September, 1997Stephen H. Cypen, Esq., Editor
NYSTRS INCREASES EQUITY ALLOCATION BUT REDUCES EQUITIES!: Trustees of the $62.5 Billion New York State Teachers' Retirement System have approved a new asset allocation plan that increases total equities to 55% from 50%. However, Pensions & Investments reports that the raging stock market has driven equities to 60% of the portfolio. Thus, the trustees will have to cut back their equities holdings. One obvious question: how long have the trustees been in violation of their own equity allocation guideline?
BUT WE READ IT SOMEWHERE: Last month we reported that the Ontario Teachers' Pension Plan Board was considering United States real estate investments. Pensions & Investments reports that officials of the plan deny intentions to come south. In fact, the fund has not even received requisite board approval to make such investments.
ITALIAN PENSION REFORM TO BE IMPLEMENTED (FINALLY): In 1993 Italy enacted a private pension law. Prior to implementation, the law was subject to a series of regulations that sought to enhance and refine it. Now, it seems as though the types of funds allowed (closed funds for unions, companies and professional groups and open funds for anyone else) may be up and running next spring. Required investment criteria for all funds are no more than 20% each in cash or mutual funds and up to 100% in either bonds or stocks of EU countries, US, Canada or Japan. Incidentally, experts predict total assets of $50 Billion within 5 years, according to a Pensions & Investments report.
BOLIVIA INITIATES NEW PENSION SYSTEM: For the first time ever, 300,000 of Bolivia's 7,000,000 residents are qualified to receive a solidarity bonus, called "Bonosol." Eventually, 3.4 Million Bolivians will qualify. Every year from their 65th birthday until they die, recipients will be paid $250.00. While that amount might not seem significant, remember that Bolivia is the poorest country in the Western Hemisphere (except for Haiti), with an average per capita income of a mere $750.00. In addition, there is a one-time payment of $220.00 to cover funeral expenses (almost the same as in the U.S.).
ABOLITION OF "FIREFIGHTER RULE" ALSO APPLIES TO NONOWNERS IN LAWFUL POSSESSION: In 1990 Section 112.182, Florida Statutes, abolished the "Firefighter Rule," a common law rule that a firefighter or law enforcement officer occupied the status of a licensee upon entry onto premises of another in the discharge of duty. The statute grants the higher-duty status of invitee: property owners are liable to invitees when the property owner negligently fails to maintain the premises in a reasonably safe condition or negligently fails to correct a dangerous condition of which the property owner either knew or should have known by the use of reasonable care or negligently fails to warn the invitee of a dangerous condition about which the property owner had, or should have had, knowledge greater than that of the invitee. In a suit by a Palm Beach County Sheriff's Officer against a property owner and a general contractor in the process of constructing condominium units on the property, the trial court granted summary judgment in favor of the contractor, holding that the officer was not an invitee as to the contractor (who was not the property owner). In reversing, the appellate court held that the language of the statute does not support a "dual-status" theory, and abolition of the "firefighter rule" applies not only to landowners but also to those who are in lawful possession. Worth v. Eugene Gentile Builders, 22 Fla. L. Weekly D1862 (Fla. 4th DCA, July 30, 1997) (on motion for clarification).
INTEREST IN FLORIDA RETIREMENT SYSTEM BENEFITS EXEMPT FROM BANKRUPTCY: The Florida Retirement System contains an anti-alienation provision in Section 121.131, Florida Statutes: The benefits accrued to any person under the provisions of this chapter and any accumulated contributions, securities or other investments in the trust funds hereby created are exempt from any state, county or municipal tax of the state and shall not be subject to assignment, execution or attachment or to any legal process whatsoever. The words "any person" include not only those defined as a member, officer or employee, but also anyone not included in those definitions but who is entitled to accrued benefits under FRS. Because the debtor claimed as exempt his interest in his ex-wife's retirement benefits, the statute was sufficient to exempt from the bankruptcy estate that interest in the retirement fund. In Re: Cason, 11 Fla. L. Weekly Fed. B18 (Bankr. ND Fla., April 22, 1997).
CIVIL RIGHTS ACTION DIFFICULT TO MAINTAIN: As you probably know, 42 U.S.C. §1983 creates a civil action for deprivation of rights, privileges or immunities secured by the Constitution. A City of Winter Park firefighter brought a §1983 action against the City, alleging that he was discharged in violation of his First Amendment rights to free speech and free association. The free speech claim was based on the theory that termination was motivated to suppress speech about the Fire Chief's alleged sexual harassment of a married female fire inspector. The free association claim was based on the theory that termination was motivated by his support an unsuccessful candidate in a mayoral race. No cause of action will lie, however, unless the official decisions to terminate represent the "official policy" of the local government. In affirming a summary judgment in favor of the city, the United States Court of Appeals held that neither the Fire Chief nor the City Manager were final policy makers because the decision to terminate the firefighter was subject to review by the City Civil Service Board. (Really, if the Chief Executive Officer of the City is not a final policy maker, then who is?) Scala v. City of Winter Park, 11 Fla. L. Weekly Fed. C144 (11th Cir., July 10, 1997).
