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Cypen & Cypen
NEWSLETTER
for
DECEMBER 2, 2010

Stephen H. Cypen, Esq., Editor

1.      FLORIDA LEAGUE OF CITIES LAUNCHES FULL FRONTAL ASSAULT ON PENSIONS:     Concluding that the Florida Legislature must act to help cities reduce “runaway” pension costs for firefighters and police officers before they “cripple municipal balance sheets,” The Florida League of Cities has released its 2011 Pension Reform Proposals.  Here, with no editorializing on our part, are the eleven League Pension Reform proposals: 

  • Allow cities receiving insurance premium tax revenues under Chapters 175 or 185, Florida Statutes, (fire and police defined benefit pension plans) to use these funds to pay for current plan benefits. This would remove the state law mandate that specified insurance premium tax revenues be used only for "new or extra" pension benefits for firefighters and police officers.
  • Require that determinations of average final compensation in public employee defined benefit pension plans include salary only, and do not include pay for overtime, unused leave times, or any other additional payments.
  • Allow cities to convert firefighter and police officer defined benefit pension plans operating under Chapters 175 or 185, Florida Statutes, to the Florida Retirement System without losing insurance premium tax revenues.
  • Allow cities desiring to place their public safety officers (fire and police) into the Special Risk Class of the Florida Retirement System the opportunity to purchase past credit service at an up-to-3% annual accrual rate rather than the current up-to-2%. This will remove a practical barrier to convert plans to the Florida Retirement System.
  • Change the governance structure of pension boards of trustees to move away from having plan participants serve on the boards.
  • Require 30 year cost projections on any proposed benefit increase to a defined benefit pension plan.
  • Allow cities to reduce defined benefit pension levels within all plans if it is determined to be actuarially appropriate in order to stabilize the plan's funding and keep the plan properly funded.
  • Restrain the state Division of Retirement's non-rule based administrative activities and restrict the Division's broad interpretations of the provisions in Chapters 112,175 and 185, Florida Statutes, that result in increased pension costs to cities.
  • Provide flexibility to cities in the Florida Retirement System by allowing them to either retain a standard defined benefit plan, or at the employer’s option move to a different retirement plan, such as a hybrid, or modified “defined benefit/defined contribution” plan.  This will provide flexibility to cities in the FRS to decide at the employer level which pension plan to provide to its employees.  The goal would be to reduce long term tax payer impacts and provide a reasonable pension plan with economic diversification for plan members.
  • Remove statutory disability presumptions for firefighters and police officers claiming disability pension or workers’ compensation benefits.
  • Remove statutory provisions requiring that cities and other governments offer subsidized health, hospitalization and other insurance coverages to retirees.

Along with these proposals the League has published some general information about Florida defined benefit pension plans, including those for firefighters and police officers:

  • There are approximately 450 different municipal defined benefit pension plans with a total asset market value of approximately $23 billion; 100,000 active employees; and 60,000 retirees/beneficiaries.
  • Approximately 150 municipalities voluntarily participate in various membership classes of the Florida Retirement System, but make up less than 5% of the participants/members of FRS. FRS membership classes include special risk (fire and police), general employees, elected officials and senior management. 
  • Chapter 175, Florida Statutes, Municipal Firefighters’ Pension Fund was enacted in 1939.  Chapter 185, Florida Statutes, Municipal Police Officers’ Pension Fund, was enacted in 1953.
  • In 1986, the legislature revised Chapters 175 and 185, Florida Statutes, to establish minimum standards for a uniform retirement system for firefighters and police officers.  The revision included a general change to compensation of plan’s board of trustees to include five members: two members selected by the city, two members selected by the plan participants/employees and the fifth member selected by the other four.  Several local governments challenged constitutionality of the 1986 amendments, but Florida courts held they did not violate the constitution. 
  • In 1988 the legislature lowered the percentage charge of the tax on insurance premiums used to fund the plans (fire was lowered from 2% to 1.85% and police was lowered from 1% to .85%).
  • Chapter 99-1, Laws of Florida, was signed into law by Governor Bush on March 12, 1999.  That law made virtually all provision of Chapters 175 and 185, Florida Statutes, expressly applicable to all participating firefighter and police pension plans.  All plans were required to meet specific minimum benefits standards and provide extra benefits from additional premium tax revenues.

A word to the wise… .

2.      CONGRESS MUST KEEP ITS HANDS OFF SOCIAL SECURITY:   MarketWatch’s chief economist, Irwin Kellner, says that Social Security is not responsible for today’s budget deficit, so why go after seniors’ benefits?  The simple explanation is that the Social Security system is a cash cow, with tons of money there for the taking.  At the end of last year, Social Security had assets totaling a whopping $2.3 trillion—more than three times the amount needed to cover this year’s payments to beneficiaries.  What is more, the belief is that Social Security is being overly generous when it comes to paying seniors their benefits, by giving them annual cost of living adjustments that are said to be too high.  In reality, if anything, these adjustments under-compensate seniors for the rise in their cost of living.  Seniors’ costs of living consists mainly of items such as food, energy, taxes and, of course, health care—all of which are going up much faster than the general price level.  As for soaring health-care costs, the main reason, some would have you believe, is Medicare, which helps pay for seniors’ medical needs.  Seniors’ benefits and expenses are in the spotlight nowadays because deficit-worriers are looking for ways to reduce the amount of red ink in Washington’s budget.  Social Security has been around for 75 years; Medicare for 45.  Budget deficits of today’s magnitude are only a few years old.  Clearly, today’s deficits were caused by too much spending, combined with too little revenues (tax cuts and the Great Recession).  Understand that Medicare is already squeezing doctors and hospitals.  It is not simply growing at a slower pace—it actually pays health-care providers less each year—to a point where many providers refuse to treat Medicare patients, relegating them to emergency rooms.  As a result, many seniors get less care than they paid for in taxes.  All the talk about raiding the Social Security trust fund to help reduce Washington’s budget deficit would not have happened had Social Security remained outside the federal budget, the way it was for years.  Social Security was brought into the budget so that analysts could better determine the government’s impact on financial markets.  Now, it has become subject to unwarranted and unfair cuts.  One other fact: the Social Security Act of 1935 specifically provides that funds collected under the Federal Insurance Contributions Act can be used only for paying out benefits, not for any other purpose.  Here is the message to deficit cutters: look elsewhere for money to reduce the budget deficit.  Social Security is off-limits.  

