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January, 1999

Stephen H. Cypen, Esq., Editor

1. EBJ PUBLISHES SPECIAL SECTION ON INVESTMENT OF PLAN ASSETS: The December 1998 issue of the International Foundation's Employee Benefits Journal contains a special section on investment of plan assets. The articles are entitled "Some Common Sense Tips to the Pension Trustee for Avoiding the 'Bad News;'" "The Fiduciary Responsibilities of Investment Managers;" "Active and Passive Management -- Together at Last;" "The Case for International Diversification;" and "Fourteen Things to Expect From Your Investment Consultant." The last piece debunks the notion that consultants' functions are limited to reporting on performance, reviewing managers and conducting an occasional search. Trustees should expect their investment consultant to do at least the following: (1) accept fiduciary liability; (2) help define/recommend changes in strategy, policy and asset allocation; (3) write account guideline statements; (4) deal with assets; (5) oversee managers; (6) produce information and advice tailored to trustees' particular needs; (7) shield trustees from importunate investment managers; (8) inform trustees about investment opportunities, techniques and risks; (9) help with decisions on a rational basis; (10) provide trustee education; (11) conduct all searches and negotiate contracts and fees; (12) monitor compliance with "best practice" standards and regulatory requirements; (13) work collaboratively with other service providers; and (14) give unbiased advice, even if unpopular.

2. MACKELL AUTHORS PAPER ON NATIONAL RETIREMENT POLICY: Dr. Thomas J. Mackell, Jr., who is a member of the Advisory Council on Employee Welfare and Pension Benefits Plans, has authored a paper entitled "National Retirement Policy: Fact or Fiction?" The introduction and conclusion say it all. Achieving financial security for retirement is a complex process that is not getting easier. The need to educate American workers and employers on the importance of planning and saving for a secure, comfortable and dignified retirement is critical. The private voluntary retirement system came into being in the last century and was enhanced following the adoption of legislation of substantive tax incentives after establishment of the Tax Code in 1913. The growth and development of the organized trade union movement as a powerful advocate of social and economic policy for working Americans in the early 20th Century fostered the need of increasing worker security. Two main tenets and perspectives of pension policy early on were working people's security and preventing tax abuse. In the private sector, ERISA reinforces these principles and in the public sector, it is a patchwork quilt of state, county and municipal systems. ... We all have a role to play in the effort to create a national retirement policy and improve working Americans' retirement goals. Improving the opportunity for a secure retirement for all will do much to impact the economic well being of the United States. Government, labor leaders, trustees, administrators, corporate leaders, investment managers, consultants and other professionals, and employers and employees alike may play different roles in the retirement equation but we should all be bound together for one sole purpose: to enable working women and men to retire with a modicum of financial well-being and dignity. Good job, Tom!

3. MIAMI F & P BOARD WINS ADA CASE: Little served as a City of Miami police officer from 1973 to 1976, when he retired on a disability pension. He had an orthopedic injury and also suffered from schizophrenia with paranoid features. When, in 1993, the Board of Trustees of the City of Miami Fire Fighters' and Police Officers' Retirement Trust and City of Miami refused to "reinstate" him to his former position as a City of Miami police officer, Little charged defendants with violating the Americans With Disabilities Act (ADA). In granting summary judgment for the Board and the City, United States District Judge Joan Lenard determined that Little does not have a "disability" recognized by ADA and is not a "qualified individual." On the first point, the Court found that Little's mental impairment does not substantially limit a major life activity, such as walking, seeing, hearing, speaking, breathing, learning and working; an impairment does not substantially limit the ability to work merely because it prevents a person from performing either a particular specialized job or a narrow range of jobs. On the second point, a qualified individual is one who has a disability and who, with or without reasonable accommodation, can perform the essential functions of the employment position that such individual holds or desires; the Court specifically found that Little is not qualified to carry -- and potentially to fire -- a gun. For both reasons, Little had not established a prima facie case of employment discrimination prohibited by ADA. We are pleased to have played a role in defending the Board in this case. Little v. City of Miami, Case No. 94-1276-CIV-LENARD (S.D. Fla., December 21, 1998).

"Reality is an interesting concept."

4. CITY COMMISSIONER MAY ATTEND MEETING OF BOARD WHICH IS CONSIDERING RECOMMENDATION TO CITY COMMISSION ON PROPOSED ORDINANCE: A City Commissioner may attend a meeting of the Community Development Board (to which the City Commission has referred a proposed ordinance for recommendation to the City Commission) and express his or her views on the proposed ordinance even though other City Commissioners may be in attendance. However, the City Commissioners in attendance may not engage in discussion or debate among themselves, because adoption of the ordinance is a responsibility resting with the City Commission, and the City Commission's discussions and deliberations on the proposed ordinance must occur in a duly noticed City Commission Meeting. AGO 98-79 (December 17, 1998). The Attorney General adds the following sound suggestion: if the Community Development Board has been advised of the City Commissioners' intention to speak on the proposed ordinance, it may be advisable for the Board, in noticing its meeting, to include notice of the possible attendance and participation of City Commissioners.

