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Cypen & Cypen
December 19, 2013

Stephen H. Cypen, Esq., Editor

1. DEADBEAT GOVERNMENTS: ‘Tis the season for taking retirement benefits away from public workers, says The New Yorker. In Detroit, an emergency manager has steered the city into bankruptcy, in part to avoid its pension obligations (which were not the problem at all). In Illinois, the legislature just passed a bill cutting pensions and raising the retirement age for state workers, in hopes of saving a hundred and sixty billion dollars in pension costs over the next thirty years. And these moves are only the most dramatic instances of a broader trend: between 2009 and 2012, forty five states passed some kind of pension reform. Pensions are supposed to be dull and reliable. But they are now the locus of bruising political battles. The reason is simple -- although plenty of states and cities have managed to maintain healthy pension funds, in some places pension costs are eating up huge chunks of the budget. How did states and cities get into this jam? By following Mark Twain’s famous dictum, of course: Never put off until tomorrow what you can do the day after tomorrow. In principle, providing for pensions is not difficult; governments set aside money every year to fund them, just as workers contribute a percentage of their salary every year. But that scenario means raising taxes or spending less on things that voters like, so politicians often just let pension contributions slide, passing the bill on to future taxpayers. Politicians are adept at rationalizing such irresponsible behavior. When markets are up and pension funds are flush, they say that there is no need to add money. When times are bad and tax revenue drops, they say that they cannot afford contributions. Illinois, for instance, has been shortchanging its pension fund forever. The legendary Alicia Munnell calls the politicians in Illinois “dead beats.” They did not pay their bills, and, lo and behold, suddenly they find they cannot make up for all those years of not doing what they were supposed to do. Duh.  Governments also got in the habit of promising workers higher pensions in the future so that they would accept lower wages in the present. Actually, the theory is to put aside excess return in good times to cover your costs when the bad times hit. Clawing back benefits is unjust: state and city employees worked for those benefits -- teaching kids, policing the streets, extinguishing fires -- and they often did so for lower wages than they would have accepted with no promise of a pension. Governments should live up to their obligations, but we cannot let them make irresponsible promises again. The temptation to defer expenditure is intrinsically hard for politicians to resist. We need reforms to control costs and to insure that governments actually pay their bills. However, we are not talking here about scrapping pensions and replacing them with something like 401(k)s. As Dr. Munnell’s work shows, the system works if it is funded properly, and 401(k)s force workers to bear too much market risk, leaving many with inadequate savings for retirement. Governments should be legally required to make pension contributions every year. Right now, an independent body called the Government Accounting Standards Board tells each state what its “annual required contribution” is. But there is no legal force behind GASB, so it is more like a “suggested contribution.” Hmmm…let’s see: in Florida we have such requirements in the state constitution and state statutes.  So, why have Florida politicians set their sights on pension plans instead of on cities?  Good question. 
2. CONTRACTUAL LIMITATIONS PROVISION IN ERISA PLAN ENFORCEABLE: A participant in an employee benefit plan covered by Employee Retirement Insurance Security Act of 1974 may bring a civil action to recover benefits due under terms of the plan. Courts have generally required participants to exhaust the plan's administrative remedies before filing suit to recover benefits. ERISA does not, however, specify a statute of limitations for filing suit. Filling that gap, the plan at issue required participants to bring suit within three years after “proof of loss” is due.  Because proof of loss is due before a plan’s administrative process can be completed, the administrative exhaustion requirement will, in practice, shorten the contractual limitations. The question presented was whether the contractual limitations provision is enforceable, and the United States Supreme Court held that it is. A contractual limitations provision is enforceable as long as the period is of reasonable length and there is no controlling statute to the contrary. The principle that contractual limitations provisions should ordinarily be enforced as written is especially appropriate in the context of an ERISA plan. A limitations period need not be tolled as a matter of course during internal review because tolling would be inconsistent with the text of the limitations provision, which is enforceable.  The federal courts need not inquire whether state law would toll the limitations period during internal review, because the limitations period is set by contract, not borrowed from state law. Heimeshoff v. Hartford Life & Accident Insurance Co., Case No. 12-729 (U.S. December 16, 2013).
3. JUDGE DECRIES GOVERNMENT’S CHOICE TO SUE ONLY COMPANIES: With the statute of limitations on actions leading to the 2008 financial crisis running out, the legal doctrine of “willfull blindness” could hold top financial executives accountable, United States District Judge Jed S. Rakoff told the New York Times. Rakoff is critical of the Justice Department’s reasons for holding back on prosecuting high ranking individuals in association with bad business practices that nearly collapsed the global financial market. Judge Rakoff specifically called U.S. Attorney General Eric Holder’s hesitation to pursue individuals -- sometimes referred to as “too big to jail” -- a disturbing sign of the department’s “disregard for equality under the law.”
4. NYC’S EARNED SICK TIME ACT EFFECTIVE APRIL 1, 2014:New York City’s Earned Sick Time Act will go into effect for certain employers on April 1, 2014. The Act, which was passed on June 26, 2013, when the New York City Council overrode Mayor Bloomberg’s veto, requires nearly all non-governmental employers with fifteen or more employees to provide all employees employed for more than eighty hours in a calendar year up to five paid sick leave days per year. (See C & C Newsletter for July 11, 2013, Item 7). The Act was scheduled to go into effect on April 1, 2014, for certain employers only if economic thresholds that were identified in the Act were met as of December 2013. New York City’s Independent Budget Office announced that such thresholds had been met, and the Act will go into effect. Employers that employ twenty or more employees must comply with the Act by April 1, 2014, and employers employing fifteen to nineteen employees must comply by October 1, 2015. Domestic workers are covered by separate provisions of the Act. Employers subject to the Act must provide a minimum of one hour of paid sick time for every thirty hours worked by an employee. The Act provides that an employer need not provide more than forty hours of paid sick leave per year. Additionally, the Act does not require an employer to provide additional paid sick leave to employees if it already provides other paid time off, such as personal days or paid vacation, that is equivalent to the paid sick leave required by the Act. The Act also does not apply to employees covered by collective bargaining agreements if their collective bargaining act waives the rights provided by the Act and the collective bargaining agreement provides a comparable benefit. In addition to New York City, the state of Connecticut and several municipalities (including San Francisco) have passed paid sick leave laws. Efforts to pass similar legislation are underway in several states, including Massachusetts, New Jersey, Pennsylvania and Vermont.  All this good information is brought to us by a Patterson Belknap Employment Law Alert. 
5. TOP TEN CRAZIEST BUSINESS EXPENSES FOR 2013:  What is the strangest expense your organization has charged to the company credit card? These ten employers have expensed some pricey and downright unusual items to entertain clients and travel in style. From, here are the ten most interesting responses from business travelers surveyed: 

