July, 1997Stephen H. Cypen, Esq., Editor
CONTINUATION OF ACCOMMODATIONS IN EXCESS OF ADA REQUIREMENTS NOT MANDATORY: If an employer makes accommodations in excess of those required by the Americans With Disabilities Act ("ADA"), its decision to cease making those accommodations does not violate ADA. Because both ADA and the Rehabilitation Act provide extensive and comprehensive remedial frameworks, one may not bring a cause of action under 42 U.S.C. §1983 solely for alleged violations of said Acts. Holbrook v. City of Alpharetta, Georgia, 10 Fla. L. Weekly Fed. C957 (11th Cir., May 22, 1997).
AGGRIEVED PARTY CANNOT LITIGATE AND THEN ARBITRATE SAME ISSUES: After being discharged by her employer, plaintiff filed suit in federal court, alleging discrimination in violation of several state and federal laws. The court granted summary judgment in favor of employer. While that order was on appeal, plaintiff filed grievances pursuant to her union contract and sought to pursue them through arbitration. The grievances arose out of the same set of facts as her complaint and sought reinstatement. In granting employer's motion to enjoin the arbitration proceeding, the court held that plaintiff had waived her right to arbitration and, alternatively, that arbitration was barred by the doctrine of res judicata (claims that either were raised or could have been raised in original litigation may not be relitigated). Weaver v. Florida Power & Light Company, 10 Fla. L. Weekly Fed. D735 (S.D. Fla., April 11, 1997).
DISABILITY INCOME EXEMPT IN BANKRUPTCY EVEN AFTER RECEIPT: A Debtor retired from the City of Chicago Police Department on a disability pension. He claimed the exemption as to disability income based upon Section 222.18, Florida Statutes, which generally exempts disability income benefits from legal process. However, the bankruptcy trustee objected to the exemption and contended that disability payments are not exempt once they are received and placed in a checking account. The bankruptcy judge overruled the trustee's objection and upheld the exemption, finding analogous the recent Florida Supreme Court decision determining that workers' compensation benefits remain exempt even after deposit (see C&C Newsletter for May, 1997). In re: Ryzner, 10 Fla. L. Weekly Fed. B351 (Bankr. S.D. Fla., April 17, 1997).
DREYFUS RELEASES GENDER INVESTMENT COMPARISON STUDY: Dreyfus Corp. recently issued the results of its Gender Investment Comparison Study. Almost a third of male respondents make retirement investing a top priority, compared to less than a quarter of females. Three-quarters of the females and over half the males will consider only safe or guaranteed investments. The following are percentages of how much all respondents contribute monthly to a retirement account: 15% - none, 19% - $100.00 or less, 39% - between $101.00 and $499.00, 18% - between $500.00 and $999.00 and 9% - $1,000.00 or more.
QUOTE FOR THE MONTH: From Jeffrey M. Laderman, in Business Week: "The purpose of a defined benefit fund is not to make the most money it can but to make sure that it earns enough to meet present and future obligations."
SCUDDER SURVEYS BABY BOOMERS: If you were born between 1946 and 1964 you are a Baby Boomer. In a recent survey conducted by Scudder, Stevens & Clark, Inc., 48% of Baby Boomers say they will retire before age 65. About 18% will retire at 65, 13% past 65 and 20% are not planning to retire at all. Interestingly, 43% of Baby Boomers believe they will have to pursue some kind of employment even after retirement.
ILLINOIS WORKERS TO GET PENSION BOOST: Currently, Illinois ranks next-to-worst in terms of state employee pensions. According to a new labor agreement covering state employees, reported by BNA, pension payments will be increased from their current sliding scale multiplier of between 1% and 1.5% to a flat rate of 1.67%. For the "average" state retiree, a pension of $640.00 per month would rise to $1,034.00. The new provisions apply only to those who retire after January 1, 1998. In exchange, employees were required to give up a wage increase for next year.
