical Court, which did not approve the attorney chosen by Petitioner, should be confirmed if Petitioner thereafter participated in the arbitration proceedings without objection. Not surprisingly, the issue was one of first impression in New York. The dispute was between petitioner-brother and his respondent-sisters, which was subject to an arbitration agreement providing for resolution by a Rabbinical Court (Beth Din). The arbitration agreement provided that the parties would utilize only such Rabbinical counsel acceptable to the Rabbinical Court. Although the Rabbinical Court refused to approve counsel chosen by Petitioner, Petitioner proceeded without the assistance of counsel. In concluding that the arbitration award against Petitioner should be vacated, the court held that a party’s entitlement to be represented in ongoing litigation by counsel of his own choosing is a valued constitutional right that should not be abridged absent a clear showing that disqualification is warranted. Here, the Rabbinical Court gave no reason for denying petitioner's choice of counsel to represent him in the arbitration proceedings, thereby violated petitioner's right to his choice of counsel. Kahan v. Rosner, Case No. 2808-09 (NY, Kings Co., November 16, 2009).
4. WOMAN LOSES BENEFITS OVER FACEBOOK PHOTO: A woman on long-term sick leave for depression says she lost her benefits because her insurance agent found photos of her on Facebook in which she appeared to be having fun! According to The Associated Press, the woman had been on leave from her job at IBM for the last year. Diagnosed with major depression, she was receiving monthly sick-leave benefits from an insurance company. But payments dried up this fall, and when the woman called the insurance company, she was told she was available to work -- because of Facebook. The insurance agent described several pictures the woman had posted on Facebook, including ones showing her having a good time at a Chippendales bar show on her birthday. The insurance company said the pictures were evidence that she is no longer depressed. The woman responded that on her doctor's advice, she tried to have fun, including nights out at her local bar with friends and short getaways to sunny destinations, as a way to forget her problems. Her lawyer is exploring the next step to having her benefits reinstated. Although the company would not comment on the case, a representative did say the company would not terminate a claim solely based on information published on web sites like Facebook. So, then, what is the issue?
5. STRUGGLING SOUTH FLORIDA DIVORCE LAWYERS OFFER DISCOUNTS: If you are in the market for a divorce, it may be time to strike while the iron is hot (or cold, as the case may be). The Miami Herald reports that business is off by as much as 35 percent for some South Florida divorce lawyers, spurring discounted rates and creative payment plans. The economy is forcing many lower income couples to put off divorce: sometimes a couple cannot afford to live independently or one spouse relies on the other for health insurance or they owe more on their home than it is worth. Lawyers who serve this clientele are hurting, and now they are offering discounts and accepting credit cards for the first time. After finding out what the consultation fee is, many people do not even make an appointment -- they would be too embarrassed to cancel. One lawyer is charging sliding-scale fees, and offers a payment plan; pay half now, and pay half later. Another attorney offers 20 percent discounts for the military, but we doubt that ground is very fertile down here. If we decide to take up a collection for these poor divorce lawyers, we will let you know where to send your checks.
6. MEDICARE PREMIUMS AND DEDUCTIBLES FOR 2010 ANNOUNCED: Centers for Medicare and Medicaid Services has announced Medicare premiums and deductibles for 2010. The standard Medicare Part B monthly premium generally will be $96.40 in 2010, the same as the Part B premium for 2009. (Actually, Part B premium was raised to $110.50, but 73% beneficiaries are protected from increase by a “hold harmless” provision in current law. Thus, the full Part B premium will be paid only by 27% of beneficiaries.) This monthly premium paid by beneficiaries enrolled in Medicare Part B covers a portion of physicians’ services, outpatient hospital services, certain home health services, durable medical equipment and other items. By law, the standard premium is set to cover approximately one-fourth of the average cost of Part B services incurred by beneficiaries aged 65 and over. The remaining Part B costs are financed by Federal general revenues. The Part B deductible was increased to $110 in 2005, and, as a result of the Medicare Modernization Act, is currently indexed to the annual percentage increase in Part B actuarial rate for aged beneficiaries. In 2010, the Part B deductible will be $155, up from $135 in 2009. CMS also announced the Part A deductible in premium for 2010. Medicare Part A pays for inpatient hospital, skilled nursing facility, hospice and certain home health care services. The $1,100 deductible for 2010, paid by the beneficiary when admitted as a hospital inpatient, is an increase of $32 from $1,068 in 2009. Beneficiaries must pay an additional $275 per day for days 61 through 90 in 2010, and $550 for lifetime reserve days. The corresponding amounts in 2009 are $267 and $534, respectively. Daily coinsurance for the 21st through 100th day in a skilled nursing facility will be $137.50 in 2010, up from $133.50 in 2009. Approximately 99% of Medicare beneficiaries do not have to pay a premium for Part A services because they have at least 40 quarters of Medicare-covered employment. However, other seniors and certain people under age 65 with disabilities who have fewer than 30 quarters of coverage may obtain Part A coverage by paying a monthly premium set according to a statutory formula.
