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Cypen & Cypen
DECEMBER 31, 2009

Stephen H. Cypen, Esq., Editor

1.            IRS LISTS QUALIFICATION REQUIREMENTS:  Internal Revenue Service has issued its 2009 Cumulative List of Changes in Plan Qualification Requirements.  The 2009 Cumulative List is to be used by plan sponsors of individually designed plans that are in Cycle E (which includes a governmental plan for which an election has been made by the plan sponsor to treat Cycle E as the initial EGTRRA remedial amendment cycle for the plan).  Generally, governmental plans are in Cycle C, February 1, 2008 - January 31, 2009, but governmental plans were permitted to make a one-time election to be in Cycle E.  There are 41 items on the list, several containing subparts.  Included are Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), with technical corrections made by the Job Creation and Worker Assistance Act of 2002 (JCWAA); the Pension Funding Equity Act of 2004 (PFEA); the American Jobs Creation Act of 2004 (AJCA); the Pension Protection Act of 2006 (PPA); the Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART Act); the Emergency Economic Stabilization Act of 2008 (EESA); and the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA).  IRS will not consider in its review of any determination letter application, for the submission period that begins February 1, 2010, any:  (1) guidance issued after October 1, 2009; (2) statutes enacted after October 1, 2009; (3) qualification requirements first effective in 2011 or later; or (4) statutory provisions that are first effective in 2010, for which there is no guidance identified in the notice.  The 2009 Cumulative List does not include any items described in (1) through (4) above.  However, in order to be qualified, a plan must comply with all relevant qualification requirements, not just those on the 2009 Cumulative List.  IRS Notice 2009-98, I.R.B., 2009-52 (December 28, 2009). 

 2.         JUDGE NOT LIKELY TO RECEDE FROM UNIVERSITY OF IDAHO RETIREES SUIT DECISION:  A lawsuit filed against the University of Idaho by 268 of its former employees will likely end up in the state's highest court, the district court judge presiding over the case has said.  The statement came, according to, after the judge heard a motion to consider his earlier decision in UI's favor.  The employees took early retirement buyouts offered by UI in 1999 and 2002.  Those agreements said early retirees would receive medical and life insurance benefits as outlined in "existing UI policy."  At time of their early retirement, those benefits included UI-paid medical insurance.  But following recommendations of a 2007 task force looking to cut costs, UI modified benefits of all its retirees, adding a medical insurance premium and reducing the amount of available life insurance.  The early retirees in the suit claim UI did not have the right to make those changes to their plans.  The judge, however, disagreed, finding that the university had the right to modify the benefit plans of its employees in accordance with a clause in its Faculty-Staff Handbook that makes such reservation.  The retirees had referred to the handbook as a source for definition of benefits under "existing UI policy," but the judge said the retirees could not pick and choose which parts of the handbook to reference, and would have to accept the reservation of rights along with the benefits descriptions.  One from Column A and one from Column B. 

 3.            STATE DEPARTMENT SEEKS TO DISMISS AGE DISCRIMINATION SUIT:  The State Department has filed a motion to dismiss a case challenging the U.S. Foreign Service's mandatory retirement policy, arguing the age cutoff was a valid piece of Congressional decision making.  Colton, a 64-year-old Foreign Services officer, sued the State Department, alleging that she had been denied an overseas assignment because of her age.  Her suit claimed the Foreign Service's requirement that officers retire at 65 violated the Constitution's equal protection clause. Colton also alleged the government violated the Age Discrimination in Employment Act by denying her career opportunities before she turned 65.  The government shot back, arguing that Colton was trying to upend long-settled law.  The U.S. Court of Appeals for the D.C. Circuit has already found that the retirement policy at issue, which is contained in the Foreign Services Act, was exempt from ADEA.  It added that the U.S. Supreme Court has also ruled that age cutoff does not violate equal protection.  This story comes from The Blog of Legal Times. 

