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June, 1997

Stephen H. Cypen, Esq., Editor

A TRILOGY OF WORKERS' COMP CASES:

Williams v. City of Fort Walton Beach, 22 Fla. L. Weekly D978 (Fla. 1st DCA, April 16, 1997). Section 440.15(12), Florida Statutes, provides that any law enforcement officer who, while acting within the course of employment, is maliciously or intentionally injured and who thereby sustains a job-connected disability compensable under Chapter 440 shall be carried in full-pay status rather than being required to use sick, annual or other leave. In no case shall such employee's salary and workers' compensation benefits exceed the amount of the employee's regular salary requirements. Here, although the workers' compensation judge acknowledged that Mr. Williams had been maliciously or intentionally injured and that he had sustained a job-connected disability as a result, he declined to entertain the claim for "full-pay status." In affirming, the appellate court agreed that the judge of compensation claims did not have jurisdiction over "full-pay status" issues: Section 440.15(12), Florida Statutes, operates as a cap on compensation benefits rather than as authorization for the judge of compensation claims to adjudicate questions pertinent only to other aspects of the employment relationship. Whatever else it may be, the section is clearly one of limitations, specifying that where higher benefits would otherwise be payable, they should instead be reduced so that, together with any salary the employee continues to receive, workers' compensation benefits do not exceed an employee's regular (pre-injury) salary. Remember, that the decision is based only on jurisdiction, and does not preclude a claim of entitlement to "full-pay status" in a proper forum.

Merritt v. Promo Graphics, Inc., 22 Fla. L. Weekly D998 (Fla. 5th DCA, April 18, 1997). This case also involves jurisdiction and the anomalous situation that workers' compensation claims courts do not have authority to enforce their own orders! Section 440.15(10), Florida Statutes, authorizes an employer to reduce an employee's workers' compensation benefits by the amount received in Social Security benefits. The original order in question required benefits but did not include a specific provision pertaining to setoff for Social Security. Because an appellate court affirmed that earlier order, the employee argued that the employer was estopped from applying the otherwise-unilateral statutory setoff. Workers' compensation claims courts cannot enforce their own orders; such orders are enforced in the circuit court upon a demonstration that the employer has failed to pay all benefits due under an order. The appellate court affirmed the circuit court's determination that it lacked jurisdiction because the employer's taking of the offset did not amount to a failure to pay benefits due.

Escambia County Sheriff's Department v. Grice, 22 Fla. L. Weekly S234 (Fla. May 1, 1997). As we advised our clients almost two years ago, a case involving "stacking" of workers' compensation benefits, state disability retirement and Social Security disability benefits was on its way to the Supreme Court of Florida. The high court has now answered the question certified to it, quashed the district court of appeal decision and held that Escambia County could offset Grice's workers' compensation benefits to the extent that the total of his workers' compensation, disability retirement and Social Security disability benefits exceeded his average weekly wage. The court followed an earlier decision in which it had held that when an injured employee receives the equivalent of his full wages from whatever employer source (even if funded in part by employee contributions) that should be the limit compensation to which an employee is entitled. Oh, well.

LEGISLATURE REQUIRES DEFERRED COMP TO BE HELD IN TRUST: Section 112.215, Florida Statutes, is the Government Employees' Deferred Compensation Plan Act. That section authorizes the state and any county, municipality or other political subdivision to adopt a deferred compensation plan under IRC §457. As our readers know (see Special Edition of C&C Newsletter dated August 21, 1996), before enactment of the Small Business Job Protection Act of 1996 (SBJPA) on August 20, 1996, funds held in a deferred compensation plan had to remain solely property of the employer until the employee became en-titled to them, subject to the claims of the employer's creditors. The SBJPA changed that provision and mandated a trust for new plans, and as of January 1, 1999, a trust for all plans. A transition rule authorized establishment before January 1, 1999 of a trust for any plan. Good news: as of July 1, 1997, Section 112.215, Florida Statutes, has been amended to require that all assets in an IRC §457 Deferred Compensation Plan be held in trust for the exclusive benefit of participants and their beneficiaries. Because your deferred comp plan was established under the auspices of Section 112.215, Florida Statutes, it could well be that your assets are now required to be held in trust without any action being required by your city (other than, perhaps, a "confirmatory" amendment). Check with those who administer your plan to make sure they are aware of this amendment. Way to go Legislature!

FRS WILL SELL TOBACCO STOCKS: Facing the dilemma of owning stocks in tobacco companies the state is suing, the Florida Retirement System will dump its $840 Million stake in the tobacco industry (see C&C Newsletter for December, 1996). However, FRS will let money managers decide exactly when to sell the stock. Staff had recommended against the divestiture, but said that the $60 Billion fund could easily absorb less income if replacement stock produces a lower return.

