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February, 1997

Stephen H. Cypen, Esq., Editor

"SHARE PLAN" PASSES IRS MUSTER: The Board of Trustees of the Miami Fire Fighters' Relief and Pension Fund recently proposed updates to its Share Plan to comply with applicable Federal laws and more accurately reflect the Plan's current practices. The Plan was then submitted to the Internal Revenue Service for a determination on its status as a tax-qualified plan. A favorable determination was issued a mere two months after submission to IRS. The favorable determination letter insures that plan participants can enjoy the tax advantages of having their benefits paid from a qualified plan: there is no tax on benefits until paid from the plan and participants can roll plan distributions over to an IRA or to another qualified plan. We are happy to have played a role in obtaining this favorable determination.

NEW YORK TO RAISE DISABILITY PAY: BNA reports that the New York State Senate has approved a bill to raise disability pension benefits for State Corrections Officers hired before 1976. If permanently disabled in the line of duty, these officers would receive 3/4 of salary instead of the current 1/3 of salary. The bill also establishes new presumptions of service-connection for HIV, tuberculosis and hepatitis.

PENSION PLANS LOVE MUTUAL FUNDS: As of the beginning of 1996, pension plans held about $1 Trillion of the almost-$3 Trillion in mutual fund assets. Interestingly, while defined contribution plans held about 12% ($350 Billion), defined benefit plans held only 1.5% ($43 Billion).

PACKERS WIN--MARKET TO RISE: Based upon the "Super Bowl Predictor Theory," the Dow for 1997 should rise from its year end close of 6,448.27. For 27 of the 30 years of the Super Bowl, if a team from the original NFL wins, the market will rise; if an original AFL team is victorious, the market will fall. In fact, since 1980, the only exception was 1990 when the Forty-Niners (NFC) beat the Broncos (AFC) and the Dow closed down 4.34%. Hey, you got a better indicator?

AFSCME OBJECTS TO SOCIAL SECURITY PROPOSAL: The American Federation of State, County and Municipal Employees is protesting a proposal to require all state and local government employees and employers to pay the hospital insurance portion of Social Security taxes, according to a BNA report. The proposal would require both employees and employers to pay an additional 1.45% of salary, essentially amounting to double taxation for employees who already pay for retiree health benefits in their own retirement systems. AFSCME estimates the cost at approximately $10 Billion over a seven year period.

ATLANTA DOMESTIC PARTNER EFFORT FAILS AGAIN: Atlanta's latest effort to extend health and insurance benefits to domestic partners has failed (see C&C Newsletter for October, 1996). The trial court found that the City still exceeded its authority by attempting to incorporate a legislatively-created family relationship into the definition of a dependent.

PENSION PORTABILITY A PROBLEM FOR STATE AND LOCAL GOVERNMENTS: The Milbank Memorial Fund, an endowed national foundation, has published a report entitled "Pension Portability for State and Local Government." The report concludes that the most effective options are (1) shorter vesting periods, (2) an alternative retirement plan for mobile employees, (3) maintaining benefit values after termination and (4) broader Social Security coverage. One finding is rather surprising: about 2/3 of those who become members of a public employee retirement plan do not receive retirement benefits from that plan, although they may receive lump-sum refunds of their own contributions and sometimes a part of employer-contributions.

NEW YORK FUND ACTS TO CURB TEEN SMOKING: The New York State Pension Fund has proposed shareholder resolutions urging leading tobacco companies voluntarily to implement marketing restrictions to limit teenage smoking. The Fund has almost $1 Billion invested in tobacco stocks, approximately half directly and half through passively-managed index funds. The action was reported by BNA.

MORE RANDOM FACTS: According to Public Securities Association (PSA), a bond market trade association, the outstanding debt at year-end 1996 was $11.1 Trillion, a 7.8% gain over the year before's $10.3 Trillion. PSA reports the following sectors and sizes of the U.S. market: Treasury, $3.5 Trillion; Corporate, $2 Trillion; Agency Mortgage-Backed Securities, $1.7 Trillion; Money Market, $1.4 Trillion; Municipals, $1.3 Trillion; Federal Agency, $900 Billion; and Asset-Backed $400 Billion.

