Cypen & Cypen   Miami
Home Attorney Profiles Clients Resource Links Newsletters navigation
    
825 Arthur Godfrey Road
Miami Beach, Florida 33140

Telephone 305.532.3200
Telecopier 305.535.0050
info@cypen.com

Click here for a
free subscription
to our newsletter

Cypen building

January, 1998

Stephen H. Cypen, Esq., Editor

BUSINESS LESSONS FROM THE MASTERS: To succeed in business today, one has to respond well to change, function within a team atmosphere and be willing to take chances. Even though times have changed since America's greatest entrepreneurs made their marks, there is much to be learned from their words, wisdom and approaches to business.

Andrew Carnegie -- "Find ways of improving the business that are beyond your own realm of responsibility. You may be right or you may be wrong, but in either case you have gained the first condition of success -- you have attracted attention. If your boss is not the right kind of boss, leave him whenever you can, even at a present sacrifice, and find one capable of discerning genius."
J.C. Penney -- "If you can't see any future in your work, get out. Take a position at a lower salary, if necessary. If you lack the courage to make the plunge, stay where you are, but blame yourself, not the job. Remember that desire is not determination, even though they begin with the same letter."
P.T. Barnum -- "Engage in one kind of business and stick to it faithfully until you succeed or until your experience shows that you should abandon it. When a man's undivided attention is centered on one object his mind will constantly be suggesting improvements of value, which would escape him if his brain were occupied by a dozen different subjects at once."
Henry Ford -- "If to petrify is success, all one has to do is humor the lazy side of the mind. But if to grow is success, then one must wake up anew every morning and keep awake all day. Life is not a location, but a journey. Everything is in flux, and is meant to be. We may live at the same number of the street, but it is never the same man who lives there."

MONEY MAGAZINE'S TRUTH ABOUT CREDIT COUNSELORS: People who need help with their debts often consult Consumer Credit Counseling Service, the nation's largest network of nonprofit debt-management agencies. For a nominal fee (or, at some offices, for free) CCCS will negotiate with creditors to reduce interest rates or waive late fees. Then, CCCS consolidates debts into one monthly payment, which is paid to CCCS. However, there are three things you should know before seeking help with your debts, at CCCS or elsewhere: (1) creditors typically pay CCCS a fee of 11% of the amount paid on your bills, (2) while you may get professional budgeting advice, you will not get help filing for bankruptcy -- these services are to keep you from going bankrupt and (3) a repayment plan might show up in your credit file, which a future creditor might hold against you.

U.S. (OF COURSE) BOASTS WORLD'S LARGEST ECONOMY: Based upon 1995 Gross Domestic Product Values, the following are the world's top ten economies: U.S. - $6.95 Trillion, Japan - $5.01 Trillion, Germany - $2.41 Trillion, France - $1.59 Trillion, Great Britain - $1.1 Trillion, Italy - $1.08 Trillion, China - $697 Billion, Brazil - $688 Billion, Canada - $568 Billion and Spain - $558 Billion.

START SAVING EARLY: In the 1950s the United States was a nation of savers, averaging about 11.5% of household income. Today, Americans save only 4.8% of disposable income, the lowest rate in the industrialized world. Yet, respondents to Merrill Lynch's Eighth Annual Retirement and Financial Planning Survey estimated saving more than 13% of their income (three times the actuality!). The gap between perception and reality can have the disastrous consequence of passing along a burdensome legacy to following generations. Five basic principles can help you learn how to save and how to invest your savings: (1) have a financial plan to show where you are, where you want to go and how to get there; (2) invest regularly, using dollar cost averaging to buy more shares when prices are down and fewer shares when prices are high; (3) diversify your investments, allocating your assets among a variety of investment classes to protect against market fluctuations in any one asset class; (4) invest in tax deferred and tax advantaged ways such as IRAs; and (5) start early -- and start your children saving, a habit they are likely to carry into their adult years.

CONNECTICUT CAN'T WIN FOR LOSING: Our readers know that the State of Connecticut Pension Trust Fund lost a fortune on the Fashion Mall at Plantation (see C&C Newsletter for August, 1997). Pensions & Investments now reports that the Connecticut Fund, along with other investors, has taken a bath on Sears Tower, once considered the Country's biggest real estate trophy. In 1989, the Connecticut Fund participated in a $240 Million refinancing of the Chicago landmark. Based upon a sale of the tower in December, the group of which the Connecticut Fund was a part will receive $110 Million. Connecticut doesn't have to "trim" its real estate portfolio, as announced a couple of years ago -- the market itself is trimming the portfolio.

