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Cypen & Cypen
NEWSLETTER
for
December 8, 2011

Stephen H. Cypen, Esq., Editor

1.      CITY OF HARRISBURG BANKRUPT?...NOT SO FAST:  On October 11, 2011, The City Council for the City of Harrisburg, Pennsylvania filed its petition for relief under Chapter 9 of the Bankruptcy Code (see C&C Newsletter for October 20, 2011, Item 6). The Commonwealth of Pennsylvania, the County of Dauphin and the City of Harrisburg by its Mayor and other creditors and interested parties objected to the filing.  The objections were sustained at a hearing held on November 23, 2011, and the petition was dismissed.  In an exhaustive 30-page Opinion, Chief Bankruptcy Judge Mary France determined that the case should be dismissed because (1) City Council did not have authority under the Charter Law and the Third Class City Code to commence a bankruptcy case on behalf of the City of Harrisburg and (2) the City of Harrisburg was not specifically authorized under state law to be a debtor under Chapter 9 of the Bankruptcy Code.  In Re:  City of Harrisburg, PA, Case No. 1:11-bk-06938 (Bankr. M.D. Pa., December 5. 2011). 
 
2.      SPECIAL MAGISTRATE SIDES WITH JACKSONVILLE POLICE UNION:  A special magistrate has recommended Jacksonville police officers take a 2 percent pay cut, but continue paying nothing for their health insurance -- a better deal for the officers than even the Fraternal Order of Police itself had offered to take.  The Florida Times-Union reports that the union accepts the magistrate’s recommendations, but would prefer to work out a three-year deal that would provide long-term stability.  The magistrate’s recommendations are the next-to-last step in negotiations over a fiscal year 2009 contract.  The city and the union had returned to the table for discussions that stalled.  At that point, the union was offering to take a 2 percent pay cut spread over two years, have members pay 5 percent of their health insurance costs and reimburse the city for mileage when officers who live outside Duval County take their patrol cars home.  The city was looking for a 3 percent pay cut starting in the contract’s first year -- down from a 4 percent cut it had initially asked for -- as well as a freeze on raises.  It also wanted the union to agree to negotiate pension benefits.  The magistrate’s recommendations do not touch the pension issue, which he said was unclear that he had authority to address. 
 
3.      LARGE MAJORITY OF SMALL BUSINESS OWNERS SUPPORT NCPERS’ SECURE CHOICE PENSION PROPOSAL: Based on the Public Pension System model, Secure Choice Pension would permit private-sector employers to provide workers, not otherwise covered, with a guaranteed retirement income (see C&C Newsletter for September 29. 2011, Item 4).  A recent survey conducted for National Conference on Public Employee Retirement Systems reached a total of 500 small businesses nationwide, ranging from 2 to 49 employees.  From the outset, small business owners overwhelmingly support the concept of the Secure Choice Pension, a new retirement plan modeled on the public pension system that would offer a guaranteed monthly pension benefit.  Eight-out-of-ten owners are in favor of the proposal (82% favor; 15% opposed).  Nearly seven-out-of-ten owners (69%) are interested in the Secure Choice Pension for their own businesses, including a solid majority (59%) of small business owners who do not currently provide any retirement benefits to their employees.  Small business owners are acutely aware of the need for better options for retirement savings.  A strong majority (56%) worry about their own retirement security and nearly two-thirds (65%) worry that their employees will not have enough money to retire.  Nearly all small business owners (82%) agree that offering a retirement benefit helps to recruit and retain good employees.  Almost three-quarters of small business owners (73%) feel a responsibility to provide some kind of retirement benefit.  At bottom, most owners agree that providing retirement benefits is good for their business, employees and feel responsible to provide them. 
 
4.      SECURE CHOICE PENSION WOULD REQUIRE A LITTLE TWEAKING:  Aproposthe above item, NCPERS’ Secure Choice Pension initiative is an effort to bring back pensions to the private sector using what has worked in the public sector for the past 100 years, and marrying it with the needs of the private sector (flexibility and portability).  The SCP proposal envisions a state-sponsored, multiple-employer plan in each state for private sector employers and employees of that state.  SCPs would be tax-qualified plans under the Employment Retirement Income Security Act.  However, because SCPs would be state-sponsored plans, SCPs would need some relief from and changes to ERISA and the Internal Revenue Code.  Readers may view the SCP whitepaper and webinar PowerPoint by visiting www.retirementsecurityforall.org.  Of course, Hank Kim of NCPERS, would like your thoughts on the entire SCP enterprise, athank@ncpers.org.  
 