STATE MUST PAY CALPERS ITS DUE: After the California Supreme Court denied review of a lower appellate court ruling that California had shorted CALPERS by delaying its contributions (see C&C Newsletter for April, 1997), the state is scrambling to make the almost-$1.5 Billion payment. A few days before the Supreme Court acted, Governor Wilson proudly announced that the state had come up with over $2.5 Billion in unexpected revenues. Hey, Pete -- good timing.
ETHICS CONCERNS ARE WORLDWIDE: Denmark's largest pension fund is taking a close look at its substantial investment in a British company that produces Paraquat, an agricultural spray that has caused many deaths among workers. (The spray is actually banned in Denmark!) The fund just adopted new ethical guidelines, causing it to go through its portfolio to determine what products are made or sold by the various companies held. The action was reported by BNA.
JAPAN PENSION WOES CONTINUE: From another report by BNA it appears that prior steps to save Japan's ailing public pension system may not have been enough. Three years ago, the Japanese government delayed recipients' first payment qualification age to 65 years from the previous 60 years. Now, that age may be further set back to 67. In addition, the government is considering a limit on payments to high income earners. How do you say "Section 415" in Japanese?
INVESTMENT SEMINARS WORK: A survey by KPMG Peat Marwick reveals that employer-sponsored seminars on retirement saving led to a 7% increase in the number of employees contributing to retirement plans. Among those who earn less than $60,000.00 a year, the increase was a hefty 12%. We are quite pleased (and surprised) at the survey results. And employers should take heed.
LOSS OF OVERTIME OR OFF-DUTY WORK STILL NOT REDUCTION IN PAY: As we previously reported (see C&C Newsletter for March, 1997), the appellate division of the circuit court determined that loss of overtime or off-duty work is not a reduction in pay entitling an applicant to disability retirement under Nuce v. Board of Trustees for the City Pension Fund for Firemen and Policemen in the City of Miami Beach, 246 So.2d 610 (Fla. 3d DCA 1971). Now, the Third District Court of Appeal has denied review of said decision. Significantly, the District Court of Appeal ordered the applicant to pay our firm (as counsel for the board) attorneys' fees. Incidentally, in the original piece, we failed to report that the circuit court also ordered the applicant to pay the board's attorneys' fees in that court. Gorordo v. Board of Trustees of the City of Miami Fire Fighters' and Police Officers' Retirement Trust, Case No. 97-00769 (Fla. 3d DCA, June 16, 1997).
MILITARY DISABILITY PENSION MAY NOT BE SUBJECT TO EQUITABLE DISTRIBUTION: The Former Spouses' Protection Act, 10 U.S.C. §1408, excludes payments for physical disability retirement from the definition "disposable retired pay." In entering a final judgment of dissolution of marriage, a Florida trial court awarded the wife a portion of the husband's Navy pension. Although the husband suffered from a disability, the court found it did not affect his quality of life or his earning ability. Therefore, the trial court ordered that in the event the husband voluntarily converts his retirement pension to a disability pension, the wife would be entitled to lump sum alimony in an equal amount to what she would have received if the pension had not been so converted. On appeal, the district court of appeal vacated that provision because the husband had not yet chosen to convert his retirement pension to a disability pension and thus the issue was not ripe for review. Karrer v. Karrer, 22 Fla. L. Weekly D1369 (Fla. 3d DCA, June 4, 1997).
NO WORKERS' COMP BENEFITS WHERE DEATH RESULTED FROM ELECTIVE SURGERY: In an obviously sad case, an overweight member of City of Kissimmee Police Department was unable to satisfy a recently-implemented physical fitness test. Apparently out of desperation, he took a leave of absence and underwent stomach stapling surgery. Unfortunately, as a result of complications he suffered a pulmonary embolism and died. The Judge of Compensation Claims ordered workers' compensation benefits on the basis that the death occurred in the course and scope of the employee's employment because he had surgery in order to comply with the City's fitness policy. In reversing, the appellate court found that death did not occur during the physical fitness test required by the City. The officer was not ordered to lose weight and he had complete autonomy over how to improve his physical fitness level. The officer's supervisors' knowledge or awareness of his efforts to meet the fitness standards or lose weight, and their approval of his leave for surgery, did not amount to an endorsement or control over the procedure he elected. City of Kissimmee v. Dickson, 22 Fla. L. Weekly D1405 (Fla. 1st DCA, June 4, 1997).
