August, 1999Stephen H. Cypen, Esq., Editor
1. EXCELLENT ARTICLE ON MANAGER SELECTION: In its June 1999 edition, Plan Sponsor has an article entitled "Needle in a Haystack." The article -- which is subtitled "When the Right Manager Comes Along, Will You Know It?" -- deals with manager selection, which is "more art than science" and is one of the most challenging and difficult tasks facing a plan sponsor or board of trustees. An inset, called "Kicking the Tires," lists some questions for prospective managers:
- How long have you been in business?
- How long has your portfolio strategy been in existence?
- What are your benchmarks and how have they done over the life of your portfolio?
- What reports will you provide us, how and when will they be provided and who will be providing them to us?
- What are your "P's?": Portfolio Dynamics, Investment Process, Personnel and Performance.
- Have you altered the investment style of the portfolio over the past 3-5 years?
- Can we visit your firm and meet everyone who will be handling our portfolio, including trading personnel?
- How much will we need to invest to get your most competitive fees and achieve "most favored nation" status, and is that number negotiable?
- Is your firm engaged in any current discussions about, or does it have any future intention to discuss, the sale or change in ownership of the firm?
2. IRS SAYS COST OF SMOKING-CESSATION PROGRAM DEDUCTIBLE: A short piece from Buck Consultants, Inc. indicates IRS has ruled the cost of a smoking-cessation program and prescription drugs to alleviate nicotine withdrawal to be deductible as medical expenses under IRC §213. Revenue Ruling 99-28 rescinds a position taken twenty years ago in Revenue Ruling 79-162. IRC §213 provides that certain unreimbursed medical care expenses and prescription drug costs are deductible for income tax purposes to the extent they exceed 7.5% of adjusted gross income. Regulations under IRC §125 say that health flexible spending accounts may only reimburse medical expenses as defined in §213. As a result, such expenses may now be reimbursed through flexible spending accounts under IRC §125.
3. SOFT-DOLLAR SCANDAL HITS FLORIDA RETIREMENT SYSTEM: A financial coordinator with the Florida State Board of Administration (the body that invests the assets of the Florida Retirement System) who has publicly championed the concept of soft dollars has allegedly embezzled more than $400,0000 in brokerage rebates meant to pay for manager research and other investment services. Tom Herndon, Executive Director, who says he never liked the soft-dollar program that was already in place when he came on board, announced termination of the $3 Million per year program. Going forward, SBA will move to a best execution practice with selected brokers, creating an internal and external auditing system to track the flow of money in and out of the System. The Florida SBA debacle was reported in the June 1999 edition of Plan Sponsor.
4. CHILD ABUSE RECORDS CONFIDENTIAL DESPITE EMPLOYEE'S CONTRACTUAL RIGHT TO HAVE UNION REPRESENTATIVE PRESENT AT INTERVIEW: Article I, Section 6, of the Florida Constitution contains right to work provisions, including the right of public employees to bargain collectively. In implementing said provisions, the American Federation of State, County and Municipal Employees and the employer entered into a contract providing, among other things, that an employee may request a union representative to be present to advise and/or assist the employee during any disciplinary investigation meeting in which the employee is being questioned relative to alleged misconduct of the employee. In an investigation concerning child abuse, an employee requested that a union representative be present at all times. The Florida Attorney General has found that a union representative may not attend that portion of an investigatory interview requiring a discussion of information taken from a child abuse investigation that is confidential under Section 39.202, Florida Statutes. Although public employees have a contractual right to have a union representative present during a disciplinary investigation meeting if the employee is being questioned about his or her own alleged misconduct, the statutory provisions from which this right is derived do not purport to limit specific rights created by other statutes. AGO 99-42, (July 8, 1999).