5. GFOA PUBLISHES ARTICLE ON DROPS: In its November/December 1998 issue of Pension & Benefits Update, Government Finance Officers Association has published a special feature entitled "DROPs: Can They Work for You?" The article sets out the potential benefits to employees, potential disadvantages for employees, potential benefits to employers and potential disadvantages for employers. The conclusion? -- DROP plans can work well for some types of retirement systems; however, they can be complex to administer and difficult to maintain on a cost-neutral basis. Retirement systems considering adopting a DROP should pay close attention to design and cost considerations and should seek the assistance and counsel of a qualified actuary at the outset to help them with those important questions and decisions.

6. EMPLOYER BREACHED DEFERRED COMP AGREEMENT BY OFFSETTING PENSION BENEFITS: In 1981 an employer established a deferred compensation plan for three executives, including the senior vice-president, who entered into a deferred compensation plan agreement with the employer. The agreement provided that "nothing contained herein shall in any way affect or interfere with the right of the employee to share or participate in any retirement plan of the corporation or any profit-sharing, bonus or similar plan in which he may be entitled to participate as an officer or employee of the corporation." In 1989 the employer adopted a pension plan, which was silent as to the interplay between its provisions and the existing deferred compensation agreement. However, the employer's annual proxy statements disclosed that pension benefits paid under the pension plan would be credited toward amounts payable under the deferred compensation agreement. After the employer reduced the employee's deferred compensation payments by the amount of his pension payments, he filed suit for breach of the deferred compensation agreement. In reversing the trial court finding in favor of the employer and directing that judgment be entered in favor of the employee, the Third District Court of Appeal held that the deferred compensation agreement clearly and unambiguously stated that the employee's participation therein would not in any way affect or interfere with his right to share or participate in any retirement plan of the employer. Regardless of whether the employee had either actual or constructive knowledge of the disclaimer contained in the annual proxy statements, the terms of the deferred compensation agreement could not be unilaterally modified by the employer. Levinson v. Carnival Corporation, 23 Fla. L. Weekly D2597 (Fla. 3d DCA November 25, 1998).

7. SPECIFIC PERFORMANCE NOT APPROPRIATE REMEDY FOR BREACH OF EMPLOYMENT CONTRACT: A police officer sued a city for breach of contract, seeking retroactive promotion to the rank of sergeant and compensation for said retroactive promotion. The trial court found for the employee and assessed damages which included retroactive pay as if the employee had been earlier promoted to sergeant. The court also ordered the city retroactively to promote the employee to the rank of Sergeant. On appeal, the District Court of Appeal reversed that portion of the final judgment which directed the city retroactively to promote the employee to the rank of sergeant and remanded to the trial court to recalculate damages without application of retroactive promotion pay: "ordinarily the equitable remedy of specific performance is not available to enforce an employment contract." The rationale for this rule is that such agreements lack the mutuality of remedy and obligation which would make specific performance an appropriate form of relief. The appropriate remedy in such cases is an action for damages for breach of contract. City of Riviera Beach v. Barber, 23 Fla. L. Weekly D2679 (Fla. 4th DCA December 9, 1998).

8. INTERNATIONAL FOUNDATION SURVEYS BENEFIT PRIORITIES: The International Foundation of Employee Benefit Plans, together with Deloitte & Touche, has released a survey entitled "Top Five Benefit Priorities for 1999." The 400-plus survey participants, all of whom were certified employee benefit specialists, were asked to identify their top five benefit priorities for next year. Four of the five primary concerns related to retirement and investing: (1) evaluating current investment options and evaluating adequacy of current levels of retirement savings - 73%; (2) identifying additional ways to save for retirement - 60%; (3) giving consideration to estate planning - 49%; and (4) learning more about health risks and how to control them - 48%. The last concern, cited by 47% of the respondents, was evaluating, implementing or expanding use of Internet/Intranet applications.