 4.            DOL CORRECTLY UPHELD LABOR AGREEMENT:  Section 13(c) of the Urban Mass Transportation Act of 1964 requires state and local governments seeking federal financial assistance for transit operations to have in place “fair and equitable” provisions for protection of employees.  Each time an applicant requests funds from the Federal Transit Administration under UMTA, the Secretary of Labor must certify that § 13(c) is satisfied.  Since 1981, the City of Colorado Springs, Colorado has been a party to a labor agreement with Amalgamated Transit Union pursuant to § 13(c).  The City wished to be relieved of provisions of the Agreement that it contended went beyond § 13(c)’s requirements.  In connection with a certain grant application, DOL rejected the City’s objections to the Agreement, and certified the Agreement for purposes of that grant. The City then brought suit under the Administrative Procedure Act, and after the district court affirmed, the City appealed.  Concluding that DOL did not act arbitrarily or capriciously in rejecting the City’s objections, the appellate court affirmed.  Although the district court held that the provisions identified by the City in its challenge clearly exceeded § 13(c)’s requirements, in light of § 13(c)’s narrow purpose -- protecting transit workers’ collective bargaining rights -- DOL was not required to invalidate overly protective terms in a § 13(c) agreement.  Section 13(c) establishes “minimal standards,” and does not concern itself with other provisions to which the parties might agree.  Once DOL determines § 13(c) has been satisfied, its role is at an end.  However, just as the court of appeals saw nothing precluding the City from vigorously seeking renegotiation under threat of foregoing any further federal assistance (which, presumably, would negatively affect the Union as well as the City), it saw nothing precluding the City from pursuing state-law theories of relief in state court.  City of Colorado Springs v. Solis, Case No. 09-1029 (U.S. 10th Cir., December 23, 2009). 

 5.            WIFE WHOSE DISABILITY PREVENTED HER FROM VISITING INCARCERATED HUSBAND HAD STANDING TO SUE:  Fulton suffered from multiple sclerosis, which prevented her from visiting her husband in prison, 300 miles from her home.  She sued the New York State Department of Correctional Services, pursuant to the Americans with Disabilities Act and the Rehabilitation Act, seeking relief for the asserted failure to accommodate her disability in administering the Inmate Visitor Program.  The District Court dismissed her suit for both lack of standing and failure to state a claim.  On appeal, the court held that the lower court was misguided in viewing Fulton’s suit as consisting of claims based solely on defendant’s refusal to transfer her husband to a prison closer to her home, when in fact the basis of her  claim was broader:  defendant’s failure even to consider whether her disability could be reasonably accommodated.  The complaint is unequivocal that the defendant’s alleged discrimination caused Fulton’s claimed injury, and that this litigation could remedy the harm.  Thus, the court of appeals remanded the matter to the trial court to determine whether Fulton stated a claim upon which relief could be granted.  Fulton v. Goord, Case No. 06-5023-cv (U.S. 2nd Cir., December 22, 2009). 

 6.            MARYLAND DUMPS SHELL HOLDINGS OVER IRAN AFFILIATION:  The $32 Billion Maryland State Retirement and Pension System has divested more than 1 million shares of common stock valued at over $38.3 Million and $3.5 Million in bonds of Royal Dutch Shell because the company does business in Iran.  Pensions & Investments reports that the action resulted from a state law enacted last year that requires the system to consider divesting investments in companies that do business in Iran or Sudan, and have no plans to cut those operations.  In accordance with the statute, the board of trustees will continue to monitor and evaluate all remaining investments in companies doing business in Iran and Sudan.  Our readers are familiar with Chapter 2009-97, which amends Sections 175.071 and 185.06, Florida Statutes, in a similar vein (see C&C Special Supplement for July 2, 2009). 

 7.            DOL WILL SEEK NEW FIDUCIARY STANDARDS FOR CONSULTANTS:  Investment-related advice that pension consultants offer to retirement plan officials could be subject to higher fiduciary standards under a new regulation the Department of Labor proposes to consider in 2010.  A key DOL target in the proposal, according to Pensions & Investments, is the third-party payments that some investment consultants receive when retirement funds hire money managers recommended by them.  The thrust of DOL's proposed rulemaking, which the agency's Employee Benefits Security Administration hopes to unveil in June, would subject consultant advice to the full panoply of ERISA fiduciary obligations, which prohibit self-dealing and other conflicts.  An increasing number of plan fiduciaries rely on advice and recommendations from service providers such as pension consultants and financial asset appraisers in making significant investment-related decisions for their plans.  However, the current regulatory definition of “fiduciary” limits ERISA's ability to protect employee benefit plans from advisers and financial asset appraisers that act imprudently or that subordinate their clients' interests to the interests of others.  Subjecting these persons to ERISA's fiduciary responsibility rules will help protect the interests of plans by fostering the provision of quality, impartial advice and recommendations.  Believe it or not, EBSA’s proposed rulemaking responds to a May 2005 report by the Securities and Exchange Commission, finding that many pension consultants had conflicts of interest and did not consider themselves ERISA fiduciaries (see C&C Newsletter for May 26, 2005, Item 1).  