5. CALIFORNIA LAW MAY VIOLATE ADEA: A federal trial court will decide if a 1980 California law violates the Age Discrimination in Employment Act. Under the law, disability benefits are based upon a disabled employee's potential years of service, determined by subtracting his or her age at time of hire from 55 (the assumed date of retirement). Thus, if two police officers were hired the same day, one at age 25 and the other at 45, and were injured a year later in the same accident, the younger officer would receive 50% of final monthly compensation and the older officer would receive only 20%. The case, brought by police officers and fire fighters who were hired at age 40 and retired on service connected disability, will be tried on remand from Ninth Circuit Court of Appeals, which reversed the district court's dismissal. The district court had relied upon a 1993 United States Supreme Court decision that distinguishes between age and years of service, the latter of which does not violate ADEA. Ultimately, the Supreme Court may have to decide if "potential years of service" differs from the permitted "actual years of service" standard. Arnett v. California Public Employees Retirement System, Case No. 98-15574 (9th Cir., June 2, 1999)
6. SEVENTH CIRCUIT FINDS ADEA VIOLATION: Seeking to reduce staff, the Gary, Indiana School System offered early retirement incentives to teachers between 58 and 61, providing for 48 monthly payments minus a payment for each month beyond the 58th birthday of a teacher who does not retire. Teachers who stayed on sued under the Age Discrimination in Employment Act and prevailed, despite argument that they could have retired at 58 and reaped the maximum benefits but chose not to retire. Although ADEA as amended by the Older Workers Benefit Protection Act does permit an employer to offer, as an early retirement incentive, monthly payments which terminate at a specific age, this plan did not satisfy the statutory criteria. Here, the school system never undertook any type of analysis as to the age at which early retirees actually opt to begin receiving Social Security. Solon v. Gary Community School Corporation, Case Nos. 97-394 and 97-4024 (U.S. 7th Cir., June 14, 1999)
7. EEOC ISSUES RULE ON GOVERNMENT WORKERS' CHARGES: BNA tells us that the Equal Employment Opportunity Commission has published a final rule for processing employment discrimination charges filed by staff members of state and local elected officials. Previously-exempt state and local employees were brought under EEOC's jurisdiction by the Government Employee Rights Act of 1991. The rule had been adopted on an interim basis two years ago.
8. CALPERS FRETS OVER INTERNATIONAL Y2K ISSUE: In what seems to be a surprising report, BNA says that most international corporations have ignored CalPERS' survey about preparedness for the year 2000 computer problem. Of almost 2,700 companies surveyed by CalPERS, only 600 (22%) even responded. CalPERS' conclusion is that major disruptions could be looming in international investment markets.
9. BULL MARKET HELPS PENSION FUNDS: The Wall Street Journal contains an article entitled "Cities Are Hoping Bull Market Will Heal Ailing Pension Funds." Everyone knows the lengthy bull market has helped bolster the finances of all sorts of investors. But the article deals with the growing number of cities that are issuing new bonds with the intention of plowing most of the proceeds into the stock market. Their obvious hope is that huge gains will more than pay interest on the bonds. These so-called pension-obligation bonds, unheard of until just a few years ago, are being issued by Northeastern municipalities with relatively weak economies and growing pension obligations, trying to avoid raising taxes or cutting benefits to workers by selling bonds to play the market. The concept is rather simple. If a municipality can raise money by selling bonds with an interest rate of 6.5% (a rate higher than on most municipal bonds because interest on pension-obligation bonds is not exempt from federal taxes) and add the proceeds to its pension plan, as long as the plan generates an average general return of more than 6.5%, it will cover the interest costs of the bonds and bolster the financial health of the pension plan. It's all fun and games until somebody loses an eye, because if the stock market does not cooperate, a city could end up paying debt service on the bonds and imposing new liabilities on the pension plan. Although it may be "ancient history," the stock market has experienced long periods of sub-6% performance, such as from 1966 to 1982, when the S&P 500 grew at an annual rate of only 2.7%.
10. BROWARD COUNTY DOMESTIC PARTNERSHIP LAW SURVIVES CHALLENGE: As we previously indicated (see C&C Newsletter for May, 1999, Item 7), Broward County recently enacted a Domestic Partnership Law. While its primary purpose is to extend insurance benefits to domestic partners of county employees, it confers additional benefits on couples who meet the qualifications for a domestic partnership as defined in the ordinance. In a lawsuit initiated by a county taxpayer, a Broward County Circuit Judge has sustained the law. The ordinance does confer some rights on domestic partners that, prior to adoption of the ordinance, were not extended to them. Although these benefits may also be available to couples in a marital relationship, the extension of these limited benefits does not have the effect of giving recognition to a new marital relationship. Thus, the County has not impermissibly encroached upon an area exclusively reserved to the State. Lowe v. Broward County, 6 Fla. L. Weekly Supp. 503 (Fla., 17th Cir., April 30, 1999).