DITTO: A Lake Hamilton (population 1128) police officer (one of only five) stopped a 22-year old female for speeding. After a consensual search of the car, the officer found a bag of marijuana (which he apparently planted). The officer offered to let the female go on the drug charge if she consented to a strip search, which she did. The officer thereafter molested the subject. (Earlier the same morning, the officer had stopped a 20-year old woman and behaved similarly, but that woman was not involved in this case.) In any event, the female brought a 42 U.S.C. §1983 action against the Town, alleging violations of her Fourth, Eighth and Fourteenth Amendment rights. On the Town's appeal of a $452,000.00 jury award, the court of appeals reversed. A municipality may be held liable under §1983 if plaintiff shows that a "custom" or "policy" of the municipality was the "moving force" behind the constitutional deprivation. (Of course, that policy must be officially adopted by the municipality or created by an official of such rank as to be acting on behalf of the municipality.) Obviously, the Town had no policy commanding its officers to barter arrests for sexual favors. Likewise, the Town had no custom of allowing such behavior on the part of its officers. And, the only possible claim -- failure to train and supervise -- failed because any failure to train in a relevant respect did not evidence a "deliberate indifference" to the rights of its inhabitants. Note that this action did not involve the officer as an individual defendant. Sewell v. Town of Lake Hamilton, 11 Fla. L. Weekly Fed. C216 (11th Cir., July 21, 1997).
COMMISSIONERS APPROVE UNIFORM PUBLIC PENSION ACT: What started out over twenty years ago as the Public Employee Retirement Income Security Act ("PERISA") has evolved into the Management of Public Employees Retirement Systems Act ("MPERSA"). (Actually, we remember something in between known as "PEPPRA," which stood for something like the Public Employees Protection of Pension Rights Act.) In any event BNA reports that the National Conference of Commissioners on Uniform State Laws (NCCUSL) has approved a final draft of MPERSA. Supposedly, the Act is not a miniature version of ERISA, which governs private plans, but deals mainly with establishment of fiduciary standards and reporting/disclosure requirements. NCCUSL could have enacted MPERSA as a model law rather than a uniform act, in which case it would be more of a recommendation than a mandate. However, a state is free to make changes in a uniform act should the state choose to adopt it at all. As we said in our July, 1996 Newsletter when we first reported on an earlier draft (page 2), a copy can be obtained from NCCUSL, 676 North St. Clair Street, Suite 1700, Chicago, Illinois 60611.
FLORIDA SBA SUES COLUMBIA/HCA: The Florida State Board of Administration (SBA) has filed suit against Columbia/HCA Healthcare Corp., its directors and key current and former executives, charging the company with mismanagement that led to stock losses in the Florida Retirement System (FRS). When suit was filed on August 15, 1997, FRS held 3.7 Million shares of Columbia stock, then worth about $125 Million. The suit claims that Columbia exaggerated the severity of medical procedures billed to Medicare, thus defrauding the Federal Government. Since the Federal Government began a sweeping investigation into Columbia's Medicare billing practices, its stock has fallen about 25%. With assets in excess of $70 Billion, FRS is one of the country's largest public pension funds. (The day before, New York's $90 Billion Public Employee Pension Fund, holder of 2.6 Million shares, filed a similar action.)
BUREAUCRATIC RED TAPE SNAGS FEDERAL EMPLOYEES: Between 1984 and 1987 thousands of Federal employees were erroneously enrolled in the Civil Service Retirement System (CSRS) when they should have been transferred to the Federal Employees Retirement System (FERS). As a result, these employees may suffer reduced retirement benefits, unexpected back taxes, underfunded thrift savings accounts and lost investment opportunities. One suggested solution: have Congress enact legislation that would allow those wrongfully enrolled in CSRS to remain there or to transfer to FERS by making a one-time deposit into FERS that would be allowed to exceed the current maximum yearly deposit.
