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October, 1998

Stephen H. Cypen, Esq., Editor

1. FLORIDA ATTORNEY GENERAL VINDICATES OUR OPINION: Last year the Public Employees Relations Commission issued a declaratory statement finding that a collective bargaining agreement in conflict with an existing part of a municipal charter overrode the charter even though the negotiated changes were not approved by referendum of the municipality's electors (see C&C Newsletter for August, 1997, page 11). We disagreed with PERC because Section 447.309(3), Florida Statutes, clearly provides that a collective bargaining agreement in conflict with any law is not effective until an amendment of said law becomes effective. Well, we are pleased to report that the Attorney General agrees with us: the lack of requirement for referendum approval in Chapter 447, Florida Statutes, does not alter the mandate for such approval under Section 166.021, Florida Statutes, when changes to a city's charter affect employee rights. AGO 98-56 (September 16, 1998).

"Everyone is entitled to my opinion."

2. BARCLAYS COMMISSIONS A REPORT ON INDEXING: Barclays Global Investors, which claims to have created through its predecessor the first index fund in 1973, asked PricewaterhouseCoopers to present an objective assessment of the cost and benefits of indexing in fund management. Despite its growing popularity (indexed assets of domestic pension plans now top $1 Trillion), the debate continues: some claim that certain active managers have superior stock-picking or market-timing skills, thus offering enhanced performance; others argue that indexers achieve better performance than most active fund managers and offer lower costs. Some claim that active managers waste resources on research and "gut feeling" projections; others argue that indexers get a free ride from active managers and create market instability in the process. In any event, the study aims to deal evenhandedly with arguments both for and against indexing, with a view to inspiring more debate in the investment management industry on what is a critical decision for most investors.

3. AMERICANS EARNING MORE BUT SPENDING LESS: Americans kept more of their rising incomes in July, making analysts wonder if the spending spree that has kept the United States economy strong in the face of floundering foreign economies is finally coming to an end. Personal incomes rose .5% in the month, to a seasonally adjusted annual rate of $7.14 Billion, slightly ahead of June's .3% gain. However consumer spending, which accounts for two-thirds of our economy, fell .2% -- the first drop in two years -- to $5.8 Billion. June spending had been up .6%. Commerce Department officials had an explanation: the decline is temporary because July purchases of motor vehicles were down although purchases of other goods and services modestly increased.

4. ANALYST SEES CONTINUING PROBLEMS IN ASIA: If you somehow believed that the crisis in Asia has passed, you may want to think again, at least according to a Merrill Lynch analyst. Private-sector debt in the region exceeds 200% of Gross Domestic Product, including both local currency debt and dollar-denominated debt. The annual cost of servicing that debt exceeds 25% of GDP -- an enormous interest rate burden. Nonperforming bank loans will probably exceed 35% to 50% of the region's GDP. Furthermore, nonperforming loans probably exceed capital by a factor of as much as 5 to 1. And the likely solution is not very good: governments may have to take on private-sector liabilities, including those of the banking system, shifting the burden of financing from the private sector to the government sector (read: "higher taxes"). The inevitable result would be a greater flight of capital, putting even more downward pressure on Asian currencies. Ultimately, debt will either have to be rescheduled or forgiven in order to avoid outright defaults.

"We make money the old fashioned way -- we borrow it."

5. IRS PENSION LIMITS WILL NOT CHANGE FOR 1999: Using the July 1998 Consumer Price Index, Buck Consultants, Inc. estimates that IRS pension limits for 1999 will not change from 1998. The Section 415 Defined Benefit Plan dollar limitation (rounded in $5,000 increments) will remain at $130,000. The Section 415 Defined Contribution limit (also rounded in $5,000 increments) will remain, as it did last year, at $30,000. The Section 401(a)(17) annual compensation limit (rounded in $10,000 increments) will not change from $160,000. And although there was no prediction on the Section 457 Deferred Compensation Limit (rounded in $500 increments and rising for the first time last year to $8,000), it will probably not change. Obviously the figures are not official at this early date. However, inflation would have to increase by nearly 2% just over the next two months before any of the limits would reach the next highest threshold for adjustment.