11. TERMINATED POLICE OFFICER GETS DISABILITY PENSION: A City of Miami police officer applied to the pension board for a service-incurred permanent and total disability retirement. Subsequent to the board's decision to deny the application, the police officer was terminated for "physical incapacitation." In granting the police officer's petition for writ of certiorari and quashing the board's order of denial, a circuit court appellate panel recognized that while there is sufficient evidence in the record to establish that the police officer could perform the sedentary tasks of a police officer under a light duty restriction (as she had been), the fact that she was terminated due to her disability shows the city's unwillingness to retain her on a limited duty basis. Our readers will remember the holding in Nuce v. Board of Trustees for City Pension Fund for Firemen and Policemen in the City of Miami Beach, 246 So.2d 610 (Fla. 3d DCA 1971): "As long as an employee of the City is able to do some of the duties required to be done in his job classification; the employing authority is willing to permit the employee to perform limited duty with no reduction in pay; the employee not being totally disabled to do all of the functions provided for in his classification, he is not entitled to retirement." Daniels v. Board of Trustees of the City of Miami Fire Fighters & Police Officers Retirement Trust, 6 Fla. L. Weekly Supp. 478 (Fla., 11th Cir., May 21, 1999).
12. TOUGH SLEDDING FOR ENHANCED INDEX FUNDS: While other types of index funds get lots of praise, enhanced index funds, which supposedly closely follow an index like the S&P 500 but offer even better returns, get little of it. And perhaps there is a good reason: during the last three years, fewer than 1-in-5 enhanced index funds beat their benchmarks. Most of these funds try to weed out poorly-performing stocks and add to faster-growing ones. In the process, enhanced index funds succumbed to the major drawbacks of actively managed funds: poor stock selection and high expenses. Expense ratios can be high to cover the cost of turnover occasioned by regular rebalancing.
13. (RE)BALANCING ACT DIFFICULT?: And speaking of rebalancing, the June 1999 Plan Sponsor has an interesting article on rebalancing investment portfolios. For some sponsors, the question is not how or when to rebalance, but whether to do it at all. The article runs the gamut of views from "It's counterintuitive to rebalance. We never ever rebalance a nickel" to "Rebalancing keeps us from making expensive mistakes due to faulty prediction. You can make a convincing argument for any rebalancing policy, except for not rebalancing." The article also identifies four basic rebalancing policies: (1) calendar or periodic rebalancing at specific times such as monthly, quarterly or annually; (2) set it and forget it, that is, allow the asset mix to drift; (3) rebalance when the mix drifts to a trigger point; and (4) rebalance to an allowed range within a set tolerance limit. All in all, a very balanced presentation. (Groan.)
14. RETIREES OPTIMISTIC/PESSIMISTIC -- DEPENDING UPON WHOM YOU BELIEVE: A recent survey released by the Forum for Investor Advice and reported by BNA indicates that most workers entering retirement are not worried about their financial security. Of the 700 respondents, only 10% said that they were very worried about a sharp decline in the stock market, a major increase in inflation, outliving their assets or being unable to afford a good nursing home. Three out of five expressed a high degree of confidence that their financial resources would last through their lifetimes and two out of five expressed no fear that inflation would erode their assets. We think the Forum itself is being quite optimistic -- it wants 500 bucks a pop for a copy of the report! On the other hand, another recent survey, this one from Fidelity Investments, shows that only 8% of 401(k) plan participants are confident they will have enough money to retire. Reported by Pensions & Investments, "Profiles of Americans and Their 401(k)s," also shows (significantly in our view) that half of these concerned investors have taken loans from their pension accounts. Coincidentally, the latter survey also involved 700 (presumably different) respondents.
15. RETIREES' RIGHTS TO INSURANCE AT CAPPED COST LIMITED TO HEALTH AND HOSPITALIZATION COVERAGE: Section 112.0801, Florida Statutes, authorizes, but does not require, an employer to pay for certain insurance for retirees and their eligible dependents. (See C&C Newsletter for June, 1996, page 2.) Although the statute requires the employer to offer former personnel all kinds of insurance available to active employees, health and hospitalization insurance coverages are the only types of insurance that must be offered to retirees and their eligible dependents at premium cost of no more than that paid by the employer providing such insurance coverage to active employees. AGO 99-44 (July 20, 1999).
16. RIDING THE MARKET CYCLES: Callan Associates, Inc. has produced a chart showing annual returns for key indices for the last twenty years (1979-1998). Last year's rankings were as follows: S&P/BARRA 500 Growth (42.16%), S&P 500 Index (28.58%), MSCI EAFE (20.00%), S&P/BARRA 500 Value (14.69%), Lehman Brothers Aggregate Bond Index (8.70%), Russell 2000 Growth (1.23%) and Russell 2000 Value (-6.46%). In fact, S&P/BARRA 500 Growth also led the pack in 1997 (36.52%), 1996 (23.97%) and 1995 (38.13%). And talk about volatility ... the MSCI EAFE Index was first in five out of twenty years but last or next-to-last in ten (with returns ranging from 69.46% in 1986 to -23.45% in 1989).