 8.            KEOGH PLAN NEED NOT COMPLY WITH ERISA TO BE EXEMPT IN BANKRUPTCY:  A United States District Court has affirmed the decision of a bankruptcy court that Baker’s Keogh plan was not exempt under Section 222.21(2)(a)(1), Florida Statutes.  Baker was the sole participant in and beneficiary of a Keogh plan managed by Fidelity Investments, which had obtained letter rulings from Internal Revenue Service that the plan was “acceptable under Section 401 of the Internal Revenue Code.”  On appeal, Baker did not contend that her Keogh plan was maintained in accordance with the Employee Retirement Income Security Act of 1974.  She contended, rather, that Section 222.21(2)(a)(1), Florida Statutes, exempted from the bankruptcy estate profit-sharing plans that qualify under Section 401(a) of the Internal Revenue Code, and her Keogh plan so qualified.  The lower court concluded that Baker could not claim exemption under Section 222.21(2)(a)(1), Florida Statutes, because she was the sole shareholder and sole participant in a Keogh plan, relying upon a 2004 United States Supreme Court decision defining “participant” in a pension plan under ERISA (see C&C Newsletter for March 8, 2004, Item 3).  On review de novo, the court of appeals reversed.  Although the Bankruptcy Code provides exemptions, a state may opt out of those exemptions and provide alternative exemptions.  In an opt-out state, debtors may exempt any property that is exempt under state or local law that is applicable on the date of the filing of the petition.  In Section 222.20, Florida Statutes, Florida elected to opt out, and has enacted its own exemptions.  Florida law shields from claims of creditors assets deposited in retirement and profit-sharing plans that have been pre-approved by IRS as exempt from taxation under Section 401(a) of the Internal Revenue Code.  Under Section 401(a) of the Internal Revenue Code, an employee includes a self-employed individual.  In 2005, the Florida Legislature amended Section 222.21, Florida Statutes, to provide that an exempt plan does not have to comply with ERISA.  Thus, the appellate court reversed the judgment that Baker’s Keogh plan had to comply with ERISA to qualify for an exemption under Section 222.21(2)(a)(1), Florida Statutes:  that section merely requires that profit-sharing plan qualify under Section 401(a) of the Internal Revenue Code, not that the plan comply with ERISA.  The cause was remanded with instructions for the district court to remand to the bankruptcy court to address whether Baker’s Keogh plan complied with Section 401(a) of the Internal Revenue Code.  A mighty fine -- and correct -- decision.  In Re:  Baker, Case No. 09-13144 (US 11th Cir., December 22, 2009). 

 9.            FEWER LAW ENFORCEMENT OFFICERS DIED ON JOB IN 2009:  Law enforcement deaths this year dropped to their lowest level since 1959, while the decade of the 2000s was among the safest for officers -- despite the deadliest single day for police on Sept. 11, 2001.  The drop in deaths, cited by the National Law Enforcement Officers Memorial Fund and reported in the New York Times, was tempered by an increase in firearm deaths.  Through December 27, the report found: 

  • 124 officers were killed this year, compared to 133 in 2008.  The 2009 total represents the fewest line-of-duty deaths since 108 a half-century ago.
  • Traffic fatalities fell to 56, compared to 71 a year ago.  The decline was partly attributed to ''move over'' state laws, which require motorists to change lanes to give officers clearance on the side of a road.
  • Firearms deaths rose to 48, nine more than in 2008.  However, the 39 fatalities in 2008 represented the lowest annual figure in more than five decades.
  • Thirty-five states and Puerto Rico had officer fatalities in 2009, with Texas the only state in double figures.  Texas had 11 fatalities, followed by Florida, 9; California, 8; and North Carolina and Pennsylvania, 7.
  • Six federal officers died in 2009, including three Drug Enforcement Administration special agents killed in a helicopter crash in Afghanistan while conducting counter-narcotics operations.
  • One female officer was killed in 2009, compared with 13 the previous year. There was no explanation for the decline.
  • An average of 162 officers a year died in the 2000s, compared with 160 in the 1990s, 190 in the 1980s and 228 in the 1970s -- the deadliest decade for U.S. law enforcement.  Seventy-two officers died on Sept. 11, 2001.

'To reach a 50-year low in officer deaths is a real credit to the law enforcement profession and its commitment to providing the best possible training and equipment to officers, said the Memorial Fund chairman and CEO.