6. SOME DERIVATIVE DEFINITIONS: The following are some basic derivative definitions, which trustees should be familiar with, if only to know what they might want to avoid:

Option -- the right to buy or sell an underlying asset (such as a security) at a specified time for a specified price. A call option is the right to purchase the underlying asset. A put option is the right to sell it.

Forward Contract -- obligates a party and its counterparty to trade an underlying asset (such as foreign currency) at a specified price at a specified date in the future.

Future -- similar to a forward contract, but is standardized and traded on a futures exchange. Unlike a forward contract, the counterparty to a futures contract is the clearinghouse for the appropriate exchange.

Swap -- an over-the-counter transaction involving two parties exchanging a series of cash flows at specified intervals. In the case of an interest rate swap, the parties exchange interest payments based on an agreed-upon principal amount ("notional principal amount").

Structured Note -- an over-the-counter debt instrument where the interest rate, principal or both are indexed to an unrelated indicator (like the price of oil).

Mortgage-backed security -- encompasses a broad array of instruments with differing characteristics. One example is a stripped mortgage-backed security, representing interest in a pool of mortgages, the cash flow of which has been separated into interest and principal components. Interest-only securities (IO's) receive the interest portion of the cash flow and principal only securities (PO's) receive the principal portion

7. MINNEAPOLIS FUNDS MAKE QUESTIONABLE INVESTMENTS: A state audit of the Minneapolis Police Relief Association reveals that the pension fund has risked millions of dollars by a continuing investment in a local countertop manufacturer that has yet to produce the first product. (Apparently the Minneapolis Firefighters Relief Association has made a similar investment, but those audit results have not been released.) According to a previous audit, the Association had invested $1.5 Million in the company, which the auditor advised be divested. Nonetheless, the Association increased its holdings to $9.1 Million by the end of last year and may have invested another $400,000 this year. In a separate investment, the police fund invested $5 Million in a limited partnership operated by its money manager, which resulted in the fund's owning almost 30% of the venture. BNA reports that both funds have filed suit against that same money manager, alleging fraud and breach of fiduciary duty.

"There's always free cheese in a mouse trap."

8. STATE CAN SUE OVER OWBPA/ADEA VIOLATION: The State of Massachusetts has sued a company in federal court, alleging that it illegally forced older workers to waive their rights to file discrimination claims in order to receive severance pay. The Equal Employment Opportunity Commission filed a similar separate suit. In moving to dismiss the complaint, the company argued, among other things, that the State's suit was precluded by EEOC's suit. BNA reports that a United States District Judge has refused to dismiss the suit, holding that states have an interest in preventing discrimination against protected or disadvantaged groups, in ensuring the health and well-being of residents and in protecting their full participation in a federal scheme. Here, the waivers were particularly punitive in nature and were actually designed to restrict the flow of information to the Massachusetts Attorney General's investigation into the company's employment practices.

9. SEC PRESENTS FINANCIAL FACTS TOOL KIT: The Securities and Exchange Commission has created an on-line Financial Facts Tool Kit. Sponsored by Partners in the Facts on Saving and Investing Campaign, the kit contains a vast array of information to help plan for a secure financial future. More than half of all Americans have no idea how much they need to save each year for retirement. An estimated 65 million U.S. households will probably fail to realize one or more of their major financial goals because they have not developed a comprehensive financial plan. As the home page says: "Use the tools to avoid becoming one of these statistics." If you wish, you can access the kit at http://www.sec.gov/investor/pubs/toolkit.htm.