17. BULLETIN . . . ATTORNEYS MAY JUST BE DUMBER THAN ACTUARIES: After reporting that actuaries were embarrassed over tape recordings of their "true feelings" about cash-balance plans (see C&C Newsletter for July, 1999, Item 21), we had to report on a recent case involving a Florida workers' compensation law firm. Apparently this firm came up with the bright idea of having seminars for their workers' compensation insurance carriers to provide "inside information about the tendencies and proclivities of lawyers, judges and other individuals in the area of workers' compensation claims." Entitled "Sleeping with the Enemy," the seminars were designed to help claims adjusters process their files, to decide whether claims should be settled or controverted and whether certain lawyers should be pushed for trial or approached for early settlement. As to one particular male compensation claims judge, the advice was "if you wanted to influence [him], you should send men in tight shorts..." and litigators should be blond. The judge, an admitted homosexual, filed suit against the law firm and its members for slander, libel and conspiracy to defame, with particular reference to the suggestion that he was a pedophile or that he could be improperly influenced in his judicial duties by his sexual orientation. (In fact, the judge had been denied reappointment to his judicial position.) On appeal, the Fifth District reversed summary judgment in favor of the attorneys and remanded the matter for trial on the merits. Hoch v. Rissman, Weisberg, Barrett, 24 Fla. L. Weekly D1572 (Fla. 5th DCA, July 2, 1999). As some wag once said, 99% of lawyers give all the rest of us a bad name!
18. CAN DEBRA HELP DB PLANS?: Pensions & Investments reports that Representative Earl Pomeroy (D-ND) is obsessed with "DEBRA." But DEBRA is not a woman -- it is the acronym for Defined Benefit Revitalization Act, that Pomeroy hopes to introduce soon in an attempt to revive flagging interest in traditional DB pension plans. A spokesman for the representative says the name is also a great way to highlight the importance of retirement security to women.
19. DEPUTIES MAY BE LIABLE WHERE THEIR ACTIONS CREATE FORESEEABLE ZONE OF RISK: Hillsborough County Sheriff's deputies were charged with negligence when, after arresting a driver for driving under the influence, they directed another intoxicated person to drive the vehicle, causing the deaths of two passengers. In upholding appellate court reversal of the trial court's grant of summary judgment in favor of the deputies, the Supreme Court of Florida concluded that they owed decedents a duty of care because their alleged actions, more likely than not, placed decedents within a foreseeable zone of risk. Further, the deputies were not protected by the doctrine of sovereign immunity because, while the decision to make an arrest is a discretionary level function protected by sovereign immunity, acts by law enforcement officers with respect to persons whom they have already detained are operational acts not so protected. Henderson v. Bowden, 24 Fla. L. Weekly S325 (Fla., July 8, 1999). Contrast this case with the one where an intoxicated person unsuccessfully claimed that he should have been kept in custody for his own protection or that police officers should have driven him home. (See C&C Newsletter for February, 1998, Page 5.)
20. COURT SERVICE OFFICERS ARE NOT DEPUTY SHERIFFS: Court Service Officers, sometimes known as "Civil Deputy Sheriffs," filed a declaratory judgment action for a definition of their legal status. They contended that under applicable Florida Statutes, they should be treated as deputy sheriffs and should receive training and compensation accordingly. The officers' primary function is to serve process and writs of possession; they are not authorized to carry weapons and do not have the power of arrest. In affirming the trial court's rejection of the officers' position, the district court of appeal held that a county may appoint "special deputy sheriffs" with limited authority and without benefits given to the county's law enforcement officers. Masson v. Miami-Dade County, 24 Fla. L. Weekly D1631 (Fla. 3d DCA, July 14, 1999).