MERRILL LYNCH SETTLES ORANGE COUNTY CRIMINAL INVESTIGATION: Amid cries that investment-giant Merrill Lynch has "bought off" a criminal indictment, the brokerage has agreed to pay Orange County, California $30 Million in a settlement that will end criminal investigations into its role in the nation's largest municipal bankruptcy. Merrill Lynch admitted no wrongdoing in the County's $1.6 Billion loss resulting from a high-risk investment strategy based on expectations of falling interest rates. The settlement has no effect on Orange County's pending $2 Billion civil damage suit against Merrill Lynch.
GAO TARGETS LUMP-SUM SEPARATION PAYMENTS: If your city is like most, at separation you are entitled to receive in a lump-sum the value of your accrued vacation, holiday and sick leave time (limited as per contract or ordinance). Generally, the value of said benefits is calculated based upon your rate of pay at time of separation, even though the benefits may have been earned at points in time when your pay was less. Incredible as it may seem, Federal employees have a similar benefit, but payment is based on the amount the employee would have received for the benefits if the employee had remained in service until the benefits were exhausted! A report from the General Accounting Office indicates that Federal agencies could save almost $20 Million over the next five years by limiting the value of benefits to an employee's rate of pay at time of separation. In any event, the current annual cost averages about $600 Million.
SENATE COMMITTEE ANNOUNCES WEB SITE: BNA reports that the Senate Special Committee on Aging has launched a new Internet home page. The site will provide information on the Committee itself and other agencies governing retirement and retiree health benefits, such as Social Security Administration, Health Care Financing Administration (overseer of Medicare and Medicaid) and Department of Veterans Affairs. The home page also includes a fraud hot line for use in reporting waste or fraud in programs for the elderly. The address is www.senate.gov/~aging.
JERSEY BOND SCHEME NEEDS SLIGHT SLEIGHT OF HAND: We previously reported that New Jersey's plan to use pension obligation bonds to fund its pension obligations didn't make a whole lot of sense (see C&C Newsletter for April, 1997). Of course, we were unaware of the state's ingenuity. Currently, assets in the retirement systems are valued using a 5-year phase-in; that is, only 20% of asset value appreciation is recognized each year. Now, for fiscal 1998 only, assets will be valued at full market value. Thereafter, valuation will revert to the market-related method. Those who came up with this scheme better pray that 1998 is an up year -- otherwise all depreciation in values will have to be recognized in that one year. Still, the state will initially lay out $25 Million more per year in order to reduce bond payments in the later years.
SACRÉ BLEU, WHERE'S MY PENSION?: The new private sector pension funds created by the French government may prove to be short-lived (see C&C Newsletter for May, 1997). Last month's elections saw Conservatives swept out of office by Socialists. The new law was vigorously opposed by Socialist legislators, who, along with organized labor, saw tax-exempt contributions as a threat to the existing non-funded government pension system. And the new Prime Minister has put repeal of the proposed system on his legislative agenda. Even if the plan survives parliamentary reconsideration, tax-free contributions will probably be eliminated (effectively killing any chance that employers will participate). One interesting fact: France is the only major European country that does not already provide fiscal incentives to private pension fund systems. This item is based upon BNA reports.
SENATE PROPOSAL TO EXTEND MEDICARE: We should have learned that every time we mention something, that something changes. We recently issued a Special Supplement to Cypen & Cypen Newsletter on Social Security/Medicare and Local Governments (April, 1997). Now the Senate Finance Committee is proposing to extend the Medicare Hospital Insurance Tax to all state and local government employees. Currently, only such employees hired after March 31, 1986 must pay the tax and qualify for Medicare Part A Coverage. The total tax rate for Medicare-covered employees is 2.9% of wages, imposed equally on employee and on employer. If enacted, the change would apply just to services performed by state and local government employees after December 31, 1997. The proposal will bring in an additional $6.9 Billion, according to a BNA report.