5.      MILWAUKEE WORKERS GET CASH TO OFFSET HIGHER PENSION COSTS:  More than 200 employees of two quasi-independent Milwaukee city authorities are getting cash bonuses equal to 5.5% of their salaries to reimburse them for paying the higher pension contributions required by a new state law, JSOnline.com reports.  The extra cash for Redevelopment Authority and Housing Authority workers is intended to keep their compensation on par with that of regular city employees, who do not have to make the pension contributions and who work side-by-side with authority employees doing similar jobs.  Redevelopment Authority officials authorized payments for 25 authority employees, which total $96,210 a year.  Housing Authority officials authorized payments for about 180 employees.  (The total amount of those payments was not given, but assuming compensation at both agencies was the same, it would amount to about $700,000 a year.)  Act 10 -- best known and most controversial for ending almost collective bargaining by a majority of public employees -- requires state and local government workers, except law enforcement officers and firefighters, to contribute half the cost of their pensions, to-wit:  5.5% of Milwaukee city employees’ pay.  But the City Attorney and two independent law firms have issued opinions saying the state law cannot apply to city employees, but it does apply to the Redevelopment Authority, the Housing Authority and other local government bodies that are part of the Milwaukee Employees’ Retirement System:  the Milwaukee Metropolitan Sewerage District, the Wisconsin Center District and Milwaukee Public Schools employees who are not teachers. 
 
6.      HOW WOULD GASB PROPOSALS AFFECT STATE AND LOCAL PENSION REPORTING?:  States and localities account for pensions in their financial statements according to standards laid out by the Governmental Accounting Standards Board.  Under these standards, state and local plans generally follow an actuarial model and discount their liabilities by the long-term yield on assets held in the pension fund, roughly 8 percent.  Most economists contend that the discount rate should reflect the risk associated with the liabilities and, given that benefits are guaranteed under most state laws, the appropriate discount factor is closer to the riskless rate.  The point is not that liabilities should be larger or smaller, but rather that the discount rate should reflect the nature of the liabilities; the characteristics of assets backing the liabilities are irrelevant.  In 2006, GASB embarked on a project to review its accounting standards for pensions and propose changes as needed.  The resulting proposals, outlined in two exposure drafts released for public comment in 2010, encompass a host of reforms pertaining to virtually every aspect of pension accounting.(see C&C Newsletter for July 14, 2011, Item 1).  Three of the main proposals, however, pertain to valuation of assets and liabilities.  First, plan assets would no longer be smoothed but rather valued at market.  Second, liabilities would be discounted by a blended rate that reflects the expected return for the portion of liabilities that are projected to be covered by plan assets and the return on high-grade municipal bonds for the portion that are to be covered by other resources.  Third, the entry age normal/level percentage of payroll would be the sole allocation method used for reporting purposes.  As it seems likely that the GASB proposals will soon become final standards, a new Issue in Brief from Center for Retirement Research at Boston College examines how the accounting changes will alter the funded ratios of state and local plans.  The first section reviews how plans currently value plan assets and employer liabilities, and explains GASB’s proposals.  The second section presents aggregate funded ratios for 126 plans in CCR’s database.  The third section discusses some implications of the GASB proposals.  The conclusion is that employers and plan administrators should be prepared for funded ratios reported in their financial statements to decline sharply under the new rules.  But accounting changes do not alter the underlying fundamentals; $1,000 owed to a retired teacher in ten years under current standards will remain $1,000 owed in ten years under the new standards.  So, policymakers should not let new numbers throw them off the path of sensible reform.  Specifically, the Florida Retirement System’s current funded ratio of 86.6% would go to 76.7% using current liabilities with market assets and to 73.3% using blended rate liabilities with market assets.  FRS’s blended rate would be 7.4% -- not that far off from its current 7.75%.  The purpose of the brief is not so much to re-argue the case for using a discount rate based on nature of liabilities irrespective of how those liabilities are funded, but rather to provide a “heads up” in the event the GASB proposals are adopted.  The proposals will sharply reduce reported funded levels of public sector plans.  It would be unfortunate if the press and politicians characterized these new numbers as evidence of a worsening of the crisis when, in fact, states and localities have already taken numerous steps to put their plans on a more secure footing.  Reforms need to be done carefully and thoughtfully, remembering that pensions are an important part of total compensation of public sector workers.  Policymakers should not let new numbers throw them off course.  Number 23 (November 2011)
 