21. WORKERS' COMP OFFSET DETERMINED BY WORKERS' COMP WAGE EVEN THOUGH CAP IS HIGHER USING SOCIAL SECURITY DEFINITION: Our readers know that in Escambia County Sheriff's Department v. Grice, 692 So.2d 896 (Fla. 1997), the Florida Supreme Court broadly declared that an injured worker may not receive benefits from his employer or other collateral sources which, when totalled, exceed 100% of his average weekly wage (AWW). (See C&C Newsletter for June, 1997, Page 2.) Our readers may also know that Section 440.15(10), Florida Statutes, contains a "cap" provision when an employee becomes eligible for Social Security Disability: No offset may be taken except to the extent that total benefits exceed 80% of the employee's average current earnings (ACE), as computed under the Social Security Law. In this case, the employee's AWW, as computed under state workers' compensation law, was less than 80% of his ACE. The Judge of Compensation Claims decided that the cap should be based on the employee's ACE, and denied the offset. The district court of appeal reluctantly held that Grice compelled reversal -- but because Grice did not address the specific issue, the appellate court did certify the question to the Florida Supreme Court as one of great public importance. GAB Business Services, Inc. v. Dixon, 24 Fla. L. Weekly D1674 (Fla. 1st DCA, July 15, 1999).
22. REEMPLOYMENT DOES NOT NECESSARILY PRECLUDE SERVICE RETIREMENT BENEFITS: Readers who have been with us since day one know about Section 112.048, Florida Statutes, which provides that any elective officer of a city or town who has held elective office of such city or town for a period of twenty or more consecutive years shall be entitled to a life annuity equal to one-half of the full amount of his annual salary at time of retirement. (See C&C Newsletter for May, 1996, Page 1.) The statute provides that the municipality may by ordinance determine whether the system will be contributory or noncontributory and may establish rules for participation and the method of payment. The City of Plantation, Florida established a contributory system pursuant to Section 112.048, Florida Statutes, and did not deal with the issue of payment of pension benefits to a city official who, subsequent to retirement, returns to public service. In a number of statutes, the Florida Legislature has determined that state public policy prohibits state employees participating in state retirement systems from receiving both a salary from reemployment and retirement benefits for a period of twelve months immediately subsequent to date of retirement. However, Chapter 166, Florida Statutes, grants municipalities Home Rule, the power to legislate on any subject upon which the state legislature may act unless expressly prohibited by law. Clearly, although the state has spoken on the issue, the City of Plantation has not. Thus, in the absence of an ordinance prohibiting such payments, the city may not deny a retired officer simultaneous payment of retirement benefits and a salary for reemployment with the city. Informal Legal Opinion Letter issued by the Florida Attorney General's office on May 10, 1999.
23. AND IRS FINDS THAT SERVICE-RELATED DISABILITY BENEFITS RECEIVED BY RETIRED POLICE OFFICER ARE EXCLUDABLE FROM GROSS INCOME EVEN IF HE RETURNS TO WORK!: IRC §104(a)(1) excludes from gross income amounts received by an employee under a workers' compensation act or under a statute in the nature of a workers' compensation act that provides compensation to the employee for personal injury or sickness incurred in the course of employment. However, the exclusion does not apply to a retirement pension or annuity to the extent it is determined by reference to the employee's age or length of service, or the employee's prior contributions, even though the employee's retirement is occasioned by an occupational injury or sickness. An individual retired from the county sheriff's department on service-connected disability and began receiving disability benefits that were excludable from gross income. (The applicable statute provided that upon retirement for service-connected disability members shall receive an annual retirement allowance equal to one-half of final compensation.) Another statute allowed disability retirees to be employed in a position other than that from which he or she retired, without reinstatement from disability retirement. Nevertheless, there is an interaction between the two statutes. If the disability retirement payments when added to current salary exceed the maximum pay the retiree could have received under his previous job title at time of retirement, the disability retirement payments are reduced during employment to equal that amount. Internal Revenue Service ruled that the disability retirement benefits are excludable from gross income despite the retiree's return to work. In so ruling, IRS distinguished a twenty year old revenue ruling that payments made by a municipality to a police officer injured in the line of duty who subsequently returned to "light duty" with the police department were not excludable from gross income. In that situation, the statute provided that if a "disabled" policeman was unable to perform his regular duties but was able to perform specified types of light police duty, the salary would be discontinued if he refused to perform such light duty. Understandably, that revenue ruling concluded the police officer was being paid for performance of services and thus the payments were not excludable from gross income under IRC §104(a)(1). PLR 199928017 (April 14, 1999).