10. ai5000's TOP FIVE INSTITUTIONAL INVESTMENT STORIES OF 2009:  As the new year approaches, ai5000 has decided to be bold:  editors picked what they think are the top five stories that controlled headlines in the Institutional Investment community in 2009.  Here they are, in no particular order: 

  • Revelation of the Full Extent of American Endowment Problems.  Entering 2009, the world knew that trouble was afoot at America’s largest endowments.  What was not fully understood as 2009 dawned was the extent to which these endowments had been misjudging their liquidity needs. Providing enough capital and liquidity to maintain university growth, even in downturns, is the new Endowment Model.
  • The Equity Bull Run v. The Gold Bull Run.  The equity bull run, with the Dow Jones Industrial Average up some 70% since mid-March, is an obvious highlight of 2009.  However, at the same time, gold -- a safe haven in times of crises -- has enjoyed a similar bull run. 
  • The Dubai Default and the Retrenchment of SWFs (with One Exception).  Sovereign wealth funds went from feared to desired to burned in the four years after 2005.  Dubai has now effectively defaulted on its debt, surviving only at the pleasure of Abu Dhabi.   There is one obvious exception to the current retrenchment and skepticism:  China Investment Corporation. 
  • The American Placement Agent Scandal.  While within the larger arc of history the placement agent scandal is but a small bump, the way in which the Securities and Exchange Commission and state officials reacted will redefine the landscape of how institutional investors interact with, and indeed choose between, all types of institutional asset managers.
  • The More Things Change ... A Surprising Lack of New Regulations Impinging on Financial Markets.  John Maynard Keynes is enjoying a renaissance that Tiger Woods can only dream of.  Many of Keynes’s prescriptions on how to curb financial crises have been adopted wholeheartedly across the globe, and it is generally accepted that governments must intervene at some points to avoid the sturm and drang of 2008.  However, 15 months after Lehman Brothers pushed the financial markets to the edge of a Dionysian abyss, relatively little has changed.  To be sure, change has happened, but only at the margin.  Perhaps politicians are waiting for the dust to settle before they attempt to clean it up.  Perhaps they view other reforms as more pressing and in need of political capital expenditures.  Whatever the reason, little has been done to alter the fundamental problems with the American financial sector and the global systemic risk that it produces.  The facts have changed, but, so far, the opinions -- or at least action based on them -- have yet to change as well.

Very heady stuff, indeed. 

11. MONTANA DEPUTY SHERIFF NOT PROHIBITED FROM DEMONSTRATING GROUNDS FOR TERMINATION WERE PRETEXTUAL:   Park County appealed a judgment entered upon a jury verdict in favor of Blatter, whom the County Sheriff had terminated as a deputy pursuant to a statute that specifies the only causes for which a deputy may be fired.  (Those causes include conviction of a felony, willful disobedience of an order given by the sheriff, drinking on duty, sleeping on duty, incapacity and gross inefficiency.)  The situation that led to Blatter’s termination arose from the fallout of a failed romance between two county deputies, and the Sheriff’s attempt to identify the source of a rumor about the relationship.  The Sheriff contended that Blatter’s termination was justified because he had spread the rumor about an incident related to the relationship, contrary to the “no rumor” order, and that he refused to disclose the source of the rumor.  The trial court jury found determination was not justified and proper, that Blatter was entitled to damages and that Blatter was entitled to reinstatement as a deputy.  On appeal, the County contended that the district court had misapplied the law, resulting in admission of prejudicial and irrelevant testimony that caused the jury wrongfully to return a verdict for Blatter.  The County argued that the Sheriff’s Department is a “paramilitary operation,” and that under the statute there is zero tolerance for any deputy who commits any of the infractions listed therein, and that in litigation, a deputy may not introduce evidence to show that there were other non-statutory reasons for termination.  The District Court concluded that Blatter should not be prohibited from presenting evidence that the actual reason for his termination was other than that stated in the termination letter.  In affirming, the Supreme Court of Montana held that prior precedent does not preclude a deputy from introducing evidence that termination was not justified because there were ulterior reasons, outside of statutory grounds, for the termination.  Blatter v. Park County Sheriff’s Office, Case No. DA 09-0218 (Mont., December 15, 2009) (non precedential). 