3.      REPAIRING RETIREMENT:   And speaking of Social Security, at one time the U.S. had a “three-lane highway” to retirement (sometimes known as the “three-legged stool”)—Social Security, a pension and individual savings—available to a large portion of the workforce.  Today, however, the American challenge is to rebuild that road.  Thanks to decades of neglect and ineffective policy coupled with the global financial crisis, America’s retirement infrastructure is in disrepair.  Here is a snapshot of the damage: fewer and fewer private sector employees have access to traditional pension plans—only 33% in 2005 compared to 88% in 1975.  Forthcoming increases in Social Security’s retirement age will result in lower benefits.   And Americans just are not saving enough in their individual accounts.  In 2008, the median balance was less that $50,000, and more than one report has forecast an even more dire situation in years to come.  So how can the American road to retirement be rebuilt?  Things cannot be done the same way as in the past, because so much has changed over the century.  Employers must be competitive globally, and employees typically do not stay with one employer during their entire career.  The imperative is to help employers achieve their human resource goals while insuring employees have a modest and stable retirement income—and to do so in a way that makes fiscal sense.  A recent National Institute on Retirement Security conference earlier this year, attendees learned that three structural improvements can help rebuild a 21st century road to retirement: 

  • Improving defined contribution retirement savings plans.   All proposals seek to make individual savings plans more like the traditional pensions that have served Americans well.
  • Strengthening and encouraging traditional defined benefit pensions.  Traditional defined benefit pensions are critical for retirement security.  There remains a pressing need to identify policy solutions that will support pensions over the longer term.
  • Developing entirely new approaches for delivering benefits.  Policymakers may need to consider entirely new approaches to bring retirement security to more Americans.  Experts at the conference focused on new hybrid retirement systems, incorporating the best features of both DB plans and DC accounts. 

The underlying piece was written by Ilana Boivie, program director at NIRS. 

4.      PENNSYLVANIA GOVERNOR SIGNS PENSION REFORM LEGISLATION:    On November 23, 2010, Governor Rendell signed HB 2497 in to law as Act 120 (See C & C Newsletter dated November 24, 2010, Item 12).  This legislation preserves all benefits now in place for all current members but mandates a number of benefit reductions for future members, generally effective January 1, 2011. 

5.      MO. POLICE OFFICERS SUE OVER METH EXPOSURE:   Three police officers have filed a federal lawsuit against current and former Butler, Missouri, police chiefs for injuries they suffered while serving a search warrant on a home where a suspected meth lab was operating.  According to the Associated Press’s analysis of the lawsuit, all three claim they will suffer lifelong health problems as a result of their exposure to the fumes.  The lawsuit does not specify the amount of money damages the officers are seeking.  The three police officers were hospitalized for about a week after the November 2007 raid.  On the day of the raid, operators of the meth lab began throwing chemicals into a sump pump, creating a toxic fog the officers inhaled as they forced their way into the home.  (The local press reported that the officers were hospitalized with chemically-induced pneumonia and heart murmurs.)  The officers alleged that the city received grant money to buy breathing masks to protect officers from meth fumes, but the police department never trained them on how to use the masks.  All three officers continued to work in law enforcement, although two have moved to the county sheriff’s department. 

6.      ALL PUNS INTENDED:    If money doesn't grow on trees then why do banks have branches?

7.      OXYMORON:    Success consists of going from failure to failure without loss of enthusiasm.

8.      AGING JOKES:   Live as long as you may, the first twenty years are the longest half of your life. 

9.      FABULOUS RANDOM THOUGHTS:   To steal ideas from one person is plagiarism; to steal from many is research.

10.    QUOTE OF THE WEEK:   “You prove your worth with your actions, not with your mouth.”  Jean Paul Richter

11.    KEEP THOSE CARDS AND LETTERS COMING:  Several readers regularly supply us with suggestions or tips for newsletter items?  Please feel free to send us or point us to matters you think would be of interest to our readers.  Subject to editorial discretion, we may print them.  Rest assured that we will not publish any names as referring sources. 

12.    PLEASE SHARE OUR NEWSLETTER:  Our newsletter readership is not limited to the number of people who choose to enter a free subscription.  Many pension board administrators provide hard copies in their meeting agenda.  Other administrators forward the newsletter electronically to trustees.  In any event, please tell those you feel may be interested that they can subscribe to their own free copy of the newsletter at http://www.cypen.com/subscribe.htm.  Thank you. 

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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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