10. FLORIDA LEGISLATURE AUTHORIZES LONG-TERM-CARE PLAN FOR PUBLIC EMPLOYEES: Finding that state expenditures for long-term-care services continue to increase at a rapid rate causing the state to face increasing pressure in its effort to meet the long-term-care needs of the public, the Florida Legislature has ordered the Department of Elderly Affairs and the Division of State Group Insurance jointly to design a plan to provide long-term-care coverage for public employees and family members of public employees. Eligible plan participants must include active and retired officers and employees of all branches and agencies of state and local government and their spouses, children, stepchildren, parents and parents-in-law; active and retired federal employees residing in the state and their spouses, children, stepchildren, parents and parents-in-law residing in the state; and the surviving spouses, children, stepchildren, parents and parents-in-law of such deceased officers and employees, whether active or retired at the time of death. Aptly entitled "Florida Employee Long-Term-Care Plan," it will be self-funded or fully insured and will be voluntary. The Department and the Division shall consult with the Department of Management Services and the Department of Insurance, and shall contract for actuarial, professional-administrator and other necessary services. Finally, the Division shall explore innovations in long-term-care financing and service delivery with regard to the plan, including managed long-term-care and plans that set aside assets with regard to eligibility for Medicaid-funded long-term-care services in the same proportion that private long-term-care insurance benefits are used to pay for long-term-care. Chapter 98-400 took effect July 1, 1998.

"The human body, with proper care, will last a lifetime."

11. WORKERS' COMP INVESTIGATORY RECORDS MADE CONFIDENTIAL: Section 440.107, Florida Statutes, empowers the Division of Workers' Compensation of the Department of Labor and Employment Security to determine if an employer who is required to secure payment to his or her employees of workers' compensation has failed to do so. Chapter 98-407 makes records of the Division received pursuant to Section 440.107, Florida Statutes, and any records necessary to complete an investigation confidential and exempt from provisions of Chapter 119, Florida Statutes, the Public Records Act. An investigation is considered "active" while it is being conducted with a reasonable, good-faith belief that it may lead to the filing of an administrative, civil or criminal proceeding. An investigation does not cease to be active if the Division is proceeding with reasonable dispatch and there is a good-faith belief that action may be initiated by the Division or other administrative or law enforcement agency. Even after an investigation is completed or ceases to be active, records remain confidential if disclosure would (a) jeopardize the integrity of another active investigation; (b) reveal a trade secret; (c) reveal business or personal financial information (wouldn't this almost always be the case?); (d) reveal the identity of a confidential source; (e) defame or cause unwarranted damage to the good name or reputation of an individual or jeopardize the safety of an individual; or (f) reveal investigative techniques or procedures. Almost as an afterthought, the Legislature has also made confidential the first notice of injury pursuant to Section 440.185, Florida Statutes, if it would identify an ill or injured employee. (Question to the Legislature: Give us an example of how the form will not identify an ill or injured employee.) Well, folks, this amendment is just another example of how important it is for boards to require disability applicants to waive the confidentiality of all documents relevant to the application.

12. LARGEST DOW POINT GAINS RECENT; LARGEST PERCENTAGE GAINS ANCIENT: When the Dow Jones Industrial Average soared over 380 points on September 8, 1998, it was the largest point gain in the Dow's 102 year history. In fact, except for a rebound after the October 19, 1987 debacle, the following chart shows that all of the ten highest point gains (as of September 8, 1998) occurred within the last two calendar years:

   DATE CLOSE  RISE PCT 
09/08/988,020.78380.534.98
10/28/977,498.32337.174.71
09/01/987,827.43288.363.82
09/02/977,879.78257.363.38
11/03/977,674.70232.323.12
02/02/988,107.78201.282.55
12/01/978,013.11189.982.43
10/21/872,027.85186.8410.15
04/29/976,962.03179.012.64
09/16/977,895.92174.782.26

The largest percentage gains, however, except for that same day in 1987, all came in the early years, when the Dow was a fraction of what it is today:

   DATE CLOSE  RISE PCT 
03/15/3362.108.2615.34
10/06/3199.3412.8614.87
10/30/29258.4728.4012.34
09/21/3275.167.6711.36
10/21/872,027.85186.8410.15
08/03/3258.225.069.52
02/11/3278.606.809.47
11/14/29217.2818.599.36
12/18/3180.696.909.35
02/13/3285.827.229.19

"We have not yet begun to ...... procrastinate."

