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November, 1996

Stephen H. Cypen, Esq., Editor

1995 FLORIDA POLICE AND FIRE FUND DATA RELEASED: According to statistics from the Division of Retirement as to 335 police and/or fire funds, over 41% have a benefit accrual rate of 3% or higher. Almost 27% are from 2% to under 3% and about 29% are from 2% to under 2%.

SOMETHING TO KEEP IN MIND: The Public Safety Officers' Benefits Act (PSOB) provides a $100,000 benefit to eligible survivors of a public safety officer whose death is the direct and proximate result of a traumatic injury sustained in the line of duty. (Beginning on October 1, 1988, and on each October 1st thereafter, the benefit is adjusted by the percentage of change in the Consumer Price Index.) PSOB also provides the benefit to a public safety officer who has been permanently and totally disabled as the direct result of a catastrophic personal injury sustained in the line of duty. For state and local personnel, the injuries must have been sustained on or after September 29, 1976 (death benefits) and November 29, 1990 (disability benefits). For further information contact the Public Safety Officers' Benefits Program, Bureau of Justice Assistance, 633 Indiana Avenue N.W., Washington, D.C. 20531, telephone (202) 307-0635, fax (202) 514-5956.

JUST HOW IMPORTANT ARE STANDARD & POOR'S RATINGS/RANKINGS?: Most trustees are aware of the provisions of Chapters 175 and 185, Florida Statutes, pertaining to bonds and stocks holding a "rating in one of the three highest classifications by a major ratings service." And even if that provision is varied at the local level, as permitted by the statute, most boards rely upon these services to some degree. For your information, an S & P bond rating is a current assessment of the creditworthiness of the company with respect to a specific obligation, taking into consideration several factors. On the other hand, an S & P common stock ranking merely measures historical growth or earnings in dividends -- companies with high growth and earnings and dividends ranking higher than companies whose earnings and dividends grow more slowly or not at all. The S & P common stock ranking system is as follows: A+, A and A- (above average), B+ (average) and B, B- and C (below average). See C&C Newsletter for September 1996, for S & P investment grade bond ratings.

CALIFORNIA GETS "ALU-O'HARA" TYPE LAW: Governor Pete Wilson has signed into law a bill to provide health benefits to families of police officers and firefighters who are killed in the line of duty. Apparently an advertising campaign sponsored by the Peace Officers Research Association of California caused the Governor to back off his previous veto of a similar bill.

FEDERAL WORKER HEALTH PREMIUMS RISE SLIGHTLY: Health insurance premiums for 9 million Federal employees, retirees and dependents will increase an average of only 2.4% for 1997. In fact, 64% of those covered will experience the same or lower health insurance costs than last year.

SOCIAL SECURITY BENEFITS TO INCREASE: The Social Security Administration has announced that 1997's Social Security cost-of-living percentage increase will be 2.9%, up from 2.6%. The increase applies to December, 1996 benefits payable in January, 1997. Also, the annual exempt amount under the Social Security retirement test in 1997 will be $13,500.00 for individuals from 65 through 69 and $8,640.00 for individuals under 65. The earnings test does not apply for ages above 69.

BUT WILL THE SYSTEM BE PRIVATIZED?: The Cato Institute has issued a report entitled "Public Opinion and Social Security Privatization." Its findings are as follows: More than 88% of Americans believe that Social Security either is in trouble today or will be in trouble within the next 20 years. Fully 60% of all Americans under age 65 believe Social Security will not be there for them when the retire. Almost 70% believe that Social Security will require "major" or "radical" changes within the next two decades. Voters reject most traditional Social Security reforms such as raising the retirement age, increasing payroll taxes or reducing benefits. Meanwhile, a coalition called the Campaign for America's Future has launched a public counterattack claiming that the so-called crisis has been over-inflated by Wall Street investment firms that would reap large benefits from the redirection of tax revenues into private retirement accounts.

DEFINED CONTRIBUTION PLANS FAVORED IN PRIVATE SECTOR: The General Accounting Office has released a report showing that 88% of private employers sponsored only Defined Contribution Plans in 1993, up from 68% in 1984. The report is entitled "Private Pensions: Most Employers That Offer Pensions Use Defined Contribution Plans" (GAO/GGD/97-1).

1997 STATUTORY LIMITS ARE OFFICIAL: In accordance with our previous advice (see C&C Newsletter for August, 1996), the Internal Revenue Service has released the following statutory limits to be used for employee benefit plans for 1997: Section 415 Defined Benefit Plan dollar maximum - $125,000.00, Special Section 415 Defined Benefit Plan for Fire Fighters and Police Officers - $70,000.00 and Section 401(a)(17) Annual Compensation Limit - $160,000.00.