7.      FLORIDA APPELLATE COURT UPHOLDS MUNICIPAL RED LIGHT CAMERA ORDINANCE:  City of Aventura sought review of a trial court ruling that its ordinance allowing use of image capture technologies for monitoring and enforcing laws relating to traffic control signals was invalid and unenforceable.  On appeal, the Third Districtreversed.  Municipalities have governmental, corporate and propriety powers to enable them to conduct municipal government, perform municipal functions and render municipal services, and may exercise any power for municipal purposes except as otherwise provided by law.  Basically, municipalities have the power to enact legislation concerning any subject matter upon which the state Legislature may act, except asubject expressly preempted to the state or county government by the constitution or by general law.  Florida’s Uniform Traffic Control Law, Chapter 316, Florida Statutes, provides for uniform traffic laws throughout the State, counties and local municipalities.  Plain text of the Uniform Traffic Control Law expressly confers authority upon a municipal government to regulate traffic within its municipal boundaries as a reasonable exercise of its police power if such regulation does not conflict, but supplements laws found therein.  The City’s enactment of the Ordinance to regulate traffic through the use of cameras was a proper exercise of the granted authority to regulate, control and monitor traffic movement.  Note that this decision deals with an infraction committed prior to the Florida Legislature’s recent enactment of the “Mark Wandall Traffic Safety Act,” which implements a statewide red light signal enforcement scheme, regulating use of any traffic infraction detector on state, county and local municipal roads.  The language makes clear the Legislature is aware of municipal programs like Aventura’s, and, in turn, has created a statutory scheme for statewide regulation and in no way invalidates existing programs.  Importantly, the Act does not invalidate existing municipal traffic monitoring systems, such as red light cameras, but now expressly regulates any such programs, and, thus, now expressly preempts municipal regulation under the Uniform Traffic Control Law to conform to adopted specifications of the Department of Transportation.  City of Aventura, Florida v. Masone, 36 Fla. L. Weekly D2591 (Fla. 3d DCA, November 30, 2011). 
 
8.      DISCLOSURE LAW EXEMPTION PROTECTS PENN STATE:  Scandals are many things, but they are not cheap, says post-gazette.com.  As Penn State University hires big-name law firms and image consultants, girds for costly lawsuits and settles up with campus leaders who resigned or were fired, the public is left to wonder.  What will a decade of silence in the Jerry Sandusky child abuse case ultimately cost Pennsylvania’s largest public university, and by extension, its students and the taxpayers?  The question may never be answered because Penn State does not have to tell.  An exemption to the state’s Right to Know Law that experts say is rare among comparable U.S. public universities already is being used by Penn State to deny access to records that would shed light on spending decisions the school is making amid the deepening crisis.  Among documents that Penn State will not release are the separation agreement with legendary football coach Joe Paterno and a contract with a D.C., law firm whose partners include former FBI director Louis Freeh, who was appointed to lead the internal investigation.  A state representative has introduced legislation to extend the Right-to-Know Law to Penn State and the three other state-related universities that are largely exempt from it.  The four schools get half a billion state tax dollars each year, with Penn State alone getting $228 Million.  By way of comparison, the records deemed off limits by Penn State generally are available from any of Pennsylvania’s 14 state-owned universities, the state’s community colleges or Pennsylvania’s 500 school districts, all covered by the Right to Know Law.  (Something we have always wanted to know:  what the heck is a Nittany Lion, Penn State’s Mascot?  Why, it is a mountain lion that once roamed near the school and Mount Nittany, a local landmark, of course.) 
 
9.      IRS SEEKS TO RETURN $153 MILLION IN UNDELIVERED CHECKS:  In an annual reminder to taxpayers, Internal Revenue Service announced that it is looking to return $153.3 Million in undelivered tax refund checks.  In all, 99,123 taxpayers are due refund checks this year that could not be delivered because of mailing address errors.  Undelivered refund checks average $1,547 this year.  Taxpayers who believe their refund check may have been returned to IRS as undelivered should use the “Where’s My Refund?” tool on IRS.gov.  The tool provides status of refunds and, in some cases, instructions on how to resolve delivery problems.  Taxpayers who check on a refund over the phone will receive instructions on how to update their addresses.  Taxpayers can access a telephone version of “Where’s My Refund?” by calling 800.829.1954.  IR-2011-113 (November 30, 2011)
 