BUT PENNSYLVANIA STILL FACES DILEMMA: Like Florida, Pennsylvania is involved in massive litigation against the nation's tobacco companies, seeking to recoup Medicaid money spent to treat tobacco-related illness. Also like Florida, Pennsylvania holds tobacco stocks (worth over $400 Million) in several state pension and insurance funds. A BNA report now says the Pennsylvania State Treasurer, custodian of all state-held securities, believes it is hypocritical for the state to be holding millions of dollars worth of tobacco stocks while suing those same companies for the harm they caused.

TURKISH PARLIAMENT OVERRIDES VETO OF EXPANDED RETIREMENT SYSTEM: Because we like to keep you abreast of things, we wondered how this item would fly. The President of Turkey vetoed a governmental plan to expand state retirement benefits to three million Turks working outside the country; he was afraid that migrant workers would have a leg up on other workers. Well, these expatriate workers will not have to wing it on their own because the Turkish Parliament has now shot the President a bird by overriding his veto. The new benefits will no doubt be quickly gobbled up.

WOMEN'S PENSION EQUITY ACT INTRODUCED IN SENATE: The Women's Investment & Savings Equity Act (WISE), seeking to level the retirement playing field, has been introduced into the Senate. Among other things, the Bill would attempt to increase retirement holdings of women by making IRA contributions fully deductible for those not covered by an employer-sponsored plan, allowing parents returning to work after maternity leave to make catch-up contributions to deferred compensation plans and allowing parents who re-enter the work force after raising a dependent child to make catch-up contributions to deferred compensation plans. Meanwhile, Senator Bob Graham has also included some pension equity provisions in a comprehensive pension reform bill. We're glad somebody gives a hoot.

CALPERS SEARCH GOES HIGH TECH: Our readers know that CALPERS is looking for active domestic equity managers (see C&C Newsletter, April, 1997). To reach mainstream, small and the emerging investment management firms on the Internet, CALPERS has posted its request for proposal on its world wide web site. This way, CALPERS hopes to reach the largest number of money management firms possible and avoid voluminous RFPs sent by mail.

CALPERS HEALTH COSTS TO RISE: Speaking of CALPERS, BNA reports that for the first time in five years health insurance premiums will rise for CALPERS members who belong to HMOs. Even so, premiums are still lower than they were five years ago and the 2.7% average increase is lower than the rate of inflation.

NEW YORK E.R.I.P. EXTENDED: As we reported, last year New York enacted an early retirement incentive program (see C&C Newsletter, May, 1996). Designed to reduce the size of the state work force while avoiding layoffs, the law would have expired March 31. Now, according to BNA, Governor Pataki has signed a bill that will extend the program for another year.

MISSOURI PENSION REFORM BILL GOES TO GOVERNOR: The Missouri Bill to equalize pension benefits for state employees has now gone to the Governor for signature (see C&C Newsletter, April, 1997). Because the bill passed both houses by sizeable margins, the Governor is expected to sign the bill, which will resolve a lawsuit filed by state workers challenging the constitutionality of the current system.

PENSION CHANGE MAY SAVE L.A. MILLIONS: BNA reports on a recent city charter amendment which transfers administrative and management expenses for police and fire fighters' from the city's general fund to the pension system itself. Presumably, these expenses will now be amortized, rather than paid in full each year, thus saving $25 Million next year alone.

ACCEPTANCE OF EARLY RETIREMENT NOT A DISCHARGE: Appellant's department was scheduled to close down at an undetermined future date. Her employer encouraged her to take advantage of an early retirement package for employees over 50 years of age. After accepting those early retirement benefits, appellant sought unemployment benefits on the ground that she had been discharged by her employer. In upholding the unemployment appeals commission's denial thereof, the appellate court found that appellant's acceptance of the early retirement benefits was a voluntary abandonment because she was not faced with imminent termination and simply had good reason to accept the early retirement opportunity. Give 'em an inch... . Calle v. Unemployment Appeals Commission, 22 Fla. L. Weekly D1026 (Fla. 4th DCA, April 23, 1997).