MOST GOVERNMENTAL PLANS DO NOT HONOR DOMESTIC RELATIONS ORDERS: According to an October 1996 mini-survey conducted by Buck Consultants, 75% of responding plans having no specific legal authority to honor Domestic Relations Orders do not honor them. The survey covered 47 plans in 11 states, 55% being in Florida (all of which correctly do not honor Domestic Relations Orders).

MARKET CANNOT BE TIMED: As you have read on numerous occasions (here and elsewhere), you must be in the market to participate. According to George Vanderheiden, Senior Portfolio Manager at Fidelity, if you had missed just 1.2% of the best market days in the past 30 years, you would have missed 95% of the market gain!

AND SPEAKING OF THE MARKETS...: In 1907, J.P. Morgan made the following statement: "I predict the markets will go up and they will go down, not necessarily in that order." Our kind of guy.

EARLY REACTION TO ADEA AMENDMENTS: In response to President Clinton's signing of the Age Discrimination in Employment Act amendments (see C&C Newsletter for October 1996), a Chicago city legislator plans to introduce an ordinance to force police officers and firefighters to retire at age 63. The ordinance would contain no grandfathered exceptions other than for those already over that age and would also prohibit hiring of persons over age 35. (Ironically, one of the first "casualties" will be the fire commissioner, who turns 63 next month.) The FOP has voiced support for the proposal; the Firefighters Union has not yet taken an official position.

IRS ANSWERS DISABILITY RETIREMENT PENSION REPORTING QUESTIONS: The Internal Revenue Service has responded to questions posed by the San Francisco Employees Retirement System concerning reporting of disability retirement pensions. In an information letter dated June 1996, IRS made frequent reference to Section 104(a)1 of the Internal Revenue Code (and the Income Tax Regulations promulgated thereunder), which excludes from gross income amounts received under Workmen's Compensation-like Acts as compensation for personal injuries or sickness to the extent that the service-incurred pension is not determined by reference to age, length of service or prior employee contributions. Where there is a fixed or minimum for on line-of-duty disability, that amount is excludable from gross income although a greater amount, if available under the normal age and years of service provisions, is not excludable. Basically, the same rules apply to survivor benefits. One trap for the unwary: where a fixed or minimum amount is paid for disability until normal retirement date (whereupon the retirement allowance converts to an amount the member would have received if retired on that date) none of the payments are excludable. Upon request, we will provide a copy of the foregoing letter to non-clients.

ANOTHER REPORT WEIGHS IN: Wilshire Associates Incorporated has issued its 1996 report on Funding Levels and Asset Allocation of State Retirement Systems. Because some states have separate systems for teachers, 81 systems are included. The report concludes that asset growth for State Retirement Systems has outpaced liability growth in recent years, improving the ratio of asset-to-liabilities from 80% in 1990 to 92%. Still, unfunded liabilities total $99 Billion. Four systems actually have assets below liabilities owed to current retirees; 55 of 81 have unfunded liabilities. The median equity allocation is just under 50%, but some systems have actuarial interest assumptions above expected returns! The average assumptions for interest rate and salary increases are 7.96% and 6.28%, respectively. Thus, the average spread is almost 1.7%.

FORT LAUDERDALE DOES IT RIGHT (AGAIN): The City of Fort Lauderdale Police Officer who was unsuccessful in overturning the Pension Board's denial of her disability pension (see C&C Newsletter for September 1996) has also failed in her Pregnancy Discrimination Act claim against the City. In granting summary judgment in favor of the City, a United States District Judge held that "any wrongful conduct alleged by the Plaintiff in complying with the Pension Plan or Florida's Workers' Compensation Laws is subject to review by the appropriate state agencies and courts and is not an appropriate ground for a civil rights complaint. ... The Court will not disturb those rulings for which Plaintiff has sought relief in the appropriate state courts." The Court made reference to the prior state court ruling upholding the Pension Board's denial of the disability pension and to the officer's pending administrative appeal of the denial of workers' compensation benefits. Christophers v. City of Fort Lauderdale, Case No. 95-6339-CIV-UNGARO-BENAGES (S.D. Fla., October 30, 1996).

CERTIORARI REVIEW NOT AVAILABLE TO DISCHARGED RECRUIT: An attorney for a discharged police academy recruit wrote a letter to the chief of police demanding that his client be reinstated. A police legal adviser responded in writing, expressly denying the demand. The former recruit then filed a petition for writ of certiorari in the Circuit Court, which refused to dismiss same. The District Court of Appeal granted a writ of prohibition, agreeing that the letters did not constitute an order from a judicial or quasi-judicial proceeding. Because recruits in the police academy are merely probationary employees, the chief's action was purely executive, and not subject to the Court's jurisdiction. City of Miami, Florida v. The Judges of the Eleventh Judicial Circuit, 21 Fla. L. Weekly D2220 (Fla. 3d DCA, October 16, 1996).