MANAGERS MAY NOT BE IN COMPLIANCE WITH AIMR STANDARDS: The Association for Investment Management and Research sets standards for performance presentation of money manager reports. Almost 75% of money managers in a recent AIMR survey report compliance. However, less than that percentage affirmed their composite returns were asset-weighted, an AIMR requirement. Almost 25% reported using a "catch-all" composite for portfolios that don't fit in with other accounts -- a violation of AIMR standards. Actually, only about 40% of money managers have their AIMR compliance verified, a rather frightening statistic. According to Pensions & Investments, firms that verify compliance estimate that less than 40% of money managers claiming compliance would in fact be found to be in noncompliance if audited. We believe trustees should seriously consider requiring periodic AIMR verification audits.

NEW JERSEY MAY UNTIE ITS OWN HANDS IN CUSTODIAN SELECTION: When we read this item in Pensions & Investments, we could hardly believe it: the $60 Billion New Jersey Pension Fund is required by law to use as custodians only banks with principal offices in the state. New Jersey lawmakers are considering a bill which would allow the Fund to use out-of-state banks as custodians. Ironically, the Fund has not been in compliance with the existing requirement for several years.

ALASKA WANTS AUTHORITY FOR MORE STOCKS: The $22 Billion Alaska Permanent Fund is seeking legislation to raise its equity limit from 50% to 60%. The Fund recently had to sell $600 Million in stocks to stay at the current limit. In addition to the Fund's current allocation to equities -- 36% to domestic and 14% to international -- the Fund has 43% in fixed income and 7% in real estate (the latter of which is restricted to 15%). We always wondered if Alaska has a "Temporary" fund.

CALPERS EYES KIELBASA: The California Public Employees' Retirement System may allow its active international portfolio managers to invest up to 20% of their portfolio assets in Poland. Currently, Poland is in a category not recommended for investment.

HOUSTON FIREFIGHTERS' PERFORMANCE SHINES: According to a survey reported in Pensions & Investments, the Houston Firefighters' Relief and Retirement Fund was the highest performing public pension fund for the five-year period ended June 30, 1997. The $1.4 Billion Fund had a compound annual return of 15.5%. Intuitively, it seems as though other public funds must have exceeded Houston's returns.

FORMER PENSION OFFICER WILL GO TO PRISON: The former Pension Officer for the Austin Employees Retirement System has been sentenced to forty-one months in prison after pleading guilty to money laundering and bank fraud in federal court. (See C&C Newsletter for December, 1997). In addition, she is required to pay $210,000.00 in restitution.

RETIREMENT PLAN VALUED AS OF MARRIAGE DISSOLUTION, EXCLUDING EARLY RETIREMENT PENALTY: After almost 33 years of marriage, a 36-year employee of the Orlando Utilities Commission filed a petition for dissolution of marriage. Although the employee had reached the maximum of 75% of average final compensation, his normal retirement date was September 1, 2001, his 62nd birthday. In resolving conflict among several district court of appeal cases, the Supreme Court of Florida held that valuation of a vested retirement plan is not to include any contributions made after the original judgment of dissolution. Furthermore, it is inequitable to value the plan as of the date of dissolution based upon the fiction that the employee retired on that date when in reality a valuation on that date includes a penalty of 2% per year prior to the employee's reaching age 62. Interestingly, although the Court was dealing with division and distribution of a public pension benefit, there is absolutely no mention of how the wife's pension was to be distributed to her, in light of the inapplicability of QDROs to public plans. Boyett v. Boyett, 22 Fla. L. Weekly S755 (Fla. December 11, 1997).

LABOR DEPARTMENT PANEL ISSUES SOFT-DOLLAR REPORT: Pensions & Investments reports that the ERISA Advisory Council's working group on soft dollars, directed brokerage and commission recapture practices has come down with its recommendations. The group has endorsed a provision in securities law permitting money managers to pay higher than the prevailing rate for commissions to brokers if they receive investment research services and products in exchange. However, the Council also recommends that the SEC prepare a list of which brokerage and research services are acceptable purchases with soft dollars. Other recommendations include: (1) investment managers should give clients full disclosure of all trades involving soft dollars and the benefits investment managers receive from those soft dollars; (2) investment managers should summarize and report to the SEC all outside research they receive; (3) independent accountants should audit soft-dollar disclosures, if the benefits of those audits outweigh the costs; (4) plan sponsors should obtain copies of brokers' and investment managers' projected budgets for directed brokerage and soft dollars; (5) only those with no vested interest should monitor soft-dollar brokerage; (6) plan sponsors should require investment managers and consultants to disclose in writing all potential conflicts of interest; (7) plan sponsors should require consultants to disclose in their contracts all compensation they receive from investment managers either through sale of services or through directed brokerage arrangements; (8) plan sponsors should require money managers to disclose in their contracts how they paid for research and how the pension plan benefited from that research; (9) plan sponsors should have consultants and money managers acknowledge their fiduciary status in writing; (10) plan sponsors should obtain written confirmations from consultants and money managers about their brokerage arrangements and (11) plan sponsors should create specific guidelines for responsible soft-dollar and directed brokerage programs. As required by law, the Se