13. FEDERAL GOVERNMENT FAILS Y2K PROGRESS TEST: If you think your pension fund has a Y2K problem, consider the United States Government with more than 7,000 mission critical systems and 60,000 secondary systems. As of May 1998, only 40% of mission critical systems were Y2K compliant, up from 35% in February. The House Subcommittee on Government Management, Information and Technology grades various government departments and agencies, based on Y2K preparedness. As of May, the government's overall grade was an "F" (down from a "D-," reflecting a slowdown in the pace of progress toward compliance). How would you feel if your kid came home with the following report card?:

 Agency Grade 
Social Security Administration
(thank heavens)
A+
Department of the Treasury C
Department of Labor C
Department of the Interior C-
Department of Agriculture D
Department of Defense D
Department of Education D
EPA F
Department of State F
Department of Health and Human Services F
Department of Energy F
Department of Transportation F

Uncle Sam, get yourself down to the principal's office!

14. PENSION LIABILITIES EXCEED ASSETS: On August 27, 1998, for the first time in about four years, pension liabilities surpassed assets. On that date, pension funds had 10.9% more in liabilities than they did in assets, according to Pensions & Investments. In fact, liabilities have grown by almost 13% this year, including about 6% in August alone. Meanwhile, assets have only grown 1.9% for the year. Investors' biggest fear is when stocks go one way and bonds go the other. The recent stock market drop lowered returns and boosted liabilities. In addition, the recent drop in 30-year Treasury yields, the benchmark for liability discount rates, has also forced liabilities to increase.

"Chicken Little only has to be right once."

15. HAS THE ROLE OF FIXED-INCOME PORTFOLIOS CHANGED?: Pension fund managers continued their greater commitment to higher risk investments such as equities rather than to historically more stable assets like bonds. Equities are the best way to participate in a growing, dynamic global economy, while bonds generally serve as a hedge against economic setbacks. Thus it makes sense not to invest too heavily just to protect against the unlikely scenario of a sustained economic contraction. But a report from Watson Wyatt indicates evidence of a less visible trend: fixed-income managers are making riskier investments to offset today's lower interest rates. Consequently, fixed-income portfolios may not deliver the protection investors have traditionally expected in the form of capital preservation and stable interest income. Of course, if the shift is intentional, it's okay; if the board of trustees is not aware of the change, it's not. While exposure to domestic and international equities has increased (from 50% to 62%), domestic bond allocations have fallen (from 33% to 24%). At the same time, however, fixed-income portfolios have shifted in a similar direction, thereby increasing total fund risk rather than reducing it. This shift may be the result of attempts by active bond managers to sustain high returns, but which introduce other risks such as varying degrees of liquidity, potentially unstable or unpredictable volatility in adverse interest environments, skewed potential returns due to various option features and benchmark tracking error risks. Watson Wyatt suggests that concerned trustees consider the following actions:

  • Review fixed-income investment portfolio guidelines for congruence with the plan's investment policy and risk tolerance. Guidelines should explicitly define allowable and excluded investments, and control the level of overall risk and liquidity appropriate for each portfolio, taking into consideration investment objectives, investment time horizons and risk tolerance.

  • Conduct an integrated asset/liability study to examine the effect of different investment outcomes on key pension financial measures: funded status (surplus/deficit), cash contributions and pension expenses.

  • Work with bond managers to stress-test current bond portfolios by simulating the performance impact of various changes in interest rates, increases in interest rate volatility, credit spread widening and a weakened U.S. dollar.

16. ADDRESSING SEXUAL HARASSMENT AFTER LANDMARK U.S. SUPREME COURT CASE: The United States Supreme Court recently held that an employer is vicariously liable under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000 et seq., for the acts of a supervisory employee whose sexual harassment of subordinates has created a hostile work environment amounting to employment discrimination, subject to an affirmative defense looking to the reasonableness of the employer's conduct as well as that of the plaintiff/victim. Faragher v. City of Boca Raton, 11 Fla. L. Weekly Fed. S699 (U.S., June 26, 1998). In light of this decision and two others, BNA recommends the following actions as an employer's initial approach: (1) create a "zero tolerance policy," distribute it and discuss it at staff meetings; (2) conduct training that is informative, interactive and meaningful by allowing a sufficient amount of time for participants to ask questions and receive answers that clarify definitions, legal terms and appropriate workplace behavior; (3) provide an outlet for employees' concerns, through the human resources director or even via an anonymous toll-free phone number; (4) offer ongoing training for supervisors to clarify responsibilities and roles if they witness or receive a complaint; (5) conduct partial and thorough investigations, establishing a follow-up procedure that is swift and meaningful; and (6) continue to communicate the policy on sexual harassment through regular orientation and training sessions.