GREATER PROOF REQUIRED WHERE ETHICS VIOLATION MAY RESULT IN PENALTIES: Section 112.313(6), Florida Statutes, prohibits a public officer from corruptly using his position to secure a special privilege or benefit for himself or others. Section 112.317(1)(a), Florida Statutes, provides the penalties for such violation: impeachment, removal/suspension from office, public censure/reprimand, forfeiture of one-third salary for up to twelve months, civil penalty not to exceed $10,000.00 or restitution of pecuniary benefits received. The District Court of Appeal reversed the Ethics Commission's finding of a violation proved by the preponderance of evidence standard, and held that a proceeding of this type requires clear and convincing evidence because of the penal nature inherent in a violation and because the penalties at stake include loss of livelihood and professional reputation. However, the court did certify the question to the Supreme Court of Florida as one of great public importance. Latham v. Florida Commission on Ethics, 22 Fla. L. Weekly D1041 (Fla. 1st DCA, April 23, 1997).

FEDERAL LAW DOES NOT MANDATE FRS CREDIT FOR SERVICE ACADEMY ATTENDANCE: A state employee/FRS member attempted to purchase state retirement credit for the time he had spent as a cadet in the United States Military Academy. The Division of Retirement construes FRS as prohibiting credit except for actual "wartime military service." For certain purposes, federal law defines "active military service" to include "active duty," which in turn encompasses "service as a cadet in the United States Military Academy." However, no rule of construction requires resort to federal statutes simply because a term defined there for some federal purpose also appears in the Florida Statutes. And there is no contention that the Florida Retirement System was patterned after a federal statute. Thus, the appellate court upheld the Division's determination of ineligibility to purchase retirement credit. Morris v. Division of Retirement, 22 Fla. L. Weekly D1227 (Fla. 1st DCA, May 12, 1997).

DEPUTY SHERIFF NOT "PUBLIC EMPLOYEE": A sheriff is an elected constitutional officer, who has power to appoint deputies. But deputy sheriffs are not public employees and are not subject to Chapter 447, Florida Statutes. They are "at will" employees and have no property interest/right in continued employment. The "Policeman's Bill of Rights," Chapter 112 (Part VI), Florida Statutes, does not create a valid property interest. Moss v. Cochran, 4 Fla. L. Weekly Supp. 655 (Fla. 17th Cir., January 14, 1997).

GFOA CALLS FOR PERMANENT RULES MORATORIUM: Following its recent release on mounting support to make permanent the current moratorium on non-discrimination rules for public pension plans (see C&C Newsletter for May, 1997), the Government Finance Officers Association has begun to lobby for such legislation. As a GFOA spokesman said, the non-discrimination rules are designed to insure that pension plans do not provide disproportionately high benefits to business owners, corporate officers or other highly compensated employees. The rules are not warranted for state and local plans where mandatory participation by large groups of employees insures broad coverage and oversight by state legislatures and independent boards protects against other discriminatory abuses. In reporting on GFOA's position, BNA also reminds us that the temporary moratoriums, in effect for twenty years, are scheduled to expire January 1, 1999.

IRS TO EXAMINE GOVERNMENTAL EMPLOYERS: BNA also reports that IRS has targeted between 100 and 200 state and local government employers for audit next year. IRS will focus on non-filers of Forms W-2 and 1099; dealers in cash in the "underground economy" and employers who engage in "massive reclassifications" of workers. The last area could mean that workers who should have been eligible for an employer's benefit plan were not included under the plan, thus spelling potential trouble for qualified status.

"HONEST MISTAKE" NOT NECESSARILY FIDUCIARY BREACH: A recent federal decision reported by BNA involved a charge of breach of fiduciary duty under ERISA. Although ERISA does not apply to public plans, decisions thereunder involving breach of fiduciary duty are nevertheless instructive. In this case the president and sole owner of a company was administrator of its pension plan (and also owned about 20% of plan assets). The administrator took $1.7 Million of the $2.7 Million in assets and purchased a parcel of land nearby three parcels he owned individually. The government alleged that the administrator violated the section of ERISA which requires a fiduciary to perform his duties solely in the interest of the participants and beneficiaries by diversifying the investments so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so. In affirming a ruling in favor of the administrator, the appellate court held that diversification does not translate into a fixed percentage because each case must turn on its own facts and circumstances. Plan fiduciaries can make honest mistakes that do not detract from a conclusion that their decisions were prudent at the time the investment was made. Significantly, at time of the subject purchase, the average age of the pension participants was 37, making it appropriate to evaluate the risk of plan investments over an extended time frame and minimize risks associated with short-term fluctuations in asset values.

WEST VIRGINIA GOES BACK TO THE DRAWING BOARD: As expected, the West Virginia Trust Fund Act of 1996, an attempt to subvert the state's constitutional ban against equity investments, has been declared unconstitutional (see C&C Newsletter for December, 1996). At last, the state legislature will submit an ameliorative constitutional amendment to referendum this year. The decision by the West Virginia Supreme Court of Appeals was reported by BNA.