SOMETHING ELSE WE DIDN'T KNOW: In 1990 Congress passed legislation requiring the Social Security Administration to begin providing members of the public with annual statements about their Social Security earnings records and estimates of the amount of benefits they may receive. Starting in fiscal year 2000, SSA must mail personal earnings and benefit estimate statements to nearly every U.S. worker aged 25 and older -- an estimated 123 million people. In the first year alone, SSA estimates that printing, mailing and personnel costs associated with this effort will total over $75 Million.
GOVERNMENT ENTITLED TO TAX LIEN ON IRA: A Chapter 11 bankruptcy debtor owed the United States of America over $800,000 for 1981-1984 income taxes. Although his income tax liabilities had been discharged in bankruptcy, the government asserted a tax lien on the debtor's Individual Retirement Account valued at over $1 Million. The debtor claimed exemption because his debt to the government had been "satisfied" and thus he owed no money. In rejecting the debtor's claim to exemption, the bankruptcy judge held that a valid proof of claim exists against the property and not against the person. Where there is a statutory lien created by state law, state law governs its validity and enforceability; but where the statutory lien is created by federal law, federal law governs. In re: Aylward, 10 Fla. L. Weekly Fed. B358 (Bankr. M.D. Fla., April 15, 1997).
UNIVERSITY POLICE OFFICER NOT ENTITLED TO PRESUSPENSION HEARING: A state does not violate the due process clause of the Fourteenth Amendment by failing to provide notice and a hearing before suspending a tenured public employee without pay. The United States Supreme Court has previously held that public employees who can be discharged only for cause have a constitutionally protected property interest in their tenure and cannot be fired without due process. In this case, the Supreme Court assumed, but did not decide, that the due process clause extends to discipline of tenured public employees short of termination. In reversing a Court of Appeals determination to the contrary, the Supreme Court held that the state has a significant interest in immediately suspending, when felony charges are filed against them, employees who occupy positions of great public trust and high public visibility, such as police officers. And although the interest in maintaining public confidence could have been accommodated by suspension with pay until a hearing could be held, the government does not have to give an employee charged with a felony a paid leave at taxpayer expense. Gilbert v. Homar, 10 Fla. L. Weekly Fed. S542 (U.S., June 9, 1997).
FEDERAL FEE STATUTE PREEMPTS STATE FEE PROVISIONS: Section 768.79, Florida Statutes, and Florida Rule of Civil Procedure 1.442 provide that a defendant whose offer of judgment is rejected by a plaintiff who obtains no judgment may recover reasonable costs and attorney's fees from such plaintiff. However, in a Civil Rights action, the attorney's fee provision of 42 U.S.C. §1983 applies: a prevailing defendant may recover attorney's fees only where the suit is vexatious, frivolous or brought to harass or embarrass defendant. Because the federal law is more limited, it preempts and prevails over the state provisions. Moran v. City of Lakeland, 22 Fla. L. Weekly D1453 (Fla. 2d DCA, June 13, 1997).
THE ARMY MAY NOT BE YOUR SALVATION: As permitted by Section 948.15, Florida Statutes, Marion County contracted with the Salvation Army to provide all the County's misdemeanant probation functions, including providing job placement services, monitoring and enforcing all probation conditions, preparing reports of violations and collecting supervision fees. A trial court held that the Salvation Army is not subject to Chapter 119, Florida Statutes, the Public Records Law. On appeal, the Fifth District Court of Appeal reversed, and held that the Salvation Army took over the County's role as a provider of probation services and was "acting on behalf of" the County. The court noted that a private entity does not act on behalf of a public agency merely by entering into a contract to provide professional services to the agency. The court did not decide the applicability of any statutory exemptions, but limited its holding to the agency status of the Salvation Army. Finally, in a gesture of some charity, the appellate court refused to assess attorney's fees because the Salvation Army acted on the good faith belief that it was not subject to the Public Records Law. Ten-hut. Stanfield v. Salvation Army, 22 Fla. L. Weekly D1448 (Fla. 5th DCA, June 13, 1997).