10.    FOR PURPOSES OF SENTENCING GUIDELINES, ISSUANCE OF TRAFFIC CITATION NOT AN ARREST:  The U.S. Ninth Circuit Court of Appeals recently had to interpret United States Sentencing Guidelines.  The United States Sentencing Commission has authority to define the terms in the Sentencing Guidelines.  However, until it does, the Court considers the context and purpose of the Sentencing Guidelines as a whole in interpreting them.  In the Sentencing Guidelines, the Court interpreted the term “arrest” to require that the individual be formally arrested; mere issuance of a citation, even if considered an arrest under state law, is insufficient. Therefore, the Court vacated the sentence imposed by the district court and remanded for resentencing.  A 10-1 decision creates direct conflict with the U.S. Seventh Circuit Court of Appeals.  United States of America v. Leal-Felix, Case No. 09-50426 (U.S. 9th Cir., November 30. 2011) (en banc). 
 
11.    DESPITE ERRONEOUS TRANSFER BY PLAN TO PARTICIPANT’S EX-WIFE, PLAN REQUIRED TO PAY PARTICIPANT EVEN BEFORE RECOVERY FROM EX-WIFE:  A U.S. Court of Appeals recently considered what limitations, if any, the Employee Retirement Income Security Act imposes on enforceability of a judgment rendered against pension plan assets under ERISA.  Milgram sought to recover approximately $1.5 Million in pension assets and accrued earnings and interest from The Orthopedic Associates Defined Contribution Pension Plan, which in 1996 erroneously transferred half the balance of Milgram’s pension account to his ex-wife, Breen.  The U.S. District Court granted Milgram judgment against the Plan in that amount, and granted the Plan an equivalent judgment against Breen.  On appeal, the Plan challenged enforceability of the judgment against it on the ground that requiring its payment before the Plan had fully recovered from Breen would violate ERISA’s anti-alienation provision, as well as other provisions of federal and state law.  The Plan also argued that the district court erred in interpreting the plan document to afford compensation to Milgram for lost use of his funds during the fifteen year period since the erroneous distribution.  Applying the appropriate standards of review, the appellate court found the Plan’s argument to be without merit, and affirmed the judgment.  Undistributed funds held in trust for members of a defined contribution pension plan do not constitute “benefits” within the meaning of the anti-alienation provisions, and the anti-alienation rule does not prevent pension plan assets from being used to satisfy a judicial judgment that has been entered against the plan itself.  Milgram v. The Orthopedic Associates Defined Contribution Pension Plan, Case Nos. 10-1862-and 10-1893 (U.S. 2nd Cir., November 29, 2011). 
 
12.    MICHIGANRETIREE GROUPS WILL REMEMBER PENSION ACTS AT ELECTION TIME:   Groups representing Michigan’s public and private retirees continue to push their opposition to a new pension tax policy approved this year, threatening political repercussions in the next election for legislators who supported the tax.  Michigan AARP issued a statement saying that seniors would remember the pension tax in 2012 if it is allowed to stand, adding that legislators who voted for it would be held accountable.  Officials from the Michigan Association of Retired School Personnel, Michigan State Employee Retirees Association and the National Association of Retired Federal Employees, Michigan Federation of Chapters, joined in the statement, according to governing.com.  Under the law, pensions would be taxed as personal income, subject to the state’s 4.35 percent tax on federal adjusted income, by removing an income tax exemption for public pensions and increasing taxes on private pensions.  The policy, which would take effect on January 1, 2012, is expected to bring in about $230 Million in the current fiscal year and $343 Million in fiscal year 2013.  Just last month, the Michigan Supreme Court upheld most of the key aspects of the law (see C&C Newsletter for November 24, 2011, Item 1). 
 
13.    GOLF WISDOMS:   Whatever you think you're doing wrong is the one thing you're doing right.   
 
14.    PARAPROSDOKIAN:  (A paraprosdokian is a figure of speech in which the latter part of a sentence or phrase is surprising or unexpected in a way that causes the reader or listener to reframe or reinterpret the first part.  It is frequently used for humorous or dramatic effect.):   There's a fine line between cuddling and holding someone down so they can't get away. 
 
15.    QUOTE OF THE WEEK:  “Be sure you put your feet in the right place, then stand firm.”  Abraham Lincoln 
 
16.    ON THIS DAY IN HISTORY:  In 1993, Dow-Jones hits record 3734.53.  
 
17.    OUR NEW LOOK:  We recently switched to a new list-serve, which accounts for a different look.  Tell us if you have any problems, as work is still in progress.  Thanks for subscribing to our Newsletter. 

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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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