"An ounce of image is worth a pound of performance."

17. STATE AND LOCAL GOVERNMENT EMPLOYERS NOT MOVING §457 ASSETS INTO TRUSTS: BNA reports that the Internal Revenue Service is concerned by the small number of state and local government employers that have moved their plan assets of eligible §457(b) plans into trusts. Our readers know that Section 1448 of the Small Business Job Protection Act of 1996 requires that as of January 1, 1999 assets in a §457 plan maintained by a public employer and then in existence must be held in trust (see C&C Newsletter Special Edition, August 21, 1996, pages 1-2). Despite tons of guidance from IRS, including model amendments (see C&C Newsletter for September, 1998, item 2), IRS thinks that many governmental employers have overlooked the deadline

"If you don't know who to blame, you are."

18. NEW MEXICO PENSION CONTRIBUTIONS SUBJECT TO FICA TAX: The Internal Revenue Code was amended in 1974 to add Section 414(h), allowing contributions, otherwise designated as employee contributions, to state and local government pension plans to be treated as employer contributions if the employer "picks up" those contributions. As a result, picked-up contributions would not be included within FICA wages or within gross income for tax purposes. However, in 1983 Section 414(h) was amended to provide that picked-up contributions would thereafter be subject to FICA taxes. Another amendment, in 1984, provides that FICA wages include any amounts picked up pursuant to a salary reduction agreement, whether evidenced by written instrument or otherwise. In a case reported by BNA, New Mexico unsuccessfully argued that picked-up contributions it made to state pension plans were not made pursuant to an "agreement" but rather were mandated by New Mexico law. The Tenth Circuit U.S. Court of Appeals affirmed the Social Security Administration's determination that all contributions picked up after the 1984 amendment were subject to FICA taxes. Public Employees' Retirement Board v. Shalala, Case No. 96-2180 (10th Cir., September 2, 1998).

19. ELEVENTH AMENDMENT IMMUNIZES STATE FROM FMLA CLAIMS: The Eleventh Amendment to the United States Constitution, ratified February 7, 1795, provides that "the Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State." A federal judge has held, according to BNA, that the Eleventh Amendment immunizes states from Family and Medical Leave Act suits by state employees. Although Congress clearly intended to extend FMLA liability to states, it improperly exercised its authority under the Fourteenth Amendment. (Section 5 of the Fourteenth Amendment gives Congress the power to enforce that amendment by appropriate legislation, but Congress failed to do so in this case.) McGregor v. Goord, Case No. 97-CV-0816 (N.D.N.Y., August 17, 1998). Note that this decision could presage a similar result for suits under the Uniformed Services Employment and Reemployment Rights Act of 1994 (see C&C Newsletter for March, 1998, pages 5-6).

20. EX-SPOUSE CANNOT GET MORE THAN 50% OF MILITARY PENSION -- DIRECTLY OR INDIRECTLY: The Uniformed Services Former Spouses' Protection Act specifically prohibits the Defense Finance and Accounting Service Centers from sending directly to a former spouse more than 50% of the member's disposable retired pay. A state court has held that such provision does not merely limit direct payments by the government but actually limits the total award. Recognizing that other jurisdictions have held to the contrary, the Missouri Court of Appeals reasoned that it was not logical that a former spouse could receive more than 50% of the member's pension but that the government would only remit 50% to that spouse: why would the government care if it dispenses 50% or more unless the 50% was a limit that can be received through any means of disbursement? In re Bowman, Case No. 21904 (Mo. App., July 22, 1998), was reviewed by BNA.

21. MOST PUBLIC FUNDS OWN TOBACCO STOCKS AND DO NOT HAVE TOBACCO INVESTMENT POLICY: The Investor Responsibility Research Center, which apparently is a tobacco industry association, recently surveyed 182 public funds to determine their tobacco investment policies. Of the 73 respondents, 64% had no formal policy or restriction on tobacco investments. And although 11% of respondents had no tobacco equity investments, 66% owned stock in at least one tobacco company (with 49% holding stock in three or more).