FLORIDA OCCUPATIONAL SAFETY AND HEALTH ACT DOES NOT CREATE PRIVATE CAUSE OF ACTION: Chapter 442, Florida Statutes, is entitled the "Florida Occupational Safety and Health Act." The purpose of the Act is to protect employees from accidents, occupational diseases and fatalities compensable under Workers' Compensation Law. The Act does not create a private cause of action enforceable by emergency personnel who are injured through an employer's violation of the statute. Also, Section 112.182(1), Florida Statutes, abolishing the firefighter's rule, does not apply to a cause of action which accrued in 1988, prior to the 1990 enactment of that statute. The common law firefighter's rule limited the duty owed to firefighters and police officers in discharging their duties to the duty owed to a licensee; that is, to warn of defects or conditions known to the owner to be dangerous when such danger is not open to ordinary observation by the licensee and when there is reasonable opportunity to give such warning. The new duty -- that owed to an invitee -- makes a property owner liable when he negligently fails to maintain the premises, negligently fails to correct a dangerous condition or negligently fails to warn the invitee of a dangerous condition. Bennis v. State Chemical Manufacturing Co., 21 Fla. L. Weekly D2226 (Fla. 4th DCA, October 16, 1996).

RETIREES NOT VERY CONFIDENT: A recent survey found that only 30% of retirees are very confident that they will have enough money to live comfortably throughout the rest of their lives. The main issues are fear of declining health and medical expenses; lack of confidence in their own personal planning for retirement; and concerns over the future of Social Security and Medicare. Two-thirds report that Social Security is their major source of income. Less than half mentioned employer-provided pension plans and one-third cite their own savings. The survey was conducted by Employee Benefit Research Institute and is reported in Pension Benefits.

U.S. MONEY MANAGERS BIG, BUT NOT THAT BIG: The largest money manager in the United States is Fidelity Investments, with over $450 Billion under management. However, Fidelity is a distant second to Japan's Kampo, with over $800 Billion.

AND CALPERS IS ONLY NUMBER TWO: According to Pensions & Investments, California Public Employees' Retirement System (CALPERS), with approximately $100 Billion in assets, is the second largest pension fund in the world. With over $140 Billion in assets, the Netherlands' Stichting Pensioenfonds ABP is first.

BUT NOT FOR LACK OF TRYING: According to the Wall Street Journal, lawyers for CALPERS have been given status as co-lead counsel in settlement talks with W.R. Grace & Co. The New York State judge presiding over the pending litigation felt that CALPERS should have a voice in ongoing discussions and not simply be given the opportunity to voice objections at the end.

SEC TO REVIEW POSSIBLE "SOFT DOLLAR" ABUSES: As you may know, under Section 28(e) of the Securities Exchange Act of 1934, investment advisers may accept "rebates" on trading commissions for transactions they directed to a brokerage firm, provided the money is used to help pay for investment research. According to BNA, the Securities and Exchange Commission is investigating whether advisers are using these "soft dollars" for expenses unrelated to research, such as salaries. Such uses would constitute a conflict of interest, in violation of Section 206, the anti-fraud provision, of the Investment Advisers Act of 1940. SEC Chairman Arthur Levitt has stated, on numerous occasions, "I personally abhor the use of soft dollars."

CALIFORNIA VOTERS REJECT SECURITIES MEASURE: BNA reports that a California ballot initiative that would have made it easier to sue companies for alleged securities fraud affecting retirement savings has failed by a wide margin. Reminiscent of the recent Florida Sugar Tax issue, special interest groups in California spent over $41 Million to defeat the measure. Interestingly, opponents used the Private Securities Litigation Reform Act, passed over President Clinton's veto last December, as a rallying point: plaintiffs' attorneys allegedly would flock to California and file suits because they could not do so in Federal Court.

PENSION MEASURES DEFEATED BY OREGON VOTERS: BNA also reports that Oregon voters soundly defeated proposed initiative changes to the Public Employee Retirement System, including raising the normal retirement age to the Social Security retirement age (see C&C Newsletter for September 1996).

SOUTH CAROLINA STEPS INTO THE 20TH CENTURY, BUT NOT THE 21ST: Until a constitutional amendment passed this month, South Carolina's State Pension System was prohibited from investing in securities. The amendment contains investment "safeguards," including a restriction limiting securities investment to 40%. In addition, the amount invested in securities cannot be increased by more than 10% per year, meaning that the 40% limit cannot be reached for at least another four years.

WASN'T THIS ISSUE SETTLED A LONG TIME AGO?: A federal judge in Louisiana has ruled that a city's use of sex-based actuarial tables to calculate benefits violated a female police officer's rights under the 1964 Civil Rights Act because it resulted in lower benefits for female employees than for similarly-situated males. The Court discarded arguments that the mortality tables were valid because women generally live longer than men and that only a small percent of the funding cost was calculated using the tables while the bulk thereof was based on factors other than sex.

Copyright, 1996-2004, 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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