PSSST, MR. CUSTODIAN, COME HERE A SECOND: The December-January 1997 issue of Plan Sponsor contains an article on cutting custody fees. The $100 Billion-plus California Public Employees' Retirement System (CALPERS) and the $70 Billion California State Teachers' Retirement System (CALSTRS) recently renegotiated their contracts with State Street Bank & Trust, resulting in multi-million dollar savings. The cost of basic custody services for large customers peaked at about 2.5 basis points in 1988 and has since dropped to its current level of 1.5 basis points. "Smaller" accounts (somewhere between $300 Million and $30 Billion!!!) still pay 3-4 basis points. CALPERS, which has 28 external managers but 125 different portfolios, will still pay a total of about $5 Million this year. The seven major national custody providers mentioned are State Street, Chase Manhattan, Citibank, Bank of New York, Bankers Trust, Mellon and Northern Trust.

TAXPAYER BEATS IRS BUT DOES NOT RECOVER FEES: The Internal Revenue Service informed the taxpayer that he had improperly failed to include the taxable portion of his Alaska Public Employees Retirement System account lump sum distribution in his taxable income. He hired an attorney and tried to clarify the situation. Ultimately, the United States Tax Court found in his favor and he sought to recover litigation expenses available to a prevailing party under certain circumstances. Here, IRS was not required to pay fees because "the position of the government in the proceeding was substantially justified." Grant v. Commissioner of Internal Revenue, 10 Fla. L. Weekly Fed. C611 (11th Cir., December 31, 1996).

WORKERS' COMP ACT SURVIVES ANOTHER ADA ATTACK: As we previously reported, the Florida Workers' Compensation Act is subject to the Americans With Disabilities Act, but the former's impairment system comports with ADA (see C&C Newsletter for July, 1996). Section 440.02(1), Florida Statutes, provides that a mental or nervous injury due to stress, fright or excitement is not an injury by accident arising out of employment. After denial of benefits under said section, claimant contended that this section did not meet the requirements of Title I of ADA. One seeking relief under Title I of ADA must demonstrate that she is a "qualified individual with a disability" and has been discriminated against because of the disability. The appellate court held that her claim is inconsistent with a workers' compensation proceeding in which she sought either temporary total or temporary partial disability benefits, because disability under Workers' Compensation Law presupposes that a claimant is unable, by reason of an injury, to perform all the functions of the job. As an additional ground for affirmance of denial of the claim, the court held that Section 440.02(1), Florida Statutes, is not preempted by Title I of ADA because the Florida Statute does not directly conflict with ADA. There is no inconsistency between the goals of ADA and Florida's decision to exclude from Workers' Compensation coverage mental or nervous injuries unrelated to compensable physical injury. The Florida Workers' Compensation Law provides payments and medical coverage for injured workers who suffer, by reason of such injuries, changes in their employment status. ADA provides no such protection, and, rather, seeks to remove artificial and unnecessary barriers to employment, where such barriers are based upon unreasonable discrimination. Hensley v. Punta Gorda, 22 Fla. L. Weekly D159 (Fla. 1st DCA, January 6, 1997).

DISABLED PUBLIC SAFETY OFFICERS GET SOME HEALTH-BENEFIT PROTECTION: On September 30, 1996, President Clinton signed the Omnibus Consolidated Appropriations Act, effective October 1, 1996 (Public Law 104-208). Among its 2,000 pages, is Section 615 of Title VI, with regard to public safety officers retired as a direct and proximate result of a personal injury sustained in the line of duty while responding to an emergency situation or a hot pursuit. If a locality fails to pay such officer's health benefits at the same (or better) level paid at time of retirement, the federal government shall reduce the locality's Local Law Enforcement Block Grants and Community Policing Grants by 10%. The Conference Report, however, refers to health benefits at the same or better level as paid under a regular retirement plan; thus, in theory, benefits for all retirees could be reduced without jeopardizing the grants. The specific language of the statute would also seem to preclude protection for those who retired based upon presumptions. We could not find a specific title to the law. However, it was called the Alu-O'Hara Public Safety Officers' Health Benefits Act when Senator Bob Graham introduced S.1984 (see C&C Newsletter for September, 1996).

MICHIGAN GOVERNOR HAS IT HIS WAY: Michigan has enacted the legislation which creates a Defined Contribution Retirement Plan for State and Public School Employees (see C&C Newsletter for December, 1996). The new plan is mandatory for state employees hired on or after March 31, 1997 and public school employees hired on or after July 1, 1997. Current employees have the option to stay in the Defined Benefit Plan or transfer to the new Defined Contribution Retirement Plan.