SOME HELPFUL DEFINITIONS: Apropos of the above item, perhaps a re-examination of the terms in question would be helpful: Soft-Dollar Arrangement -- typically, brokerage firms provide money managers with investment research products or services instead of commission rebates, in exchange for buying or selling stocks and bonds through the brokerage firms; Directed Brokerage Arrangement -- pension plan sponsors "direct" their money managers to conduct a portion of their trades through selected brokerage firms, which then pass on the commission rebates to the pension fund, usually by picking up the tab for some of their administrative expenses; and Commission Recapture -- a process in which pension plans receive a discount on brokerage commissions on trades executed by their managers.

CONGRESSIONAL APPROVAL NOT NEEDED FOR FAMILY LEAVE PROGRAM EXTENSION: As we previously reported would be the case (see C&C Newsletter for August, 1997), the Federal Employees Family Friendly Leave Act expired on December 21, 1997. However, according to BNA, Congressional approval for an extension of the Act's benefits is not necessary because regulations to implement the Family Leave Program were drawn on Office of Personnel Management's own existing, permanent regulatory authority. (Hard to believe.) Thus, the program will continue to allow almost two million federal agency workers to use sick leave to provide medical or personal care to a family member with an illness, injury or other condition that would justify use of sick leave by an employee. Workers also may use sick leave to arrange for or attend the funeral of a family member.

CANADIAN FUND TO DISTRIBUTE SURPLUS: BNA reports that Canada's second largest public pension fund, with $22 Billion, will distribute its $1.1 Billion surplus to employers and plan members. The Ontario Municipal Employees Retirement System is prohibited by law from accumulating a surplus greater than 10% of assets necessary to meet actuarial obligations. Because of an annual return rate of 19% for the last four years, low rates of inflation and minimal wage growth over the past few years, the surplus has exceeded its cap. The surplus will be eliminated by reducing to 4% the existing 6% of members' salaries contributed by both employees and employers. In addition, benefit levels to retirees will rise to match increases in the Consumer Price Index.

NETHERLANDS' FUNDS MAY GET OUT OF DUTCH: A fraud scandal at a major Dutch pension fund may result in legislation that would subject all pension funds to tighter controls. The legislation reported by BNA would not only tighten supervision but ban employers from postponing payment of their pension contributions, which in the future would be due immediately. Bankruptcy of a company would no longer have any consequence for the pensions of its employees. Last year, the Netherlands' mother of all major aircraft manufacturers went bankrupt, leaving its pension fund with an unrecoverable loss. The name of the company: Fokker (no wisecrack from us here).

HMO MEMBERSHIP AND HEART ATTACK DEATHS RISE: Two items separately reported by BNA (but on the same page) are good news and bad news for Health Maintenance Organizations. In 1996 the nation's 650 Health Maintenance Organizations increased membership by 13% to over 66 million. (Seniors boosted Medicare HMO enrollment by more than 25% to 4.7 million.) In another vein, the American Heart Association reported that HMO enrollment is a "significant predictor of death," because hospitalized patients in HMOs are almost twice as likely to die from a heart attack as are persons treated under traditional insurance plans. Editorial summary of the articles: a lot of people are dying to get into HMOs.

CHEAPEST SERVICE PROVIDER NOT NECESSARILY REQUIRED: An Information Letter from the Labor Department indicates that a pension plan fiduciary should choose a service provider based on an assessment of all relevant factors, including the cost of services. Although compensation should be reasonable in light of services rendered, a fiduciary is not required to select the lowest bidder when soliciting bids. A fiduciary should not consider one factor, such as lowest bid price, to the exclusion of another important factor, such as quality of the work product. The December 1, 1997 letter dealt with selection of an enrolled actuary, but is equally applicable to all service providers.

IRAs AND KEOGHs BURGEON: At the end of 1996 total assets held in Individual Retirement Accounts and Keogh Plans reached $1.4 Trillion, an increase of almost 16% during the year. Expect even larger increases last year and next due to expanded opportunities for IRA participation under the Small Business Job Protection Act of 1996 and the Taxpayer Relief Act of 1997. By the way, total year-end 1996 tax-preferred retirement assets reached $7.8 Trillion of which IRA and Keogh assets represented over 18%, almost double the percentage ten years earlier.