  • 3-day apartment lease. One creative business traveler to Hong Kong did not fret when every hotel room was booked due to a consumer electronics show.  He had to rent an apartment, and then cancel the lease.  
  • Caribbean fishing trip. One finance director expensed a luxury fishing trip with clients. The week-long deep sea fishing adventure in the Bahamas cost $91,237.
  • Hair salon highlights. Employers do not just make up appearances, they go above and beyond for a client. Hair salon highlights for a client was one of the craziest expenses a senior payroll manager had to approve.  
  • Human bones. Purchasing a human skull for a medical experiment, classifies as an out of ordinary expense.  
  • Autographs. Purchasing autographed basketballs is considered a business expense at one organization, where a director of finance expensed nine official NBA basketballs signed by Magic Johnson. 
  • 200 used hubcaps. For an unusual tradeshow booth, a company purchased 200 used hubcaps for a display revolving around a celebrity chef with a huge ego. [And the 200 used hubcaps helped…how?]  
  • Sports coach. A financial adviser expensed “golf swing analysis” for his client.  
  • Grown-up bounce house. An indoor trampoline entertained employees and clients at an expensed event.  
  • Dirty dancing. This expense was labeled as “entertainment” but as one accounting firm admits, it was more accurately described as “table dancing.”  
  • $500 worth of candy apples. One banking company definitely has a sweet tooth; it expensed $500 worth of taffy apples last year. 

6. THINGS A BURGLAR WILL NOT TELL YOU: Here are some things a burglar simply will not tell you:

  • Of course I look familiar. I was here just last week cleaning your carpets, painting your shutters, or delivering your new refrigerator.  
  • Hey, thanks for letting me use the bathroom when I was working in your yard last week. While I was in there, I unlatched the back window to make my return a little easier.  
  • I always knock first. If you answer, I will ask for directions somewhere or offer to clean your gutters. (Do not take me up on it.)  
  • Do you really think I will not look in your sock drawer? I always check dresser drawers, the bedside table, and the medicine cabinet.  
  • Here is a helpful hint: I almost never go into kids' rooms.  
  • True, I will not have enough time to break into that safe where you keep your valuables. But if it is not bolted down, I will just take it with me.  
  • A loud TV or radio can be a better deterrent than the best alarm system. If you are reluctant to leave your TV on while you are out of town, you can buy a $35 device that works on a timer and simulates the flickering glow of a real television.  
  • The two things I hate most are loud dogs and nosy neighbors.  
  • I am not complaining, but why would you pay all that money for a fancy alarm system and leave your house without setting it?  
  • Avoid announcing your vacation on your Facebook page.  It is easier than you think to look up your address.  

7.  ENLIGHTENED PERSPECTIVE BY ANDY ROONEY: I have learned... that being kind is more important than being right.
8.  CLEVER SIGNS: In a Podiatrist's office: "Time wounds all heels."

9. TODAY IN HISTORY: In 1964, U.S. performs nuclear test at Nevada Test Site.

10. 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.
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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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