AMERICANS DO LITTLE ABOUT SOCIAL SECURITY WORRIES: According to a recent study conducted by Public Agenda, one-third of all Americans do not expect to receive any Social Security benefits. Yet, almost 50% of those surveyed have saved less than $10,000.00 for their retirement! Over 75% think they should be setting aside more money for their retirement. The report is entitled "Miles To Go: A Status Report on Americans' Plans for Retirement."

SOCIAL SECURITY BENEFITS NOT DEDUCTED FROM ADEA AWARD: Applying an earlier decision which held that unemployment compensation benefits should not be deducted from Title VII Awards, the United States Eleventh Circuit Court of Appeals held that Social Security benefits should not be deducted from ADEA awards. There is no significant difference between unemployment compensation benefits and Social Security benefits and Title VII and the ADEA have an analogous nature and purpose. The decision follows one other circuit but conflicts with two others, which leave to discretion of the trial court the decision whether to deduct Social Security from ADEA awards. Dominguez v. Tom James Company, 10 Fla. L. Weekly Fed. C895 (11th Cir. May 15, 1997).

GO MIDWEST YOUNG MAN: According to a study conducted for South Florida Business Journal, cities in Colorado and Wisconsin hold the top five spots for providing their residents the biggest bang for their buck. In descending order, they are Boulder, Denver, Colorado Springs, Milwaukee and Madison. The rankings considered income levels, cost of living and other factors such as cost of doing business and taxes. South Florida's highest-ranking metropolitan area was Palm Beach County, at number 74. Broward County and Dade County were ranked 88 and 98, respectively, the latter beating out only Tucson. By the way, Dade County was ranked first in crime but only twelfth in murders -- gee, that makes us feel better. The study measured relative real incomes. Thus, Honolulu, the nation's most expensive place to live, does not rank at the bottom because its actual income is higher than the national average.

RIGHTS IN PRIVATE WELFARE PLAN NEED NOT BE CAPABLE OF VESTING TO BE PROTECTED: In a rare unanimous decision, the United States Supreme Court held that §510 of the Employee Retirement Income Security Act of 1974 (ERISA) prohibits interference with attainment of welfare benefit rights that are not vested. That section makes it unlawful to discharge, fine, suspend, expel, discipline or discriminate against a participant or beneficiary of an employee benefit plan for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan. In a 1990 decision, the high court had held that §510 protects plan participants from termination motivated by an employer's desire to prevent a pension from vesting. But, unlike pension benefits, welfare benefits simply do not vest. In reversing the Court of Appeals' decision to the contrary, the Supreme Court held that the plain statutory language does not require that "any right" be capable of vesting. Thus, although an employer has the power to amend or even eliminate its welfare plan, an employee may still be able to prove that an employer has acted with a purpose that triggers the protection of §510. Remember, that while ERISA does not apply to governmental plans, the reasoning of court decisions thereunder is sometimes helpful to public trustees in administration of their plans. Inter-Modal Rail Employees Association v. Atchison, Topeka & Santa Fe Railway Co., 10 Fla. L. Weekly Fed. S453 (U.S. May 12, 1997).

FINAL DECISION ON SETTLEMENT OF LITIGATION MUST BE IN PUBLIC: In 1993 the Florida Sunshine Law was amended to provide a limited exemption for a public entity to meet in private with its attorney to discuss pending litigation to which the entity is presently a party before a court or administrative agency. Section 286.011(8), Florida Statutes. These private meetings, sometimes called "shade meetings," are lawful only if confined to "settlement negotiations or strategy sessions related to litigation expenditures." Hence, the decision or vote by the governing body of a public entity to conclude litigation by acceptance of an offer of settlement is not within the exception, and such decision or vote must be made at a public meeting. WFTV, Inc. d/b/a Palm Beach Newspapers, Inc. v. Martin County, Florida, 4 Fla. L. Weekly Supp. 706 (Fla. 19th Cir., April 16, 1997).

WORLD WIDE WEB SITES: Like CALPERS (see C&C Newsletter for March, 1997), the Houston Firemen's Relief and Retirement Fund (http://www.hfrrf.org) and Virginia Retirement System (http://www.state.va.us/vrs/vrs.htm) have established sites on the Internet. Other useful sites are Government Finance Officers Association (http://www.gfoa.org), the International Foundation of Employee Benefit Plans (http://www.ifebp.org), National Association of State Retirement Administrators (http://www.nasra.org) and National Conference on Public Employee Retirement Systems (http://www.ncpers.org).

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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