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Cypen & Cypen
NEWSLETTER
for
December 27, 2012

Stephen H. Cypen, Esq., Editor

1.      NEW YORK’S HIGHEST COURT UPHOLDS “WORLD TRADE CENTER” PRESUMPTION:  Three appeals involved police officers who responded to provide assistance at the World Trade Center following the September 11, 2001 attacks.  Two officers sought accidental disability retirement benefits and the surviving spouse of another officer made a claim for line-of-duty death benefits. Central to all three appeals was application of the statutory WTC presumption, under which an officer’s disability or death as a result of a qualifying condition is presumed to be caused by exposure at the WTC site for purposes of benefit upgrades.  The common issue presented was whether the pension fund respondents produced competent evidence to rebut the WTC presumption accorded to petitioners’ claims.  The New York Court of Appeals held that respondents did not meet their burden of disproving that the officers’ disabilities or death were causally related to their work at the World Trade Center and related sites.   Accordingly, the two cases in which the benefits were approved by lower courts were affirmed, and the one in which they were denied, was reversed.  Police officers employed by the New York City Police Department who become disabled may apply for ordinary disability retirement benefits or accidental disability retirement benefits.  Ordinary retirement benefits generally are a taxable pension of one-half of the officer’s salary, are payable if the officer is physically or mentally incapacitated for the performance of duty and ought to be retired.  Accidental disability retirement benefits are a tax-free pension of three-quarters of the officer’s salary, but eligibility requires an additional showing that the officer’s disability is the natural and proximate result of an accidental injury received in city-service.  If a police officer dies as the result of a work-related accident, the officer’s beneficiaries may recover line-of-duty death benefits, generally equating to the officer’s full salary.  A claimant filing for accidental disability benefits ordinarily has the burden of proving causation in an administrative proceeding.  But as part of the Legislature’s response to the World Trade Center tragedy, a new statute was enacted, creating a presumption in favor of accidental disability retirement benefits for police officers who performed rescue, recovery or cleanup operations at specified locations, including the World Trade Center.  Under the WTC presumption, the pension fund bears the burden of proving that a claimant’s qualifying condition was not caused by hazards encountered at the WTC site.  To take advantage of the presumption, a claimant must have participated in operations at one of the enumerated locations for any period of time within the forty-eight hours after the first airplane hit the towers or a total of forty hours accumulated any time between September eleventh two thousand one and September twelfth two thousand two.  There was no dispute that all of the officers in the subject appeals fulfilled this requirement.  A claimant must also suffer from a statutorily defined qualifying condition, including new onset diseases resulting from exposure as such diseases occur in the future including cancer.  The Legislature created the WTC presumption to benefit first responders because of the evidentiary difficulty in establishing that non-trauma conditions, such as cancer, could be traced to exposure to the toxins present at the WTC site in the aftermath of the destruction.  Hence, unlike ordinary accidental disability retirement claimants, first responders need not submit any evidence, credible or otherwise, of causation to obtain the enhanced benefits.   In the Matter of Bitchatchi v. Board of Trustees of the New York City Police Department Pension Fund, Case Nos. 219, 220 and 221 (New York, December 13, 2012).   

2.      SAN BERNARDINO BONDHOLDERS PLAY HARDBALL WITH CalPERS:  A group holding San Bernardino city bonds have filed a protest against California Public Employees’ Retirement System in bankruptcy court.  CalPERS has been demanding the right to sue the bankrupt city, which has fallen behind on its pension payments to the $245.5 billion fund.  The municipality, with a population of about 210,000, became one of the largest cities ever to seek protection under Chapter 9.  As reported by ai-cio, the city’s bondholders (including Wells-Fargo) and bond insurers (including Ambac Insurance Company) argued that the pension system is seeking preferential treatment over other, equally legitimate creditors.   For its part, CalPERS contends that because it is an arm of the state, the court should ignore the Supremacy Clause of the United States Constitution and over 70 years of legal precedent to elevate CalPERS’ pecuniary interest above the interest of the city and its other unsecured creditors.  (For update, see Item 3 below.) 

3.      CALPERS STATEMENT ON U.S. BANKRUPTCY PROCEEDINGS IN SAN BERNARDINO:  The California Public Employees’ Retirement System issued a statement December 21, 2012 after a U.S. Bankruptcy Judge denied its motion for relief from the automatic stay in the San Bernardino bankruptcy case:

Today’s hearing is one step of many on a journey. While it is not surprising that the decision was to keep the issues in bankruptcy court, the court clearly stated today’s decision was not a “great victory” for the City of San Bernardino nor a “great defeat” for CalPERS. The Court recognized that all debts incurred after filing for bankruptcy by any entity must be paid in full at the time of approval of the plan of adjustment. We are confident that the court will recognize the priority of our members and the obligations owed to them. Most importantly, we must not lose sight of those people who could be most impacted -- the public employees and retirees who worked hard over their careers to serve the City of San Bernardino.
 