9. UNIQUE CHARTER PROVISION PRECLUDES INCLUSION OF OVERTIME IN PENSION CALCULATION: The Oakland City Charter fixes a retiree's pension at a set percentage of "compensation attached to the average rank held" at time of retirement. Compensation is defined as monthly remuneration for members of the police or fire departments, but "excluding remuneration paid for overtime and for special details or assignments." On appeal, the California Court of Appeal affirmed the trial court ruling that under Oakland's "fluctuating" pension system, overtime was so variable it could not be considered compensation "attached to the rank" held by firefighters at time of retirement. (Unlike longevity and merit pay which attach to the rank, overtime pay only attaches to the individual within the rank.) According to BNA, because of the very specific charter provision in question, other contrary California holdings are not in direct conflict. Kreeft v. City of Oakland, Case No. A079920 (Cal. App. 1st, November 30, 1998).

"Common sense is the least common of all senses."

10. HOUSTON POLICE TO GET IMPROVED PENSIONS: A report from BNA advises that Houston's 5,400 police officers will receive improved pension benefits (in addition to an average 18% pay hike). The City must now make a minimum pension contribution equal to 15.5% of payroll, where previously there had been no floor. In addition, prior to the change pensions were based on 50% of total compensation; now compensation will include payments for longevity, hazardous duty and college degrees. Police officers are eligible to receive pensions after 20 years of service. Because Houston firefighters have parity, they will be treated alike, except that their pensions are based on total compensation including overtime.

11. WISCONSIN FUND SETTLES SHAREHOLDER LAWSUIT: Under a 1995 federal law that gives institutional investors the right to take charge of securities-fraud cases, the State of Wisconsin Pension Board was appointed lead plaintiff in a class-action suit against CellStar. When stock in the distributor of wireless phone equipment plunged from $30.00 to $6.00 in a matter of six months, the $55 Billion fund lost over $10 Million. Without admitting or denying liability, CellStar has agreed to pay $14.5 Million in settlement of the suit. The 1995 legislation was an effort to crack down on frivolous securities suits by presuming that institutional investors with large stakes would have an interest in strictly controlling expenses and ensuring maximum relief. And apparently it's working, because the settlement is equal to more than 40% of estimated losses, compared to the average recovery of 14%. The Wall Street Journal reported the settlement.

"Anything is possible, but nothing is easy."

12. "SHADE MEETING" MUST STRICTLY COMPLY WITH STATUTE: In 1993 an exemption from the Florida Sunshine Law was created, enabling a governmental entity to meet privately with its attorney, provided certain conditions are met. Section 286.011(8), Florida Statutes. Such meetings are sometimes referred to as "shade meetings," and may be held in private to discuss pending litigation to which the entity is a party. The statute limits attendance to members of the entity, its chief administrative or executive officer and its attorney (which may include special counsel). Attendance by any others -- including staff members and consultants -- violates the Sunshine Law. Further, the meeting must be confined to settlement negotiations or strategy sessions relating to litigation expenditures; thus a decision or vote is not within the exception and must be he held at a public meeting. (For a trial court ruling to the same effect, (see C&C Newsletter for June, 1997, page 7.) And, significantly, a subsequent public meeting which ratifies the action taken outside of the sunshine does not cure the violation -- only a full, open hearing will cure defects arising from a Sunshine Law violation. Zorc v. City of Riviera Beach, Florida, 23 Fla. L. Weekly D2622 (Fla. 4th DCA, December 2, 1998).

13. VOLUNTEER MAY BE ELIGIBLE FOR WORKERS' COMP BENEFITS: Claimant was injured while acting as a volunteer for Harbour City Volunteer Ambulance Squad, Inc., which had an exclusive franchise to provide ambulance services in part of Brevard County. The Judge of Compensation Claims dismissed the claim for benefits based on a lack of subject matter jurisdiction because Section 440.02(13)(d), Florida Statutes, provides that an "employee" for workers' compensation purposes does not include a volunteer, except a volunteer worker for the state or a county, municipality or other governmental entity. On appeal, the District Court reversed and remanded for a determination of whether HCVAS should be deemed an "other governmental entity." HCVAS is clearly a "quasi-public corporation;" that is, a private corporation that has accepted from the state grant of a franchise or contract involving performance of public duties. The appellate court found that the legislature intended to include within the definition of employee a volunteer worker of a quasi-public corporation which by its purpose, function and control is an "other governmental entity." One caveat: the District Court of Appeal indulged in the common law presumption that where a workers' compensation statute is susceptible of disparate interpretations, courts will adopt a construction most favorable to claimant. Effective January 1, 1994, Chapter 93-415, Laws of Florida, overrules that presumption, specifically providing "the laws pertaining to workers' compensation are to be construed in accordance with the basic principles of statutory construction and not liberally in favor of either employee or employer." McClung-Gagne v. Harbour City Volunteer Ambulance Squad, Inc., 23 Fla. L. Weekly D2735 (Fla. 1st DCA, December 11, 1998).

"The government denies any knowledge of your accomplishments."

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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.

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