12. TASER USE MAY HAVE CONSTITUTED EXCESSIVE FORCE:  Early one morning in the summer of 2005, Officer McPherson deployed his taser against Bryan during a traffic stop for a seatbelt infraction.  Bryan filed an action in federal court under 42 U.S.C. § 1983, asserting excessive force in violation of the Fourth Amendment.  McPherson appealed denial of his motion for summary judgment based on qualified immunity.  On appellate review, the court affirmed, because, viewing  circumstances in the light most favorable to Bryan, McPherson’s use of the taser was unconstitutionally excessive and a violation of Bryan’s clearly established rights.  The facts are almost comical, but here are the relevant ones.  McPherson stopped Bryan for a seatbelt violation.  Having been stopped earlier by another law enforcement officer for speeding, Bryan was already agitated, standing outside his car, yelling gibberish and hitting his thighs, clad only in his boxer shorts and tennis shoes.  He was standing twenty to twenty-five feet away from McPherson and not attempting to flee. McPherson testified that Bryan took a step toward him, but Bryan says he did not take any step, and the physical evidence indicates that Bryan was actually facing away from McPherson.  Without warning, McPherson shot Bryan with the taser gun.  The electrical current immobilized him, whereupon he fell face first to the ground, fracturing four teeth and suffering facial contusions.  Bryan’s already-bad morning ended with his arrest and transport by ambulance to a hospital for treatment.  In denying summary judgment for McPherson, the trial court concluded that a reasonable jury could find that Bryan presented no immediate danger to McPherson and no use of force was necessary.  The court also found that a reasonable officer would have known that use of the taser would cause pain and, as Bryan was standing on asphalt, that a resulting fall could cause injury.  All of the factors are articulated in recent cases placed McPherson on fair notice that an intermediate level of force was unjustified.  That there is no direct legal precedent dealing with this precise factual scenario is not dispositive.  Rather, where an officer’s conduct so clearly offends an individual’s constitutional rights, a court need not find closely analogous case law to show that a right is clearly established.  Bryan v. McPherson, Case No. 08-55622 (US 9th Cir., December 28, 2009). 

13. CalPERS TOUGHENS ETHICS GUIDELINES:  The Board of the California Public Employees’ Retirement System has strengthened ethics policies that guide how the nation’s largest public pension fund is governed.  The Board tightened rules regulating its interaction with CalPERS staff concerning investment proposals, and gave the Board President authority to discipline members whose actions violate policy.  Board Members also will be required to attend annual training sessions detailing their responsibilities to fund participants and beneficiaries.  Among the policies approved: 

  • Board members will be required to refer communication concerning existing or potential investments to CalPERS Chief Investment Officer.  The guideline also calls for Board Members to refrain from advocating a course of action concerning an investment with CalPERS staff outside a Board or Committee meeting.  
  • The Board of Administration President will be responsible for implementing any disciplinary action against a Board member who violates Board policies. The disciplinary action could include admonishment, censure, temporary termination of travel privileges, removal as a committee chair or vice chair or the requirement of additional ethical or fiduciary training.  The Vice President is responsible for any action against the President. 

According to a CalPERS press release, staff must make decisions based squarely on the merits of a transaction.  The Board wants independent, objective analysis to be the ultimate guide when it comes to CalPERS investments, and the new policies ensure that will happen.  We shall see. 

14. DAVE BARRY REVIEWS 2009:  As usual, Dave Barry has weighed in with his year in review.  Here is just a small sampling of Barry’s take on 2009 (omitting his month-to-month summaries): 

It was a year of Hope -- at first in the sense of “I feel hopeful!” and later in the sense of “I hope this year ends soon!” 

It was also a year of Change, especially in Washington, where the tired old hacks of yesteryear finally yielded the reins of power to a group of fresh, young, idealistic, new-idea outsiders such as Nancy Pelosi.  As a result Washington, rejecting “business as usual,” finally stopped trying to solve every problem by throwing billions of taxpayer dollars at it and instead started trying to solve every problem by throwing trillions of taxpayer dollars at it. 

To be sure, it was a year that saw plenty of bad news.  But in almost every instance, there was offsetting good news:

BAD NEWS:  The economy remained critically weak, with rising unemployment, a severely depressed real-estate market, the near-collapse of the domestic automobile industry and the steep decline of the dollar. 

GOOD NEWS:  Windows 7 sucked less than Vista.

BAD NEWS:  Downward spiral of the newspaper industry continued, resulting in the firings of thousands of experienced reporters and an apparently permanent deterioration in the quality of American journalism. 

GOOD NEWS:  A lot more people were tweeting. 

BAD NEWS:  Ominous problems loomed abroad as -- among other difficulties -- the Afghanistan war went sour, Iran threatened to plunge the Middle East and beyond into nuclear war. 

GOOD NEWS:  They finally got Roman Polanski.

In short, it was a year that we will be happy to put behind us.  And, thanks to Dave Barry, we can put this year in proper prospective. 

15. IF FAMOUS CHARACTERS THROUGHOUT TIME HAD JEWISH MOTHERS:  Mona Lisa's Jewish mother:  “After all the money your father and I spent on braces, this you call a smile?” 

16. FABULOUS RANDOM THOUGHTS:  Nothing sucks more than that moment during an argument when you realize you're wrong. 

17.            QUOTE OF THE WEEK:  “Things may come to those who wait, but only the things left by those who hustle.”  Abraham Lincoln

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

Copyright, 1996-2009, 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.

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