CALIFORNIA GOVERNOR "GETS EVEN," BUT WITH WHOM?: Battling with Democratic lawmakers over the State budget, California Governor Pete Wilson is paying in full almost $1.4 Billion owed to the California Public Employees Retirement System (see C&C Newsletter for July, 1997). CALPERS had agreed to accept payments over ten years, in exchange for increases in retiree benefits. Meanwhile, payment in full will virtually wipe out any projected budget surplus and also result in State employees working a fourth year without pay raises. Pity the poor Democratic State Controller, who has the statutory duty to cut the check. You really showed 'em, Pete.
PLEASE DON'T DISTURB ME WHILE I'M LOOKING THROUGH YOUR TAX RETURN: On July 23, 1997 Congress passed P.L.105-35, the Taxpayer Browsing Protection Act (HR1226). The new law prevents Internal Revenue Service employees from snooping into tax returns or tax return information. As reported by BNA, violators could be subject to criminal penalties, jail terms or both. A taxpayer whose return has been illegally accessed will be notified and will be allowed to sue for civil damages as well.
EXACTLY WHAT IS BNA?: We often make reference to "BNA" in our Newsletters. One reader asks a very good question: What is BNA? BNA -- the Bureau of National Affairs, Inc. -- is the publisher of information products for professionals, including Pensions & Benefits Reporter (BPR). BNA is located at 1231 25th Street, N.W., Washington, D.C. 20037-1197. Its worldwide web home page can be found at http:\\www.bna.com.
CHILDREN DO NOT HAVE CONSTITUTIONALLY PROTECTED RIGHT OF FAMILIAL ASSOCIATION: Last year the Fourth District Court of Appeal certified to the Supreme Court of Florida the following question as one of great public importance: Whether children have a constitutionally protected liberty interest in family companionship under the Due Process Clause of Fourteenth Amendment that would allow a cause of action under 42 U.S.C. §1983 when the State unlawfully imprisons their father for 30 months? Children brought such an action against a police officer and a Florida municipality, seeking damages as a result of their father's wrongful conviction and incarceration. The Supreme Court answered the certified question in the negative and affirmed dismissal of the children's action. The Court was reluctant to recognize a Section 1983 cause of action for deprivation of family association under circumstances where no court in the nation has ever done so. Garcia v. Reyes, 22 Fla. L. Weekly S501 (Fla., August 21, 1997).
IS CALPERS WASTING ITS TIME ON CORPORATE GOVERNANCE STANDARDS?: A study out of Columbia Law School reported by BNA indicates that there is no compelling evidence that the number of outside directors contributes to better corporate performance. The study also found no evidence to support calls for super-majorities in corporate governance guidelines recently proposed by CALPERS. The study takes issue with the "CALPERS effect" -- findings from a 1996 Wilshire report indicating increased corporate performance after intervention of CALPERS activism.
INSURANCE COMPANIES, PENSION FUNDS AND INVESTMENT FIRMS DOMINATE WORLD CAPITAL MARKETS: According to a report from the Organization for Economic Cooperation and Development (OECD) reviewed by BNA, insurance companies remained the top worldwide institutional investors in 1995 with 35% of all investments ($8.2 Trillion). Pension funds with 25% ($5.7 Trillion) and investment companies with 24% ($5.5 Trillion) followed. Incidentally, United States institutional investors held $11 Trillion in 1995 -- almost half the world's total -- of a slightly different order of dominance: pension funds ($4.1 Trillion), insurance companies ($2.8 Trillion) and investment companies ($2.7 Trillion). The next-closest country for institutional investments is Japan with about $4 Trillion.
GAO REPORT SHOWS DIFFERENCES IN COLA CALCULATIONS: A recent GAO report demonstrates that cost-of-living adjustments have affected individual federal retirees differently. The current policy on COLAs has been in effect since 1984. Nevertheless, the report finds that a majority of those who retired before 1970 would have received smaller pensions if the current COLA policy had been continuously in effect during their retirement. Only about 90% of those who retired after 1970 would have received larger pensions under the current policy. The report's results were summarized by BNA.
BPR REPORTS NEW YORK TEACHERS' E.R.I.P.: Under a bill recently passed by the New York State Legislature, New York City Public School Teachers can retire with full pension benefits at age 55 with 10 years of service. Previously, teachers received full benefits only at age 62 or after having at least 30 years of service. The early retirement incentive program is voluntary and would be fully funded through increased contributions of 8.5% of salary from those who choose to participate. New York City Mayor Giuliani opposes the measure because he does not believe the additional contributions will be enough to cover the cost -- when did he become an actuary? His opposition is also based on the fact that the law would provide an incentive for experienced teachers to leave the school system -- hello, Rudy, it is an Early Retirement Incentive Plan.