"Never ask a barber whether you need a haircut."

22. WORKERS' COMP OFFSET SHOULD NOT BE RECALCULATED TO INCLUDE SUPPLEMENTAL BENEFIT INCREASES: Last year the Florida Supreme Court ruled that an injured employee may not receive benefits from his employer and other collateral sources which, when totaled, exceed 100% of his average weekly wage (see C&C Newsletter for June, 1997, page 2). Here, the offset was initially calculated by adding together all benefits paid, including the permanent total supplemental benefits. However, the city annually recalculated the offset, adding the 5% yearly increase in supplemental benefits. In reversing the Judge of Compensation Claims, the District Court of Appeal found that supplemental benefits are intended as an incentive to continue periodic payments and avoid the potential for inflation to diminish the value of such payments; thus recalculating the offset every year to include the increase in supplemental benefits frustrates the intended purpose of supplemental benefits. And, because the Supreme Court's decision tacitly approved such recalculation (although the precise issue was not addressed), the court certified the question to the Supreme Court of Florida. Acker v. City of Clearwater, 23 Fla. L. Weekly D1970 (Fla. 1st DCA, August 17, 1998). Note: in three separate cases last month the same District Court of Appeal certified identical questions.

23. NEVER MIND ... DRAFT OF AUDIT REPORT NOT A PUBLIC RECORD: Reversing a County Court decision which we criticized (see C&C Newsletter for October, 1997, page 2), the District Court of Appeal held that a draft audit report was not subject to disclosure under the Florida Public Records Law because it had not yet been presented to a unit of local government and thus was not final. In so ruling, the court answered in the negative the following certified question:

Does delivery, by an internal auditor, of an audit report draft prepared for or on behalf of a unit of local government, to a County Administrator, who has no management responsibilities for the audited department, soliciting a management comment and review, constitute delivery of a "final" audit to the "unit of local government" as contemplated by Florida Statute 119.07(3)(y) thus rendering the audit report draft a public record not exempt under the provision of Florida Statutes [sic] 119.07(3)(y)?

Nicolai v. Baldwin, 23 Fla. L. Weekly D2012 (Fla. 5th DCA, August 28, 1998).

24. ADEA COVERS PENSION UNDERPAYMENT BASED ON AGE DISCRIMINATION: A United States Court of Appeals has held that a pension trust falls within the Age Discrimination in Employment Act definition of employer, employment agency, labor organization or any combination thereof. In the subject case a private pension fund calculated a benefit based on the "fiction" that an employee had retired in 1990 when he reached 70 1/2 years of age, rather than in 1992 when he actually retired. As a result, the pension payment was reduced by almost 50%. In defense, the plan said that the Internal Revenue Code then required payment of pensions when an employee reached 70 1/2 years of age. The Court found that the IRC provision dealt with use of pension plans as tax shelters and did not require employees to stop working or allow plans to halt increases and accruals for those working beyond age 70 1/2. Whether we agree with this expansion of ADEA or not, quite frankly, the defense raised does not even pass the "giggle test." BNA reported the case of Lee v. California Butchers' Pension Trust Fund, Case Nos. 96-16408, 96-16562 and 97-15272 (9th Cir., September 9, 1998).

"In case of doubt, make it sound convincing."

25. IN EQUITABLE DISTRIBUTION, PENSION SHOULD NOT HAVE BEEN REDUCED FOR FUTURE TAXES: For equitable distribution purposes in a dissolution of marriage case, the trial court valued the pension of husband, an Orlando police sergeant. After arriving at a present value of approximately $300,000.00, the court then reduced the figure by about 32%, to account for the "tax effect" of distribution. The appellate court found reversible error in the trial court's reduction in the present value of husband's pension. "Moreover, the record contains no indication that the parties ever submitted any evidence with regard to the taxes husband may have to pay on the distributions." Thus, the opinion is unclear as to whether or not the reduction for taxes is per se error or was error merely because no evidence was submitted as to the effect of taxes. We would opt for the latter interpretation, as did the judge who filed a specially concurring opinion: "I believe that it would have been appropriate to consider the impact of taxes had there been such evidence presented by a party and that the reduction would be fair to both parties." The appellate court also reversed the trial court's failure to award wife any portion of husband's accumulated sick leave, even though wife did not identify the number of hours accrued by husband as of date of separation. Curiously, the court found the burden of proof on this issue to be on husband, "who is effectively seeking a credit for sick leave accrued subsequent to the parties' separation." Talk about tortured logic! King v. King, 23 Fla. L. Weekly D2013 (Fla. 5th DCA, August 28, 1998).