CAN FIFTY MILLION FRENCHMEN ALL BE WRONG?: BNA reports that the French National Assembly has approved a proposed law that would create France's first private pension fund system for private sector employees. If the French Senate acts as expected, the new system could be implemented by mid-year. Union leaders, vigorously opposed to the change, note that the tax-free status of employer and employee contributions would serve to shield income from the mandatory government system. Then, rather than raising salaries, firms will make larger contributions to capital, thus avoiding assessment of social charges that pay for national health, retirement and unemployment insurance networks.

WILL JAPANESE HEALTH PLAN BEAT SOCIAL SECURITY TO BANKRUPTCY?: Even with major reforms, the Japanese government-sponsored health insurance program for small business employees will fail by the year 2000, according to a BNA report. Proposals include doubling employee contributions to 20% of the medical cost to employees and raising monthly premiums as a percentage of salaries. Note that most reports indicate Social Security will not go bankrupt until the year 2030. And, if you will remember, Japanese public pension systems also got creamed the last two years (see C&C Newsletter for September, 1996).

HOW DO YOUR SAVINGS STACK UP?: According to a recent Fidelity Investments Survey, 60% of married couples are unaware of the new expanded spousal individual retirement accounts effective January 1, 1997 ($4,000 vs. $2,250). The survey also found that the following percentages of single income families have saved less than $50,000: age 25-39, 83%; 40-49, 76%; and 50+, 48%.

"WORLD" INFLATION WILL CONTINUE TO PLUMMET: We have all heard about inflation, but generally what we hear is limited to the United States. Experts predict that the inflation rate around the world in 1997 is likely to be at 3.7%, its lowest level in a quarter century. Actual numbers for 1994, 1995 and 1996 were 9.6%, 7.9% and 4.9%.

GOVERNMENT TO FUND DISTRICT OF COLUMBIA PLAN: As reported by BNA, President Clinton has proposed that the Federal Government start paying off the District of Columbia's Employees Pension Plan unfunded liability in ten years. At that time, the Federal Government would begin paying off the $4.3 Billion unfunded liability of the District's existing pension plans for law enforcement officers, fire fighters, teachers and judges that would be transferred to the Federal Government. The District would establish new pension plans for current employees.

FED CHIEF WEIGHS IN AGAINST SOCIAL SECURITY CPI CHANGE: BNA also reports that Federal Reserve Board Chairman Alan Greenspan is against reducing the Consumer Price Index in an attempt to solve Social Security funding problems (see C&C Newsletter for January, 1997). He believes that trimming the CPI would not be enough to resolve Social Security's long-term woes.

BY THE WAY, CAN THE STOCK MARKET SAVE SOCIAL SECURITY?: Wall Streeters make the point that Social Security lends its reserves to the government at a low rate of interest rather than getting higher returns in the stock market. But economists at the Urban Institute have a warning. If the government or individual workers suddenly shifted an extra $1 Trillion into the stock market, it would not perform up to its historical average. Such a move would surely drive up stock prices and thereby drive down stock returns from that point on. Correspondingly, the shift from bonds to stocks would drive down bond prices and raise interest rates.

CALPERS FORMS NEW INVESTMENT FUND: The California Public Employees' Retirement System has invested a "small" amount of money -- $75 Million -- in an investment fund to provide for recovery and growth of under-performing midsize businesses. Other venturers will contribute $25 Million. CALPERS, according to BNA, has now reached $104 Billion in assets.

LIBERAL FEDERAL PROVISION MAY GET MORE LIBERAL: Most Federal employees are covered by the Civil Service Retirement System or the Federal Employees Retirement System. Both are administered by the Office of Personnel Management (OPM). A disability retirement application is timely if filed with OPM within one year of separation from service. Now, reports BNA, OPM is proposing a rule that would allow such applications to be filed with OPM or the former employing agency.

POLICE OFFICER "INVESTIGATING" DAUGHTER'S ACCIDENT NOT IN SCOPE OF EMPLOYMENT: An officer in the Special Investigations Division of the Lakeland Police Department learned that his daughter was involved in a traffic accident. He went to the accident scene, where he was struck by a van, and claimed workers' compensation benefits. In reversing an award of such benefits, the appellate court held that the officer was on a personal errand at the time of his injury and was not acting within the course or scope of his employment or discharging the duties of a law enforcement officer. The court also considered Section 440.091, Florida Statutes, which creates an exception to the deviation rule for law enforcement officers and provides that they are within the course of their employment when acting in discharge of their "primary responsibility" as long as they are not being paid by a private employer and the public employer had no agreement providing for workers' compensation coverage for such private employment. The exception was not applicable because the officer was not carrying out his primary responsibility of preventing crimes or enforcing laws. The City of Lakeland v. Schiel, 23 Fla. L. Weekly D344 (Fla. 1st DCA, January 27, 1997).