NEW HAMPSHIRE NOW TURNS TO INDIVIDUAL HEALTH INSURANCE PROBLEMS: New Hampshire supposedly solved its public employee health care problem by providing a single health care plan for all state employees (see C&C Newsletter for October, 1997). Now New Hampshire must, according to BNA, deal with a crisis in the individual health insurance area. Since Blue Cross and Blue Shield pulled out of the individual market on January 1 of this year, individual health insurance is not readily available in New Hampshire. Therefore, the state has formed an assigned-risk pool, to be subsidized by an assessment on all group health insurers. The assessment is expected to raise about $2 Million, enough to subsidize insurance for 10,000 individuals. Currently, only five insurers write individual health insurance policies in the State of New Hampshire.

SUPREME COURT DENIES REVIEW OF MARYLAND CASE: A federal trial judge's ruling that a Baltimore County could not retroactively reduce pension benefits of retirees (see C&C Newsletter for July, 1996) has been ultimately affirmed. The United States Supreme Court has declined to review the ruling of the trial court and that of the Court of Appeals which upheld the decision. BNA reports that the questions presented were (1) does the Contract Clause prevent a county legislative body from reducing pension benefits of the highest appointed and elected officials of the county if the legislative body determines that the benefits were procured by conduct that constituted a violation of public trust reposed in those officials? and (2) does the fact that the pension "contract" with appointed and elected officials was created by ordinance preclude consideration of conduct that would render a private contract unenforceable under contemporaneous state law? Anne Arundel County, Md. v. Andrews, Case No. 97-612 (U.S., December 9, 1997).

CALPERS ANNOUNCES RETURNS: The $128 Billion California Public Employees Retirement System has announced its returns for the twelve month period ending September 30, 1997. Reported in BNA, CalPERS had an overall investment return of 24.3%, broken down as follows: domestic equities - 38.9%, international equities - 18.4%, fixed income - 11% and real estate - 14.9%. Since 1987, CalPERS has more than tripled in size!

AND SPEAKING OF CALPERS...: You obviously already know that CalPERS is the largest public pension fund in the United States. But that's only part of the story. CalPERS pays retirement benefits to over 321,000 payees per month. For the year ended June 30, 1997, almost 15,000 new retirees were added to the pension payroll, which exceeds $4.1 Billion. Total membership exceeds one million. Last year CalPERS conducted 180 financial planning seminars, serving almost 12,000 people. More than 2,400 public employers participate in CalPERS. The web site CalPERS established last year at www.calpers.ca.gov, contains more than 300 electronic pages of information.

ELEVENTH CIRCUIT ALIGNS ITSELF WITH D.C. CIRCUIT IN ADA CASE: Following a recent decision of the District of Columbia Circuit (see C&C Newsletter for August, 1997), the United States Court of Appeals for the Eleventh Circuit has held that a former employee who is deemed totally disabled by the Social Security Administration is not automatically precluded from claiming that if her disability had been accommodated she could have continued to work. The Eleventh Circuit covers federal cases in Florida, Georgia and Alabama. Talavera v. School Board of Palm Beach County, 11 Fla. L. Weekly Fed. C875 (11th Cir., November 24, 1997).

A QUARTET OF ATTORNEY GENERAL OPINIONS:

AGO 97-56 (September 2, 1997): Section 112.533(3), Florida Statutes, part of the Law Enforcement Officers' Bill of Rights, prohibits any person who is a participant in an internal investigation from disclosing any information obtained pursuant to such investigation. However, that section permits a chief of police to discuss with, and disclose to, the city manager information obtained in an active internal investigation of a law enforcement officer, if the policy of the local law enforcement agency conducting the internal investigation authorizes such disclosure.

AGO 97-61 (September 15, 1997): Reiterating what the Florida Supreme Court held over ten years ago, the Attorney General found that discussions regarding official business between individual members of a public board and the board's attorney are not attorney-client conversations and, therefore, are not privileged communications. If a board attorney were foolish enough to memorialize in writing any conversations with an individual board member, any such document is a public record subject to inspection and copying pursuant to Chapter 119, Florida Statutes. Of course, there does exist the rather limited exception to the Sunshine Law pursuant to Section 286.011(8), Florida Statutes, for "shade meetings" involving pending litigation.