7. HALF OF AMERICANS WITHOUT 401(K) OR PENSION: A report from U.S. News & World Report indicates that fewer than half of U.S. workers participate in any kind of employment-based retirement plan. Only 40.4 percent of employees utilized a 401(k) or pension in 2008, down from 41.5 percent in 2007. That percentage translates to almost 64 million workers who saved for retirement through a workplace program last year, considerably below the 67 million employees who so participated as recently as 2000. Part of the problem is that only 50 percent of Americans work for an employer that sponsors a retirement savings plan. But even among full-time workers between ages 21 and 64, the group most likely to be offered a retirement plan at work, just 54.8 percent utilized the retirement account or pension plan, down from 55.3 percent in 2007. Significantly more public sector employees (75 percent) participated in a retirement plan than private sector workers (41 percent). And employees on the verge of retirement between ages 55 and 64 participated in higher numbers (55 percent) than young workers ages 21 to 24 (19 percent). Among large employers with 1,000 or more workers, 56 percent were saving for retirement through a workplace plan, compared to 16 percent at companies with 10 or fewer employees, which leaves 78 million Americans who work for an employer or union that did not sponsor a retirement plan and 94.1 million workers who did not participate in a plan. Additional decreases in retirement plan participation are possible next year: the continued freezing of traditional pensions and shift to self-directed 401(k) retirement plans may continue to diminish use of retirement savings plans. But the growing incidence of companies automatically enrolling workers in 401(k) plans, unless they opt out, could contribute to retirement account participation remaining at its current level.
8. COURT ALLOWS ERISA CLASS ACTION AGAINST WAL-MART TO PROCEED: Braden, an employee of Wal-Mart Stores, Inc. and participant in its employee retirement plan, brought a class action against Wal-Mart. He alleged that the company violated fiduciary duties imposed by Employee Retirement Income Security Act. Wal-Mart moved for dismissal, which the district court granted, concluding that Braden lacked constitutional standing to assert claims based on breaches of fiduciary duty prior to the date he first contributed to the Plan and that he otherwise failed to state any plausible claim. On appeal by Braden, the Court of Appeals reversed and remanded for further proceedings. The gravamen of Braden’s complaint was that Wal-Mart failed adequately to evaluate investment options included in the Plan. Further, the complaint alleged that the process by which the mutual funds were selected was tainted by Wal-Mart’s failure to consider trustee Merrill Lynch's interest in including funds that shared their fees with the trustee. As a result, according to Braden, some or all of the investment options included in the Plan charged excessive fees. (He estimated that such fees unnecessarily cost the Plan $60 Million over the past six years, and will continue to waste approximately $20 Million per year.) Braden also alleged that the relatively high fee charged by Plan funds could not be justified by greater returns on investment, since most of them underperformed lower cost alternatives. (By comparison to an investment in index funds, Braden estimated that higher fees and lower returns cost the Plan some $140 Million by the end of 2007.) Finally, the complaint alleged that the mutual fund companies whose funds were included in the Plan shared with Merrill Lynch portions of the fees they collected from participants' investments. This practice, sometimes called “revenue sharing,” is used to cover a portion of the costs of services provided by an entity such as a trustee of a 401(k) plan, and is not uncommon in the industry. Braden alleged, however, that, here, revenue sharing payments were not reasonable compensation for services rendered by Merrill Lynch, but rather were kickbacks paid by mutual fund companies in exchange for inclusion of their funds in the Plan. The district court erred by concluding that Braden had no standing for the period before he began participating in the Plan because under ERISA a fiduciary relationship does not exist toward potential participants in a plan and such potential participants have no standing to sue for breach of fiduciary duty. In reaching this conclusion, the district court mixed two distinct issues. Whether Braden may pursue claims on behalf of the Plan at all is a question of constitutional standing that turns on his personal injury. Whether relief may be had for a certain period of time is a separate question, and its answer turns on the cause of action Braden asserted. At this stage in the litigation, the Court of Appeals found it impossible to say whether any particular claim “occurred” in a sense of when the action giving rise to it began or ended. But, because the appellate court was required to assume for purposes of appeal that Braden's allegations were true, Braden made a sufficient showing of standing for the entire period embraced by his complaint. Braden v. Wal-Mart Stores, Inc., Case No. 08-3798 (U.S. 8th Cir., November 25, 2009).