NEW BENEFITS FOR FEDERAL OFFICERS: On October 3, 1996 President Clinton signed into law S2101, the Federal Law Enforcement Dependents Assistance Act of 1996 (P.L. 104-238). Amending the Omnibus Crime Control and Safe Streets Act of 1968, the amendment provides educational assistance to the dependents of Federal law enforcement officers who are killed or totally disabled in the performance of their duties. No dependent shall receive assistance for a period in excess of 45 months and no dependent child shall be eligible for assistance after the child's 27th birthday, absent a finding by the Attorney General of extraordinary circumstances precluding the child from pursuing a program of education. The law is intended to (1) enhance the appeal of service in Civilian Federal Law Enforcement Agencies, (2) extend the benefits of higher education to qualified and deserving persons who by virtue of the death or of total disability of an eligible officer may not be able to afford it otherwise and (3) allow the family members of eligible officers to attain the vocational educational status which they would have attained had a parent or spouse not been killed or disabled in the line of duty. For federal law enforcement officers killed in the line of duty, the amendment is retroactive to May 1, 1992.

SEC PROPOSES TO CHANGE PROSPECTUS RULES: In the category of "gee, what took you so long," the Securities and Exchange Commission found that one of the fundamental protections provided to investors by Federal Securities Laws is full and fair disclosure, but investors must be able to understand these disclosures to benefit from them. Prospectuses often use complex, legalistic language that is foreign to all but financial or legal experts. To address these problems, the SEC proposes to require companies to use plain English in writing the front and back cover pages, summary and risk factor sections of Prospectuses; revise current requirements for highly technical information; and revise the rule on preparation of Prospectuses to provide companies with more specific guidance on the clarity required in the entire document. We're betting the new rules won't make a difference.

EXCELLENT PUBLICATION ON SBJPA: The Government Finance Officers Association (GFOA) and the National Association of Government Deferred Compensation Administrators (NAGDCA) have published a document that focuses on the Small Business Job Protection Act of 1996 (SBJPA) as it affects public pensions. In 45 pages, the booklet deals with Section 415 changes, Section 457 changes and other pension simplification provisions. Entitled Pension Simplification 1996: An Implementation Guide for Public-Sector Employers, the publication is available for GFOA members at $18.00 from GFOA, 180 North Michigan Avenue, Suite 800, Chicago, Illinois 60601-7476.

READ THOSE ADV'S: Form ADV, Part II, provides a wealth of information about a money manager. Besides biographical and educational background of the principals, there must be a detailed disclosure of the following concerning the money manager's soft dollar practices: (1) a description of the products, research and services obtained with soft dollars; (2) whether the client is paying higher commissions in order for the money manager to obtain the soft dollar services; (3) whether commissions generated by one account may be used to purchase a service that benefits other accounts; and (4) any procedures the money manager uses to direct brokerage in exchange for soft dollar arrangements. If research or brokerage services are not provided as part of a soft dollar arrangement, that arrangement may also have to be disclosed. A "must read" for fiduciaries.

CITIES' "FINANCIAL SECURITY" RANKED: According to the February 19, 1997 Wall Street Journal, ReliaStar Financial Corp. has released its new ranking of the nation's 100 biggest metropolitan areas by their residents' financial security. Financial security is broadly defined as people's capacity to support themselves and their dependents at an acceptable standard for a lifetime. The ranking includes such criteria as household income, prevalence of health and life insurance, retirement savings, unemployment rates and job creation. Crime rate is also a factor. Only one Florida locale, Sarasota-Bradenton (No. 10), made the top ten. Second in Florida was West Palm Beach-Boca Raton, at number 55. The rankings for other Florida cities were Orlando (No. 67), Daytona Beach (No. 76), Tampa-St. Petersburg (No. 79), Melbourne-Titusville-Palm Bay (No. 81), Jacksonville (No. 82, with second worst score on crime), Lakeland-Winter Haven (No. 85) and Miami-Fort Lauderdale (No. 91, with worst crime score). Incidentally, Salt Lake City-Ogden, Minneapolis-St. Paul and Fort Wayne ranked 1, 2 and 3.

YOU REALLY DO LIKE US!: We gratefully acknowlede the large number of surveys that were returned and that were extremely complimentary. Hopefully, those of you who took time to make suggestions will recognize our responses to them. If for some reason your January Newsletter did not contain a survey, please let us know and we will gladly send you one. Meanwhile, keep those cards and letters coming!

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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