These public employees and retirees are CalPERS members and our responsibility is to protect the benefits that were promised to them by their employers and to make sure CalPERS has the funds to pay benefits. By state law and Constitution, CalPERS has the legal and fiduciary obligation to deliver and protect the benefits that public employees have earned. 
 
San Bernardino's hard working public employees spent their careers serving our fellow Californians. Those employees live here, work here, retire here and pay taxes here. They made their pension contributions and they earned their pensions. 
 
We have had good dialogue with the City of San Bernardino officials and expect to continue to help forge solutions. As always, CalPERS will continue to responsibly fulfill our duties and protect those who serve California every day of their careers. 
 
Indeed, one step of many on a journey.
 
4.  HOW DID 2012 TREAT PUBLIC EMPLOYEES?:  Governing columnist Heather Kerrigan asks and answers that question at http://www.governing.com/columns/col-year-in-review-public-workforce.html.  She said this year was a mixed bag for state and local government workers, and deals with the areas of hiring, pensions, retirement and unions.  We treat only the subject of pensions.  The year 2012 was another bad one for pensions.  State and local pension plans are still facing about a $1 trillion shortfall, and for the roughly 27 million current and former employees who will draw at least a portion of their retirement funds from these plans, it could mean significant changes from what they had anticipated.  A study by the National Association of Government Defined Contribution Administrators showed that 43 states made changes to their pension plans this year.  SEE IF THERE IS A NAGDCA REPORT.  The changes included increasing the amount that current and new employees must contribute; raising the age or length of tenure required to be eligible for retirement; reducing cost-of-living adjustments for current and new employees; reducing pension benefits; and offering new employees a defined contribution plan rather than the typical defined benefit plan or a hybrid of the two.  In most state and local governments (including Florida, so far), contractual obligations prohibit the government from reducing benefits that current state workers will receive upon retirement.  
 
5.      WILL 401(K) PLANS KEEP GETTING WORSE?:  IBM, one of America’s largest companies, shook the employee compensation world when it announced recently that it would contribute only once every December to its employees’ 401(k) accounts.  Any employee who leaves before December would not be able to collect the company’s match.  In a piece written specially for CNN, famed economics professor Teresa Ghilarducci says about only about 9% of the nation’s employers make matches once a year.  IBM’s move is paving the way for big companies to go down this road.  Defined benefit plans are designed to encourage employees to exit or retire when it is optimal for the company.  A 401(k) is cheaper, but it is a “cash and carry” account that does not have the element of timing finesse.  A 401(k) plan does not reward loyalty, and its value is not predictable as it fluctuates all over the place depending on the financial markets.  Unions represent less than 11% of the private sector workforce, and the unemployment rate is high enough that anyone who has a job feels lucky.  Ghilarducci does not see anything on the horizon that will encourage companies to maintain or improve retirement programs at the workplace.  Political leadership and bravery are needed to call out the failure of the voluntary retirement system and to secure retirement income and savings for all American workers. 
 
6.      COUNTY MAYOR CANNOT BE FORCED TO TESTIFY IN PERC PROCEEDING AS TO HIS MOTIVES FOR LEGISLATIVE DECISIONS:  Miami-Dade County and its mayor sought a writ of certiorari to quash an order issued by a hearing officer of the Public Employees Relations Commission denying the petitioners’ motion to quash subpoenas from the Dade County Police Benevolent Association, which required the mayor to testify in an unfair labor practice proceeding filed by the PBA.  The Third District Court of Appeal granted the petition, and quashed the order under review.  The PBA’s subpoenas improperly sought testimony from the mayor as to his motive for his legislative decision to veto certain resolutions.  A city commissioner’s motives in adopting ordinances are not subject to judicial scrutiny.  In addition, the subpoenas seek to compel the mayor, a high-ranking government official, to testify as to information that is readily available from other sources, such as from his written veto statement, transcripts or recordings of his statements at public hearings and the testimony of a lower-ranking official.  We believe the dissenting judge was correct when he said the petitioners did not meet their burden of showing irreparable injury.  Further, would not it have been more equitable to allow the mayor to testify, but not prohibit inquiry into matters that were inappropriate?  Miami-Dade County v. Dade County Police Benevolent Association, 37 Fla. L. Weekly D2838 (Fla. 3d DCA, December 12, 2012). 
 