PENSIONS MAY SPROUT IN BRUSSELS (AND ELSEWHERE): BNA reports on European Commission legislation that would require employers to give part-time workers in the 15 member countries the same rights to pension benefits that full-time workers receive. Similar legislation previously failed to obtain required approval from the Council of Minsters. However, the recent election of Labor leader Tony Blair as Prime Minister of the United Kingdom makes chances of approval considerably greater.
FONTANA, CALIFORNIA MUNICIPAL EMPLOYEES WIN FIRST ROUND: A San Bernardino County Superior Court Judge has ruled that accruals of personal leave, longevity pay and retiree health benefits are "vested contractual rights" protected under the United States and California Constitutions. The ruling will restore employee benefits that were lost under a 1995 labor agreement. Because the rights are considered vested, they cannot be diminished to the detriment of employees even if the reduction was agreed to and included in a collective bargaining agreement. The City intends to file an appeal, according to BNA.
BUT MAINE DECISION GOES THE OTHER WAY: The United States Court of Appeals for the First Circuit has ruled that amendments to Maine's Public Retirement Plan, decreasing expected pension benefits, do not violate the Contract Clause of the United States Constitution. The Court hung its hat, according to BNA, on the almost-silly proposition that the amendments did not violate the Contract Clause as applied to "vested" participants because the legislation does not include a definition of who "vested" participants are! Also, the following legislative provision obviously did not impress the Court: the State reserved the power to amend the amount of pension benefits but "may not reduce the amount of benefits which would be due a member...on the date immediately proceeding the effective date of the amendment." Believe it or not, the Court actually had trouble interpreting the word "due."
AS WITH MOTHER NATURE, IT'S NOT NICE TO TRY TO FOOL THE COURT: Individuals who were receiving workers' compensation, apparently in amounts dissatisfactory to them, challenged Section 440.15, Florida Statutes, as being violative of Title I of the Americans With Disabilities Act (ADA). Section 440.15, Florida Statutes, sets forth an impairment rating schedule: the higher the employee's impairment rating, the more benefits the employee receives. Although plaintiffs filed claims with the Florida Division of Workers' Compensation (Division) challenging the level of benefits accorded to them, they also brought suit in the Federal Court. Incredibly, neither plaintiffs nor their three lawyers ever informed the Court that the Division had rejected the claim of one of plaintiffs; that said plaintiff appealed the Division's decision to the Florida District Court of Appeal; and that the District Court of Appeal certified to the Supreme Court of Florida the exact same issue raised: Whether the Florida law's use of impairment ratings violates Title I of ADA. They also failed to advise the Court that the Supreme Court of Florida had answered the question in the negative, holding that Florida's impairment ratings do not violate ADA (see C&C Newsletter for July, 1996). Thus, the Division's rejection of the claim was approved. That plaintiff did not petition the Supreme Court of the United States for a writ of certiorari; accordingly, that individual claim was disposed of once and for all. In affirming the Federal trial court's dismissal of the complaint, the United States Court of Appeals was so incensed that it also directed the attorneys to show cause why the Court should not order them to pay double costs and expenses, including attorneys' fees. Cramer v. State of Florida, 11 Fla. L. Weekly Fed. C232 (11th Cir., July 24, 1997).
ADMINISTRATIVE AGENCY MUST MAKE FINDINGS OF FACT: A City of Miami Police Sergeant, unhappy that he was passed over for promotion to Lieutenant, petitioned the Chief for a hearing before the Promotional Review Board (Board). The Board voted in favor of the employee but failed to make any findings of fact or conclusions of law upon which its decision was based. The Chief, following appropriate procedure, appealed the Board's decision to the City Manager, who reversed the Board but, again, made no findings of fact or conclusions of law in support of his decision. On certiorari review to the appellate division of the Circuit Court, the three-judge panel held that it was beyond the court's jurisdiction to make findings of fact for the Board, and remanded the case to the Board to set forth findings of fact and conclusions of law upon which its ultimate decision is based. Certainly, this ruling would be correct where an administrative agency fails to make required findings of fact. However, the appellate decision does not point to anything in the internal review process which mandates that the Board make findings of fact. Rossbach v. City of Miami, 4 Fla. L. Weekly Supp. 826 (Fla. 11th Cir., August 1, 1997).
EMPLOYEES FRONTED FOR ILLINOIS SYSTEM: A report from Pensions & Investments indicates that the Illinois State Universities Retirement System has agreed to pay a $3,000.00 penalty to the Federal Election Commission for incidents that occurred several years ago. The violations resulted from employees receiving reimbursements from the System for political contributions they had made. The former Director, who resigned prior to discovery of the contributions, was separately fined $7,500.00.