SBA GOT A.G.O. BEFORE DECIDING TO DUMP TOBACCO STOCKS: In June we reported that the State Board of Administration (SBA), the entity responsible for managing assets of the Florida Retirement System (FRS), had decided to sell its holdings in tobacco stocks. We have now learned that prior to that decision the SBA sought and received an opinion from Attorney General Bob Butterworth. In essence, the Attorney General advised SBA that it was obligated to consider the factors set forth in Section 215.47(9), Florida Statutes; that is, maximization of financial return consistent with risks incumbent in each investment. Butterworth also advised SBA that it was immune from liability for any planning level decision concerning divestiture of tobacco stock and not liable for any operational level decision absent wantonness, willfulness or bad faith. AGO 97-29 (May 27, 1997). We find this particular AGO quite unusual in that the Attorney General went far beyond the two questions asked and concluded that divestiture "would appear to be consistent with the fiduciary duties imposed upon the State Board of Administration in managing the Florida Retirement System Trust Fund."
SOME SENIORS GROUPS USE SCARE TACTICS: The General Accounting Office (GAO) has issued a report entitled "Social Security Advocacy: Organizations That Mail Fund-Raising Letters." The report identifies seven tax-exempt organizations that use Social Security issues as part of their fund-raising appeal letters. (We will not identify the organizations here, except to say that their names all sound good and they have millions of retired senior citizens as members.) The materials distributed talk about "thefts" by the Federal Government from Social Security trust funds and Congress' consideration of "anti-senior proposals." Don't be fooled and don't be scared. Just think -- these organizations spend between 60% and 90% of their funds on the fund-raising activities themselves!
BNA REPORTS ON GREENWICH SURVEY: Greenwich Associates has released the results of its 1997 Annual Survey. Greenwich concluded that the responsibilities faced by plan administrators are growing yet administrators may be unaware of just how quickly. Common factors which complicated plan administrators' roles were asset allocation and manager selection. At least 34% of plan sponsors terminated an investment manager in 1996, compared to 31% in 1995 and 27% in 1994. (Among large private and public funds -- over $1 Billion -- the number is almost 50%!) More specifically, 15% of plan sponsors switched value managers (up from 3% in 1994) and 13% switched growth managers (versus 4% in 1994). In sum, Greenwich has the following advice: (1) be sure asset/liability studies are current to insure that asset allocations are and remain in accordance with the plan's long-term needs, (2) insure that equity levels are properly prepared for stock market fluctuations and (3) make sure that the trustees have a strong understanding of various realities facing the plan.
PHILADELPHIA CITY COUNCIL INFRINGES UPON PENSION BOARD: In a situation where politics may have trumped prudence, the Philadelphia City Council has passed an ordinance prohibiting its municipal pension board from investing in stocks or bonds of major tobacco companies. An earlier, nonbinding council resolution, reports BNA, was not acted upon by the pension board. The lone dissenting councilman -- probably not up for reelection -- believes that pension board affairs should be left to the pension board without City Council interference. Obviously, the principle here is more important than the reality: out of $2.5 Billion in assets, only $20 Million, or .8%, is invested in the offending companies. The pension board chairman supported Council's action, yet, ironically, worries that the action could signal beginning of a trend that may hamper the pension board's investment decisions. No kidding, Sherlock.
ADVISORY OPINION LIMITS PRIVATE PENSION PLAN DISCLOSURE: Perhaps you will find this item as hard to believe as we do. The Department of Labor (DOL) has issued an advisory opinion saying that a plan administrator is not always required to furnish plan participants with a copy of the contract between the plan and a third party administrator. Although ERISA, which governs private plans, provides that plan administrators must provide plan participants with "contracts," DOL held that the term "contract" doesn't mean all contracts, but only those that establish, amend or constitute part of the plan. Duh. BNA reported the April 10, 1997 Advisory Opinion (No. 97-11A), which we think is almost as bad as the case holding that a private plan participant is not even entitled to the plan's actuarial valuation (see C&C Newsletter for April, 1997).