7.      “IRRESISTIBLE” EMPLOYEE CAN BE FIRED FOR JUST THAT REASON:  The Supreme Court of Iowa has affirmed a district court’s grant of summary judgment to an employer in a se.x discrimination case.  The question presented was whether a male employer can terminate a female employee because the employer’s wife, due to no fault of the employee, is concerned about the nature of the relationship between the employer and the employee?  The question was answered in the affirmative.  The court ultimately concluded the conduct does not amount to unlawful se.x discrimination in violation of the Iowa Civil Rights Act.  In 1999, Dr. Knight hired Nelson to work as a dental assistant in his dental office.  At that time, Nelson had just received her community college degree and was twenty years old.  Over the next ten-and-a-half years, Nelson worked as a dental assistant for Dr. Knight.  Dr. Knight admits that Nelson was a good dental assistant.  Nelson in turn acknowledges that Dr. Knight generally treated her with respect, and she believed him to be a person of high integrity.  On several occasions during the last year-and-a-half when Nelson worked in the office, Dr. Knight complained to Nelson that her clothing was too tight and revealing and distracting.  During the last six months or so of Nelson’s employment, Dr. Knight and Nelson started texting each other on both work and personal matters outside the workplace.  Neither objected to the other’s texting.  Dr. Knight acknowledged that he once told Nelson that if she saw his pants bulging, she would know her clothing was too revealing.  Dr. Knight also recalled that after Nelson allegedly made a statement regarding infrequency in her se.x life, he responded to her, “That’s like having a Lamborghini in the garage and never driving it.” (Stick shift?)  Allegedly, Dr. Knight told Nelson’s husband that he “feared that he would try to have an affair with her down the road if he did not fire her.”  Jeanne Knight, Dr. Knight’s wife, also worked in the office.  She insisted that her husband terminate Nelson because “she was a big threat to our marriage.”  Eventually, Dr. Knight did terminate Nelson, paying her one month’s severance pay.  The Iowa Civil Rights Act is not a general fairness law, and an employer does not violate it by treating an employee unfairly, so long as the employer does not engage in discrimination based upon the employee’s protected status.  As if anticipating the criticism of its decision by an all-male court, the court concluded: 
 
As we have indicated above, the issue before us is not whether a jury could find that Dr. Knight treated Nelson badly.  We are asked to decide only if a genuine fact issue exists as to whether Dr. Knight engaged in unlawful gender discrimination when he fired Nelson at the request of his wife.  For the reasons previously discussed, we believe this conduct did not amount to unlawful discrimination, and therefore we affirm the judgment of the district court. 
 
Nelson vs. James H. Knight DDS, P.C., Case No. 11-1857 (IA. December 21, 2012). 
 
8.      WEIRD REASONS PEOPLE GET FIRED:  From huffingtonpost.com, come the following weird reasons that people get fired: 

  • A Russian news reader was let go after she gave President Obama the finger on live television.  She claimed the gesture was just a misunderstanding rather than an insult toward the leader of the free world. 
  • A Dutch McDonald’s employee was fired after she gave a colleague a cheeseburger instead of a cheaper hamburger that had been paid for. 
  • A New Zealand resident was fired from her job for sending e-mails in bold, red-underlined all-caps fonts. 
  • An NFL stadium operations worker was fired after he updated his Facebook status criticizing the team’s management for making a trade in 2009. 
  • A former CEO claimed that she was fired from her position after she disclosed to the company’s board that she had cancer.  One board member even allegedly made fun of her wig. 
  • A bank fired a man from his job of nearly 7 years after discovering that he was caught putting a cardboard cutout of a dime in a laundromat washing machine … nearly 50 years ago.

Get a job, sha-na-na-na. 
 
