May, 1999Stephen H. Cypen, Esq., Editor
1. WARNING -- AGE AND EXPERIENCE MAY BE HAZARDOUS TO YOUR WEALTH:
"Those who cannot remember the past are condemned to repeat it." Philosopher George Santayana (1906)
"Never trust anyone over thirty." Yippie Leader Jerry Rubin (1968)
The point, made by an analyst from Atlanta Capital Management Company, is that historic valuation norms have been a poor guide to potential stock market returns during the 1990's. Those investors who remembered the past too clearly were condemned, not to repeat it, but to miss out on much of the bull market. Exiting the stock market because of historic "excessive valuations" has not proved to be a winning strategy so far. (Remember Fed Chairman Alan Greenspan's famous "irrational exuberance" warning in December, 1996, with the Dow at 6600?)
2. AND AS IF TO PROVE THE POINT, DOW CRACKS 11,000: Last time we reported on the Dow, it had just reached 8,000 (see C&C Newsletter for August, 1997, Page 5). Now, less than two years later, the Dow closed at 11,014.69 on May 3, 1999. (Footnote: The 225.65 point gain that day was the ninth-largest ever.) The 1,000-point move -- from March 29th's 10,000+ finish -- was the fastest in history. The previous fastest 1,000-point gain was 89 trading days, when the Dow moved from 6,000 in October, 1996 to 7,000 on February 13, 1997. Most analysts do not focus on the fact that an ever-changing mathematical formula is used to compute the Dow (see C&C Newsletter for April, 1997, Page 1).
3. DROP PLANS LIKELY TO GROW IN PUBLIC SECTOR: Currently, lump-sum distributions at retirement are available to only about 10% of employees in state and local governments, compared to more than 50% of employees in private sector plans who already have access to lump-sums. Thus, according to an article in the April 1999 Plan Sponsor, growth of Deferred Retirement Option Plans is most likely to take place in the public sector. A well-designed DROP can help employers smooth the transition of experienced employees from full time employment to retirement, while offering plan participants the opportunity to receive distributions in partial lump sums. The complexity of administering DROP plans, however, is one reason that they are being only gradually accepted. The piece lists the following usual distribution alternatives from a DROP account balance: taxable lump-sum distribution; tax favored rollover into an eligible plan, such as an IRA; conversion to a monthly benefit to enhance regular pension payments; or periodic distribution of a portion of the balance.
4. QDRO UNAVAILABLE FOR MUNICIPAL PENSION: In connection with a marital settlement agreement, husband agreed that wife would receive a portion of his municipal pension and "if a QDRO [Qualified Domestic Relations Order] can be entered upon the pension, it shall be done." However, the parties made no alternative provision if a QDRO was unavailable (which both parties ultimately agreed it was). Inasmuch as the pension board indicated it would honor the "functional equivalent" of a QDRO, the appellate court affirmed the trial court's order granting an alternative order securing payment of wife's portion of the pension. McDonald v. McDonald, 24 Fla. L. Weekly D1002 (Fla. 4th DCA, April 21, 1999). Before a pension board agrees to carry out the "functional equivalent" of a QDRO, counsel should be consulted to make sure that its interests are properly represented.
5. WORKERS' COMP FORFEITURE AMENDMENT NOT RETROACTIVE: Claimant was injured in an industrial accident in 1990. He subsequently pled nolo contendere to Workers' Compensation fraud. When he sought medical benefits in 1996 the employer/carrier denied them on the basis of Section 440.09(4), Florida Statutes, which took effect January 1, 1994: "An employee shall not be entitled to compensation or benefits under this chapter if any administrative hearing officer, court or jury convened in this state determines that the employee has knowingly or intentionally engaged in any of the acts described in s. 440.105 for the purpose of securing workers' compensation benefits." (A prior version required the employer/carrier to file a civil action to recover benefits paid pursuant to a claimant's misrepresentations or fraud.) Because the change is substantive and not remedial, the amendment cannot be retroactively applied. Rustic Lodge v. Escobar, 24 Fla. L. Weekly D1009 (Fla. 1st DCA, April 16, 1999).
6. FIREFIGHTER AND POLICE OFFICER PENSION APPLICATIONS SHOULD BE AMENDED: As the preceding item indicates, one should not be able to benefit from one's own fraudulent acts. By creation of Section 175.195 and Section 185.185, Florida Statutes, House Bill 261 has gone one step further (see Special Supplement to C&C Newsletter dated March 15, 1999, Page 3). Now it is a crime for a person willfully and knowingly to make, or cause to be made, or to assist, conspire with, or urge another to make, or cause to be made, any false, fraudulent, or misleading oral or written statement or withhold or conceal material information to obtain any benefit available under a retirement plan receiving funding under Chapter 175 or Chapter 185. We strongly recommend that all applications for benefits be amended to contain the foregoing language as well as the following caveat: "In addition to any applicable criminal penalty upon conviction for a violation described above, a participant or beneficiary of this plan may, in the discretion of the board of trustees, be required to forfeit the right to receive any or all benefits to which the person would otherwise be entitled. For purposes hereof, 'conviction' means a determination of guilt that is the result of a plea or trial, regardless of whether adjudication is withheld."