9. SUDAN PROPOSAL FAILS AT MUTUAL FUNDS: Shareholders of 16 American Funds products soundly defeated a nonbinding proposal to pull investments from companies doing business in Sudan. Reuters reports that the measures garnered between 8.5 percent and 11.8 percent favorable votes, lower than previous votes (and about half the favorable votes received for a similar proposal at Putnam Investments). Managers of American Funds had opposed the proposal, saying such decisions were best handled as part of the funds’ regular investment process. Of course, in Florida, Chapter 2009-97 (SB 538) generally requires divestment by municipal Fire Fighters’ and Police Officers’ pension plans of securities of foreign companies doing business in Sudan and Iran (see C&C Special Supplement for July 2, 2009).
10. SEC PAID $2 BILLION TO INJURED INVESTORS: The Securities and Exchange Commission's image has certainly taken a beating recently, with discovery that the Bernard Madoff scandal festered under the agency's nose for years, the humiliating rejection of the proposed $33 Million settlement with Bank of America and a general feeling by the investing public that SEC has failed to look out for its interests. But, just in time for the holidays, law.com reports a bit of bright news: SEC has announced that, for the first time, it has distributed more than $2 Billion in a calendar year to injured investors as a result of its enforcement actions and proceedings. As SEC explains in a release, the Sarbanes-Oxley Act gave it authority to distribute civil penalties and ill-gotten gains to injured investors. Before SOX, SEC could give investors only ill-gotten gains. Since the law was changed in 2002, the agency has distributed roughly $6.6 Billion to investors. A big chunk of the amount distributed this year came from settlements and fines with two companies at center of the financial crisis. More than $840 Million came from AIG, and more than $320 Million from Bear Stearns. In both cases, penalties were imposed and money was put aside long before the crisis. In 2006, AIG settled charges of accounting fraud and misleading disclosure that occurred from 2000 to 2005. That same year, SEC accused Bear Stearns of harming shareholders by late trading and market timing of mutual funds from 1999 through 2003. Although investors had to wait three years after these settlements for their money, we guess it is better late than never.