DISTRICT OF COLUMBIA FUND TAKEOVER IMPLEMENTED: In accordance with the District of Columbia Retirement Protection Act of 1997 signed into law by President Clinton on August 5, 1997, the federal government has taken over the District of Columbia's Pension Fund liabilities (and most of its assets). As we reported in February (page 5), the federal government is to assume the Pension Fund's liabilities of $4.8 Billion for all pension benefits of city workers and retired employees up to June 30, 1997. For its troubles, the federal government gets to take $3.2 Billion from the existing fund, leaving $1.3 Billion to fund a plan for future retirement benefits of the District's current police officers, firefighters and teachers, as well as those hired after July 1. According to Pensions & Investments, the City's contribution costs for next year will drop to $57 Million from the otherwise-expected $307 Million.
BRITISH PENSION MARKET TOPS ONE TRILLION DOLLARS: Pensions in the United Kingdom are now worth almost $1.1 Trillion. Less than twenty years ago, UK Pensions totalled only about $35 Billion. Jolly good show.
MEXICAN PENSION PRIVATIZATION GOES INTO EFFECT: On July 1 pension privatization in Mexico took effect. As of the middle of last month, over five million people had registered for the new system. However, the first contributions from employers, employees and the government will not be made until September 17. About $4 Billion from a smaller existing retirement savings system will be transferred. New contributions are estimated at up-to $4 Billion per year. Initial investments will be very conservative, with over 50% of total assets required to be invested in bonds. Oh, Cisco. Oh, Pancho.
OHIO MAY ISSUE PENSION OBLIGATION BONDS: Following a recent trend, the State of Ohio may issue over $4.3 Billion in long-term obligation bonds to cover unfunded liabilities of the Ohio Public Employees' Retirement System and the Ohio School Employees' Retirement System (see C&C Newsletter for July, 1997). A study commission has been formed to make recommendations to the Ohio Legislature.
CALPERS REPORTS RETURNS: The California Public Employees Retirement System earned 20.1% on its investments for the twelve months ending June 30, 1997, growing by more than $19 Billion in one year. The $120 Billion giant, according to BNA, had a return of 26.2% on equities (30.6% on domestic and 18% on international). Almost two-thirds ($79 Billion) of CALPERS' assets are invested in equities.
RECENT ATTORNEY GENERAL OPINIONS:
AGO 97-40: Section 166.049, Florida Statutes, does not require the chief of police to have two law enforcement officers on duty at all times as long as the chief establishes a means for the law enforcement officer on duty to communicate with the sheriff's department and to request assistance or enters into a mutual aid agreement which permits the officer on duty to communicate with other law enforcement agencies and request assistance. (Unbeknown to us, in 1995 the Florida Legislature created Section 166.049, Florida Statutes, as part of the "Officer Jeffery Tackett Law Enforcement Safety Act." The Legislature found that the Act fulfilled an important State interest because law enforcement is an inherently dangerous occupation, as demonstrated by the loss of life of Officer Tackett, and therefore it is essential that law enforcement officers, to adequately protect themselves and the public, be able to maintain communications and to request assistance.)
AGO 97-45: In an opinion dealing directly with mutual aid agreements, the Attorney General held that municipal law enforcement agencies may enter into mutual aid agreements providing that if a municipal police officer is in another participating agency's jurisdiction and observes a crime of violence or a felony, the officer may exercise authority as a sworn law enforcement officer.
AGO 97-46: The cost of updating a police department's communication system, which functions as part of the day-to-day operations of that office, is a normal operating expense of the department that may not be paid from the special law enforcement trust fund created pursuant to Section 932.7055, Florida Statutes (part of the Florida Contraband Forfeiture Act).
ADVICE TO INVEST BY: Investors are continuously bombarded with information telling them when to buy, when to sell and when to hold. Although nobody really knows the answers to those questions, American Funds Group offers the following timeless and true concepts:
- Inflation has been a long-term constant.
- Instant gratification usually means long-term investment failure.
- Diversification reduces risk.
- Stocks and bonds fluctuate in price.
- The best investors look beyond short-term fluctuations.
- Time is more important than timing when investing.
- Investors can make money in flat markets.
- Successful investors understand the benefit of time.
- Historically, dividends from a portfolio of successful companies rise long-term.
- Selling at the bottom and buying at the top are natural for most people.
On page 9 of our August, 1997 Newsletter, in the New York Common Retirement Fund item, we made reference to the State of Connecticut Fund and said "see ... page 4 of this Newsletter." However, when we added the late-breaking IRC §415 report, the Connecticut one got bumped back to page 5. We know you already figured it out, but we like to be precise.
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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.