24. RECENT AMENDMENT TO LAW ENFORCEMENT OFFICERS' BILL OF RIGHTS COULD RESULT IN IDENTIFICATION OF SUBJECT OF INVESTIGATION: Section 112.533, Florida Statutes, part of the Law Enforcement Officers' Bill of Rights, prohibits release of a law enforcement officer's name when he or she is under investigation, and details of the investigation are to be kept confidential. In 1998, the Florida Legislature specifically amended Section 112.533(4), Florida Statutes (1998 Supplement), to provide: "Additionally, a sheriff, police chief, or other head of a law enforcement agency, or his designee, is not precluded by this section from acknowledging the existence of a complaint and the fact that an investigation is underway." Depending on what is already known by the public about a case, the foregoing provision could, for all practical purposes, result in identification of the officer. Moreover, information regarding identity of the officer might be obtained from other records, for example if an officer was involved in an incident for which a report is filed, and a complaint about the officer's action is later filed with the law enforcement agency. The report would not be confidential since it was not the complaint and it was not derived from investigation of the complaint. Informal Legal Opinion Letter issued by the Florida Attorney General's office on May 5, 1999.
25. WEST VIRGINIA TACKLES THORNY PENSION ISSUES: In two recent cases, the Supreme Court of Appeals of West Virginia faced some rather tough pension issues:
In State of West Virginia ex rel. West Virginia Regional Jail and Correctional Facility Authority v. West Virginia Investment Management Board, 508 S.E.2d 130 (W. Va. 1998), the court was called upon to consider the constitutionality of last year's legislation mandating the state pension fund to make a $150 Million loan to the State's Regional Jail and Correctional Facility Authority. (See C&C Newsletter for September, 1998, Item 7.) The high court upheld the law, despite the contention that it impaired the contractual rights of plan participants. However, borrowing liberally from its seminal Dadisman decision rendered ten years earlier, the court did not mince words: "It is undisputed that PERS [Public Employees Retirement System] participants have contractually vested property rights created by the pension statute. In other words, beneficiaries have a vested right in receiving their pension benefits. ... [W]e wish to reiterate specifically the vested property rights in PERS plan participants created by the pension statute, the constitutional obligation of the State to protect these property rights, and the duty of the Investment Management Board to manage the PERS fund according to the highest fiduciary standards. ... If either [sic] of these conditions are threatened, there is nothing to prevent the parties to the statutory contract created in PERS from bringing a cause of action for breach of fiduciary duty."
In State of West Virginia ex rel. West Virginia Deputy Sheriffs' Association, Inc. v. Sims, 513 S.E.2d 669 (W. Va. 1998), the issue involved creation of a new Deputy Sheriffs' Retirement Fund and transfer thereto of employee pension funds from PERS. Participation in the new system is mandatory for deputy sheriffs hired on or after July 1, 1998 and optional for those hired earlier. So why did such a seemingly-simple issue wind up before West Virginia's highest court? Well, a provision of the law creating the new system required both funds to "cause a judicial determination to be made regarding the transfer of assets from the public employees retirement system to the deputy sheriff's retirement system by causing a suit to be filed in the supreme court of this state seeking a writ of mandamus... ." (Interestingly, the law in question in the above case also contained a similar provision, but for some reason the court did not discuss it there. Statutory directives that a "friendly lawsuit" or "test case" be brought are rare because of the almost universal prohibition on courts issuing "advisory opinions.") The court upheld the law, but not before chiding the PERS board for believing that an affirmative order from the legislature is necessary for the board to evaluate the effect of transfer of deputy sheriff retirement funds upon fiscal and actuarial integrity and solvency of the other funds for which the board is responsible: "However, our view is to the contrary. The fiduciary duty of the Board and its members that arises from the trust relationship with the beneficiaries of the assets in the Board's care encompasses the duty to monitor and evaluate the fiscal and actuarial soundness of the trust funds for which the Board is responsible. ... The affirmative duty of the Board to act today and in the future in an informed, pro-active and independent manner to perform its fiduciary duty is no less now than it was when Dadisman was decided. ... [S]uch an equation would unconstitutionally eviscerate the independent duty and responsibility of the trustees of public employee pension funds, downgrading that duty to the mere slavish following of legislative fiat and impairing the primacy of the trustees' duty to the beneficiaries of the pension fund to see that their entitlements are protected." The court ordered the PERS board immediately to conduct a full actuarial and solvency impact review of the effects of implementing the law and to act thereon in compliance with the principles set forth in the opinion. The ruling does not preclude subsequent legal action based on solvency issues arising out of the law. The court simply ruled that the PERS board did not present adequate grounds to permit the board to disobey the requirements of duly enacted legislation.
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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.