11. PERFORMANCE MEASUREMENT WOULD STRENGTHEN ACCOUNTABILITY AND ENHANCE AWARENESS AMONG POTENTIAL CLAIMANTS UNDER PSOB: The United States Government Accountability Office has issued a report to the Chairman, Subcommittee on Disaster Recovery, Committee on Homeland Security and Governmental Affairs, U.S. Senate, dealing with Public Safety Officers’ Benefits program. Congress established the PSOB program in 1976 to demonstrate appreciation for men and women in public safety careers and assist in their recruitment and retention, among other purposes. The program provides death, disability and education benefits to public safety officers and their families in the event of the officer’s death or permanent and total disability resulting from employment. (As originally enacted in 1976, the PSOB program offered death and disability benefits. Education benefits were later added through the federal Law Enforcement Dependents Assistance Act of 1996.) While Congress established that funding for death claims is mandatory, funding for the disability and education programs of the program is discretionary. As such, in fiscal year 2009, Congress appropriated such sums as are necessary for death benefits (approximately $119 Million), $5 Million for disability benefits and $4.1 Million for education benefits. In fiscal year 2009, after adjusting for inflation, the onetime lump-sum death and disability benefits were $315,746, and the maximum education benefit was $915 per month. By law, PSOB death and disability benefits are provided in addition to other benefits to which the officer is entitled and generally should not affect receipt of other benefits, including state and local benefits. In addition, if officers qualify for Social Security Disability Insurance, their DI benefits are not affected by receipt of PSOB benefits. In its study, GAO found that all education claims and over three-quarters of death claims opened in fiscal years 2006 to 2008 were closed and approved as of April, 2009, while only 31% of disability claims initiated during that period had terminations. Most disability claims remain pending because it took significantly longer to process them than other claims. While education and death claims were generally processed in under a year, disability claims took between 17 and 26 months. GAO was unable to pinpoint which steps of the claims process were most time-consuming because claims that GAO reviewed did not consistently document the date when claims passed through each step of the process. While it is taking steps to improve, the PSOB program does not follow government guidelines for performance monitoring. Specifically, according to Justice officials, the PSOB program has not set strategic goals and measures, monitored performance or reported results because it is a payment program, and its budget is largely mandatory. However, other federal programs that provide benefits after work-related injury and illness have established performance measures, such as ones for claims-processing timeliness, and report their results publicly. Also, while the PSOB program has initiated several outreach and assistance efforts to claimants and state and local agencies in recent years, these efforts are not monitored, resulting in uncertainty as to whether they are adequate. GAO recommended that PSOB establish appropriate performance measures and use reliable data to monitor and report on the program’s performance. GAO-10-5 (October, 2009).
12. BANKERS SEEK GUN PERMITS: Goldman Sachs Group is at the focal point of the American public's rage against Wall Street -- and probably for good reason. The firm's former chief executives have populated the highest echelons of American government, which has turned around and given Goldman (and its partner in the current financial collapse, American International Group) billions of dollars in taxpayer money. Now, as bonus season draws near, DailyFinance reports that nervous Goldman Sachs partners are arming themselves. Apparently, some senior Goldman bankers are applying for gun permits ahead of the holidays, for fear of the public's reaction once they start receiving their year-end rewards. It's not as though Goldman hasn't done anything to try to change the public's mood: Goldman recently announced a $500 Million fund intended to help small businesses through a combination of training and lending programs. Yet, the announcement hasn't done much to soothe the public's anger. When news of the final tally on Goldman's bonuses breaks, the bank is going to face an even tougher public relations campaign. Goldman's partners are expected to receive record bonuses this year. Some bankers fear a repeat of what happened in March to AIG employees, who received $165 Million in bonuses. Once word got out about the bonuses, demonstrators went to the employees' homes and protested on their front yards. What Goldman execs need to remember is that the firm would not be doing so well if it were not for the public's munificence. After all, $12.9 Billion of AIG bailout money went to Goldman, and it is still enjoying $52 Billion in low-interest loans from the U.S. government to finance its trading profits. Perhaps these lucky recipients should hire someone who carries a card reading “Have gun, will travel.”
13. YOU COULD HAVE HEARD A PIN DROP: At a time when our president and other politicians tend to apologize for our country`s prior actions, here`s a refresher on how some of our former patriots handled negative comments about our country :
There was a conference in France where a number of international engineers were taking part, including French and American. During a break, one of the French engineers came back into the room saying “Have you heard the latest dumb stunt Bush has done? He has sent an aircraft carrier to Indonesia to help the tsunami victims. What does he intend to do, bomb them?”
A Boeing engineer stood up and replied quietly: “Our carriers have three hospitals on board that can treat several hundred people; they are nuclear powered and can supply emergency electrical power to shore facilities; they have three cafeterias with the capacity to feed 3,000 people three meals a day; they can produce several thousand gallons of fresh water from sea water each day; and they carry half a dozen helicopters for use in transporting victims and injured to and from their flight deck. We have eleven such ships; how many does France have?”
You could have heard a pin drop
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