9.      OMISSION OF REFERENCE IN SPD DOES NOT CREATE INCONSISTENCY WITH TERMS OF PENSION PLAN:  When Margaret Lipker’s husband died, she applied for surviving spouse benefits under the pension plan administered by his former employer, AK Steel Corporation.  Her application was granted, but her monthly surviving spouse allowance was considerably smaller than she had expected.  Lipker filed suit to recover plan benefits in the amount to which she believed she was entitled.  The discrepancy between her expectation and the actual award hinged on the interpretation of plan language that both parties argue is unambiguous, yet each party interprets differently.  The district court approved Lipker’s interpretation, and ordered AK Steel to award her benefits accordingly.  On de novo review, the U.S. Court of Appeals for the Sixth Circuit found AK Steel’s proposed interpretation of the plan language to be truer to its plain meaning when read with reference to the law to which it expressly referred.  Therefore, the district court’s judgment for plaintiff was reversed.  The facts concerned a widow’s benefit derived under the Social Security Act.  There was confusion by SSA’s use of the term “widow’s benefit” to describe the remaining portion of the entire widow’s benefit that was paid after offset for any other Social Security benefit to which the widow may be entitled.  Suffice it to say that Lipker was dissatisfied with the explanation and the amount of her benefit; she filed the instant action for recovery of plan benefits, after which the district judge granted her motion for judgment, essentially adopting her argument.  Because employees rely on SPDs in making decisions about their future needs, the Sixth Circuit has previously held that language in an SPD may control over any conflicting language in the employee benefit plan itself.  However, silence in an SPD regarding a term the plan defines more explicitly does not make a conflict.  Furthermore, the continued vitality of the Sixth Circuit’s prior ruling has been called into question by a recent United States Supreme Court decision holding that terms of an SPD cannot be enforced over conflicting terms of an employee benefit plan itself under ERISA.  The dissent would have also reversed, but would have remanded the case to the lower court to examine the possibility that appropriate equitable relief could potentially be awarded under ERISA.  Lipker v. AK Steel Corporation, Case No. 10-5298 (U.S. 6th Cir., October 31, 2012). 
 
10.    PUBLIC PENSION PLANS CONSIDER SHOOTING DOWN GUN INVESTMENTS: New York City and CalSTRS are among the big pension funds considering whether to divest their shares in gun manufacturers, a report from pionline.com says.   The move follows the December 14, 2012 mass shooting in Newtown, Connecticut, which left 26 people dead, including 20 children.  The $127.8 billion New York City Retirement Systems has about $18 million invested in four weapons and ammunition manufacturers.  The investments are in externally managed passive and active equity portfolios.  The board is currently conducting a review of its holdings, and aggressively exploring all options, including divestment.  The day after the shootings, the $154.8 billion California State Teachers’ Retirement System initiated discussions with its alternatives manager on its investment in a weapons manufacturing conglomerate.   Shortly after CalSTRS announced it would review that investment, the manager announced it would sell its position in that conglomerate, which owns, among other companies, including the manufacturer of the rifle used by gunman, Adam Lanza, in the Newtown mass shooting.  One  consultant said institutional investors are having a knee-jerk response, and suggested a 30-day waiting period before analyzing  gun-industry investments.  A statement from a very large money manager says mutual funds are not optimal agents to address social change, adding: 
 
As a fiduciary, [the company] is required to manage our funds in the best interests of shareholders and obligated to maximize returns in order to help shareholders meet their financial goals.  It would be exceedingly difficult, if not impossible, to fulfill these obligations while managing portfolios that reflect the social concerns of all of our shareholders.  We believe our approach of engaging with portfolio companies on issues such as this strikes the appropriate balance between corporate responsibility and our obligations as a fiduciary of our fund shareholders’ assets.   
 
That position would be ours, as well. 
 
11.    OKAY TO ELIMINATE AMERICAN AIRLINES LUMP-SUM PENSION PAYOUT: American Airlines has won court approval to eliminate lump-sum retirement payouts to pilots, and proceed with plans to freeze its defined benefit plan, according to pionline.com.  The U.S. Bankruptcy Judge also approved the new labor contract with the Allied Pilots Association, calling for the company to contribute 14% of pay into a new 401(k) plan.  The same ruling denied a request from a group of senior pilots who wanted to preserve the lump-sum option.  (See C & C Newsletter for November 15, 2012, Item 2.)  In its negotiations with American, the pilots' union supported removing the lump-sum option in order to avoid plan termination. The Pension Benefit Guaranty Corp. and the unsecured creditors committee also supported removing it.  In the circumstances, the senior pilots did not have much of a shot. 
         
12.    A BAD DAY AT HALLMARK:  Congratulations on your wedding day!  Too bad no one likes your husband. 
 
13.    DEFINITIONS:    COMPROMISE:  The art of dividing a cake in such a way that everybody believes he got the biggest piece.   
 
14.    QUOTE OF THE WEEK:    “The love of liberty is the love of others; the love of power is the love of ourselves.”    William Hazlitt
 
15.    ON THIS DAY IN HISTORY:   In 1947, first “Howdy Doody Show,” (Puppet Playhouse), telecast on NBC. 
 
16.    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. 
 
17.    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

 

Copyright, 1996-2012, 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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