"An assumption is the first step toward a screw-up."

26. COURT ALLOWS MARRIAGES TO BE "TACKED" FOR EQUITABLE DISTRIBUTION OF MILITARY PENSION: In another case involving equitable distribution of a pension, the Florida Fifth District Court of Appeal allowed the parties' two marriages to be aggregated. The parties were married for about four years, were divorced for about one year, remarried and redivorced over twenty-five years later. Husband was already in the military prior to the first marriage. The appellate court affirmed the trial court's ruling that the length of both marriages should be combined in computing wife's entitlement to a share of husband's retirement benefit, "especially given the brevity of the first separation." With all due respect, the brevity of separation should have nothing to do with it: presumably, the wife received an "equitable distribution" of husband's pension in the first dissolution proceeding; if not, then shame on her or shame on her lawyer. Beasley v. Beasley, 23 Fla. L. Weekly D2161 (Fla. 5th DCA, September 18, 1998).

27. FLORIDA RETIREMENT SYSTEM GENERAL AMENDMENTS APPROVED: As is its annual custom, the Florida Legislature has enacted general amendments that affect members of the Florida Retirement System. The following are some of Chapter 98-413's more notable changes. Beginning January 1, 1999, the retiree health insurance subsidy multiplier will increase from $3.00 per year of creditable service to $5.00; the monthly floor and cap will respectively increase from $30.00 to $50.00 and from $90.00 to $150.00; and the employer contribution will immediately increase from .66% of gross compensation to .94%. "Compensation" shall specifically include accumulated annual leave payments, certain payments in addition to base rate of pay, amounts withheld for tax sheltered annuities or deferred compensation programs and payments made in lieu of a permanent increase in the base rate of pay. Effective July 1, 1998, the employer contribution for special risk members is 24.38%, down from 26.44% (in effect for the previous two years). An eligible joint annuitant of a member whose employment is terminated by death within 1 year of such member satisfying the service requirements for vesting and retirement eligibility shall be permitted to purchase the additional service credit necessary to vest and qualify for retirement benefits, using the deceased member's accumulated hours of annual, sick and compensatory leave. A member who is required to resign as a subordinate officer, deputy sheriff or police officer because he or she is a candidate for a public office which is currently held by his or her superior officer who is also a candidate for reelection in the same office shall upon return to covered employment be eligible to repurchase retirement credit for the period between his or her date of resignation and the beginning of the term of office for which he or she was a candidate, as a leave of absence without pay. And, the Executive Director of the State Board of Administration and the Director of the Division of Retirement shall undertake a comprehensive review of the assumptions and contribution rate structure underpinning operation of FRS, the results to be submitted by March 1, 1999.

28. ONE WAY OR ANOTHER, CORRECTIONAL OFFICER'S WIDOW TO RECEIVE FRS BENEFITS: Jack Tilley was employed by the Florida Department of Corrections in August, 1987 and was a member of the Florida Retirement System. Officer Tilley died on June 26, 1997, having accumulated 9.92 years of creditable service, one month short of completing the required 10-year vesting period under FRS, meaning that no survivor benefits were available. Had the officer lived into the month of July, 1997, his surviving spouse would have received a monthly benefit of about $330.00. As it then existed, FRS precluded any accrued leave time from being used to "extend" employment and also prohibited purchase of additional service credit. Significantly, Officer Tilley had sufficient unused sick leave which, if credited toward his service, would have vested him in FRS. Thanks to the Florida Legislature, Penny Tilley will receive the foregoing monthly retirement benefit, plus an annual cost of living allowance. Chapter 98-430 specifically directs the Comptroller to pay Mrs. Tilley the amount she would have received as surviving spouse had Officer Tilley survived to the date on which he would have vested in FRS. One very interesting sidelight: the Act was to take effect on July 1 unless "an amendment adding subparagraph (f)1. to subsection (7) of section 121.091, Florida Statutes, becomes a law, which authorizes the use of a deceased member's accumulated leave in the Florida Retirement System to purchase additional creditable service." As we said in item 27 above, FRS was so amended, and thus the Tilley Relief Act never became effective.