CALPERS EVOLVES FURTHER: We have reported here about CALPERS' many steps toward proactive corporate governance. In its latest move, reported by BNA, CALPERS will attempt to adopt principles setting out specific characteristics of domestic boards that CALPERS will expect as a shareholder. Among these principles are that a majority of the board should be independent directors, who meet alone at least annually; director compensation should be a combination of cash and stock, with emphasis on the latter; independent directors should establish performance guidelines and compensation incentives for the CEO; and the board should adopt an age range criterion for directors. Today the United States, tomorrow the world.
ALASKA ERIP MAY BE EXTENDED:If a new bill is signed by the Governor as expected, BNA says that Alaska's retirement-incentive program will be extended until June 30, 1999. Scheduled to expire this year, a law passed last year saw many school districts and municipalities participate in the program, creating savings estimated at over $5 Million.
FIND OUT HOW MUCH YOU NEED FOR RETIREMENT: The American Savings Education Council (ASEC) has created a basic worksheet to ease the task of determining the annual amount of savings necessary for one's older years. The one-page form is entitled a "Ballpark Estimate," which assumes that a retiree will need 70% of his annual income to maintain his current standard of living. The form provides a formula to determine the amount of money a worker will need to have saved in the bank on the day of retirement and the amount that worker will need to save annually to reach this figure. You may obtain a free copy of the worksheet and other helpful brochures by sending a self-addressed, stamped (78 cents postage) business-sized envelope to ASEC Brochures, American Savings Education Council, Suite 600, 2121 K Street N.W., Washington, D.C. 20037-1896.
ANOTHER REASON NOT TO PRIVATIZE: In a civil rights action under 42 U.S.C. §1983, government employees may be entitled to qualified immunity from suit. In this case, a Tennessee state prisoner sued two prison guards for injuring him by placement of extremely tight physical restraints, thereby "unlawfully subjecting him to the deprivation of a right secured by the Constitution of the United States." Tennessee had "privatized" the management of its correctional facilities, so that a private firm, not the state government, employed the guards. In a 5 to 4 decision, the United States Supreme Court affirmed denial of the guards' motion to dismiss because the guards were privately employed and not entitled to the immunity provided their governmental counterparts. Richardson v. McKnight, 11 Fla. L. Weekly Fed. S64 (U.S., June 23, 1997).
BUT EVEN "REAL" PRISON GUARDS MUST ACT REASONABLY: Qualified immunity generally provides government officials with a shield from civil damages liability as long as their actions could reasonably have been thought to be consistent with the rights they are alleged to have violated. Whether an official protected by qualified immunity may be held personally liable for an alleged unlawful official action generally turns on the objective legal reasonableness of the action, which is assessed in light of the legal rules that were clearly established at the time it was taken. The official is not immune if in light of pre-existing law the unlawfulness of the action is apparent. The relevant question is the objective question of whether a reasonable official could have believed his action was lawful, in light of clearly established law and the information the official possessed. Officials who are plainly incompetent or knowingly violate the law do not benefit from qualified immunity. Jones v. Kirkland, 22 Fla. L. Weekly D1518 (Fla. 4th DCA, June 25, 1997).
NEGOTIATING THE MORGAN WAY: Our readers know that we often look to J. P. Morgan for investment "pearls of wisdom." And speaking of pearls, the legendary financier obviously also knew how to bargain for what he wanted. One day he became interested in buying a pearl pin. His jeweler found the perfect pin and sent it in a box to Morgan with a bill for $5,000. The following day the box was returned with a note from Morgan: "I like the pin, but I don't like the price. If you will accept the enclosed check for $4,000, please send back the sealed box with the seal unbroken." The jeweler angrily returned the check to the messenger and summarily dismissed him. He then opened the box to remove the pin -- only to find that it had already been replaced with a check from Morgan for $5,000! (Footnote: apparently the jeweler was no dummy either.)
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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.