AGO 97-62 (September 19, 1997): In another opinion involving the Law Enforcement Officers' Bill of Rights, the Attorney General opined that the process for reviewing complaints against law enforcement officers makes no provision for public involvement until such time as the law enforcement agency employing the officer concludes its investigation with a finding either to take no disciplinary action or bring no charges, or, to take disciplinary action or bring charges. Therefore, the complaint review board (which is provided for as part of the law) may not participate in resolving a complaint made against a law enforcement officer until the officer's employing authority has made its initial findings.

AGO 97-67 (September 25, 1997): This one is a little complicated, but shows that the interrelationship of several laws can result in unintended consequences. Our readers know that Section 119.07(3)(i)1,Florida Statutes, makes confidential, among other things, the home addresses of active or former law enforcement personnel and certified firefighters. Now rewind to Section 28.222(2), Florida Statutes, which provides that the clerk of the circuit court shall record all instruments in one general series of books called "Official Records." The clerk shall keep the register in which shall be entered at the time of filing the filing number of each instrument filed for record, the date and hour of filing, the kind of instrument and the names of the parties to the instrument. The clerk shall maintain a general alphabetical index, direct and inverse, of all instruments filed for record. (Section 28.222(6), Florida Statutes, provides that all instruments recorded in the Official Records books shall always be open to the public.) Now fast forward to Section 695.26(1)(a), Florida Statutes, which provides that no instrument by which the title to real property or any interest therein is conveyed, assigned, encumbered or otherwise disposed of shall be recorded by the clerk unless the name of each person who executes such instrument is legibly printed, typewritten or stamped upon such instrument immediately beneath the signature of such person and the post-office address of each such person is legibly printed, typewritten or stamped upon such instrument. Ooooops...in other words, every deed and mortgage executed by anyone must have the signer's address on the instrument in order for the instrument to be in recordable form. Now rewind all the way back to Section 119.07(3)(i)2, Florida Statutes, which provides that the custodian of the otherwise-personal information specified that is not the employer of the law enforcement officer or the firefighter shall maintain the confidentiality only if the law enforcement officer, firefighter or employer submits a written request for confidentiality to the custodial agency. Whew! The bottom line to the opinion: the clerk is authorized to alter reproductions of the Official Records to protect confidential information. Recommendation: if you are entitled to the protection of confidentiality of your home address, write to the clerk of the circuit court in every county in which you own or ever owned real property or any interest therein, and request confidentiality. One more thing -- please don't tell the clerk where you learned about this glitch.

FRS DROP EFFECTIVE JULY 1, 1998: As you will recall (see C&C Newsletter for August, 1997), Chapter 97-180 amended the Florida Retirement System to create a Deferred Retirement Option Program (DROP). The July 1, 1998 effective date was contingent upon the Division of Retirement receiving a favorable private letter ruling and a favorable determination letter from the Internal Revenue Service prior to the end of the 1998 legislative session. Well, there's good news, because on October 10, 1997 the Division received a favorable private letter ruling and on December 12, 1997 received a favorable determination letter. Also as required by the 1997 amendment, Andy McMullian, State Retirement Director, has notified the Speaker of the House of Representatives and the President of the Senate of receipt of said letters and the Division's intention to proceed to implement the DROP effective July 1, 1998.

WEALTHY RECEIVE MOST BENEFITS FROM MEDICARE: A recent study by the National Bureau of Economic Research reported in Pension & Benefits Update found that the wealthiest Medicare enrollees benefit the most. Entitled "The Incidence of Medicare," the study found that while all current Medicare enrollees receive more in benefits than they contributed to Medicare in taxes, the wealthy reap greater benefits over their lifetimes because they tend to live longer and use more medical services. As they say, the rich get richer.

MICHIGAN STEPS BACKWARD AND MOVES FORWARD: Yes, you read that right. Michigan recently enacted legislation to create a Defined Contribution Retirement Plan for public school employees (see C&C Newsletter for February, 1997). Now, in a stunning turn of events, the Governor of Michigan has signed a bill de-authorizing the defined contribution plan, according to a blurb in the National Conference on Public Employee Retirement Systems Monthly Monitor. Apparently, the earlier bill contained a provision that the defined contribution plan would not be implemented unless the existing defined benefit plan was fully funded by January 1, 1998 (which we guess was not the case). If we learn more details we will report them here.

CALL US AND WE'LL PAY: For the convenience of our clients and readers, we have installed a Toll Free number. So, if you are located outside of Miami-Dade or Broward Counties, you may call us at (800) 332-3200. We look forward to hearing from you more often!

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.


Site Directory:
Home // Attorney Profiles // Clients // Resource Links // Newsletters