"What the large print giveth, the small print taketh away."

29. A VERY SHORT SUMMARY OF SOME RECENT ATTORNEY GENERAL OPINIONS:

  1. A tax collector, who previously purchased additional retirement credits in the Elected State and County Officers' Class of the Florida Retirement System with personal funds, is not entitled to reimbursement for this expense from public funds (Oink, oink). AGO 97-85.

  2. The Board of Trustees of the Fort Lauderdale Fire Fighters Insurance Trust Fund is subject to the Government in the Sunshine Law. AGO 98-01.

  3. Orange County, in its sole discretion, is authorized to make deductions from the salary or wages of any employee when the deduction meets the county's standards or restrictions for such withholding and the deduction is in an amount authorized and requested by the employee for those purposes. AGO 98-19.

  4. The Florida Whistle-blower's Act provides confidentiality for those records received by a municipality conducting an active investigation of a whistle-blower complaint and is not limited to those records received as part of an active investigation of a complaint of retaliation. However, while the name or identity of the individual disclosing this information is confidential, the initial report of wrongdoing received by the municipality is a public record, since that information was received before an investigation was begun. AGO 98-37.

  5. Section 115.07, Florida Statutes, authorizes the State and its subdivisions to grant leaves of absence for up to 17 working days for public employees who have been assigned to participate in military training. Section 115.09, Florida Statutes, authorizes leaves of absence for 30 days for public officers who are called to active military service. Both statutes require a public employer to pay full public salaries to its employees on military leave during these statutorily-recognized periods of absence from their public employment, regardless of any other compensation from the military or other source. AGO 98-43.

30. EVIDENTIARY HEARING NOT REQUIRED BEFORE REINSTATEMENT UNDER WHISTLE-BLOWER'S ACT: Our readers know that in an action under the Florida Whistle-blower's Act a plaintiff may be entitled to temporary reinstatement to his or her former position or to an equivalent position, pending final outcome of the complaint (see C&C Newsletter for April, 1998, page 2). A circuit judge has held that an evidentiary hearing is not mandatory prior to determining whether temporarily to reinstate a whistle-blower plaintiff. The court reasoned that the relief of temporary reinstatement is not the same as a temporary injunction, which, under the Florida Rules of Civil Procedure, requires an evidentiary hearing. The Whistle-blower's Act simply seeks to maintain an employee in a job position, while no prejudice accrues to the employer by having the employee continue to render service while the merits of his claim are decided. It sure sounds to us like the equivalent of a temporary injunction. Moses v. Neumann, 5 Fla. L. Weekly Supp. 762 (Fla. 15th Cir., June 19, 1998).

"The facts, although interesting, are irrelevant."

31. EMPLOYERS UNLIKELY TO INCREASE BENEFITS TO COVER SOCIAL SECURITY CUTS: A survey conducted by KPMG Peat Marwick and reported in Pension & Benefits Update found that 54% of surveyed employers would not raise retirement benefits if Social Security benefits were reduced as part of a plan to maintain the system's solvency. Only 18% said they would increase benefits, while 28% were undecided. Many employers are worried that Congress is relying on employers to make up for the reduction in Social Security benefits by increasing pension plan contributions. The issue is important because some employers promise a total benefit package that includes Social Security, so that a reduction in those benefits means higher cost to the employer.

32. P&F OFFICE GETS E-MAIL AND A WEB ADDRESS: If you would like to contact Trish Shoemaker at the Municipal Police Officers' & Firefighters' Retirement Trust Fund's Office, you may now do so by e-mail: mpf@frs.state.fl.us. Further, the office has a web address at http://www.dos.state.fl.us/fgils, which is also linked to our site.

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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