7. TAXPAYER HAS STANDING TO CHALLENGE BROWARD DOMESTIC PARTNERSHIP LAW, BUT ENFORCEMENT WILL NOT BE TEMPORARILY ENJOINED: In two separate rulings on the same day, a Broward County Circuit Judge has ruled that (1) a county taxpayer has standing to challenge Broward County's Domestic Partnership Law and (2) pending such challenge, enforcement of the law would not be temporarily enjoined. Lowe v. Broward County, 6 Fla. L. Weekly Supp. 345 (Fla. 17th Cir., March 22, 1999).
8. PUBLIC PENSION FUNDS HOLD THEIR OWN AGAINST CORPORATE FUNDS: Part of the national debate over investing Social Security funds in the stock market travels on the assumption that public pension funds underperform their corporate counterparts. Two studies commissioned by California Public Employees Retirement System and reported in BNA debunk that assumption. Over the past ten years, large public pension funds' returns have matched or exceeded those of private pension funds -- and at notably less risk. (An examination of median equity returns over that period reveals 15.6% for public versus 15.4% for private.) And although total returns for private funds were marginally better, the average corporate fund held 63% stocks compared to 52% for public funds. Because the President's proposal to invest part of the Social Security surplus in stocks is bottomed on the premise that public pension funds perform poorly relative to corporate funds, CalPERS' Chief Executive Officer concluded that "the tremendous success of public pension funds is being ignored and misrepresented in the debate over the merits of investing Social Security funds in the U.S. stock market.".
9. NON-SOCIAL SECURITY SURPLUS COULD FUND MASSIVE TAX CUTS: BNA has a report on a study released by the Congressional Research Service indicating that the projected non-Social Security surplus would be large enough to fund tax cuts totalling $5,307.00 per household over the next ten years. Predictably, spokesmen for Republicans and Democrats reacted differently: the former said the study bolstered GOP arguments that the surplus should be used for tax cuts, while the latter said the figures failed to account for funds that would be needed to ensure the long-term solvency of Social Security and Medicare.
10. NEW HAMPSHIRE EMPLOYEES TO GET INCREASED BENEFITS: Effective July 1, 1999 New Hampshire public employees will receive new benefits pursuant to a two-year contract. In addition to annual 3% pay hikes, employees' health plan has been preserved and the state will pay 100% of the premium. Also, pension benefits are improved by allowing employees credit for forty unused sick days (from thirty) toward final earnings. BNA reports that the contract will cost the state about $15 Million.
11. PUBLIC OFFICIAL SUED IN INDIVIDUAL CAPACITY NOT "EMPLOYER" UNDER FMLA: A former City Clerk, fired after seeking leave to care for her dying adult son, sued the City of South Miami and various public officials under the Family and Medical Leave Act. After a United States District Judge denied the officials' motion to dismiss them in their individual capacities, they took an interlocutory appeal (rarely permitted, but authorized in cases involving denial of qualified immunity). Because the Eleventh U.S. Circuit had previously interpreted the materially-identical definition under the Fair Labor Standards Act as excluding a public official in his or her individual capacity, the Court reversed the lower court's denial of the motion to dismiss. (The fact that the FLSA's definition encompasses corporate officers is not inconsistent with the current holding.) Wascura v. Carver, 12 Fla. L. Weekly Fed. C578 (11th Cir., March 9, 1999). Note that this appellate proceeding did not involve the City, against which claims were still pending in the district court. Our readers may remember that another federal trial court found that the Eleventh Amendment to the United States Constitution immunizes states from FMLA claims (see C&C Newsletter for October, 1998, Item 19).
12. ADA DOES NOT REQUIRE EQUAL MENTAL/PHYSICAL DISABILITY BENEFITS: A state disability plan that provides less benefits for mental disabilities (one year) than for physical disabilities (until age 65) does not violate the Americans With Disabilities Act. In a case reported by BNA, the U.S. Court of Appeals for the Fourth Circuit upheld dismissal of a complaint filed by a state employee who, after being diagnosed with panic-anxiety disorder, received only one year of benefits. The appellate court looked to a U.S. Supreme Court interpretation of the Rehabilitation Act, which uses language similar to ADA, and does not require equal benefits for different classes of handicapped persons. Rogers v. Department of Health and Environmental Control, Case No. 97-2780 (4th Cir., April 8, 1999).
13. SOCIAL SECURITY OFFSET AGAIN UNDER ATTACK: As we have previously reported, government retirees suffer a Social Security offset not applicable to private sector retirees (see C&C Newsletter for October, 1997, Page 6). Like prior unsuccessful proposed legislation, HR1217 would allow an offset only when the combined pension benefits and Social Security exceed $1,200.00 per month. The new House Bill has over 100 co-sponsors, so passage seems probable.
14. CEO COMPENSATION MIRRORS COMPANY PERFORMANCE: William M. Mercer Inc. has issued its annual Chief Executive Officers Compensation Report, a survey of 350 large U.S. companies. Reported by BNA, the survey found that CEOs last year saw a median increase in annual compensation of 5.2% (to $1,570,000.00), closely tracking a 5% increase in company profits. The finding appears to be significant, as in past years CEO compensation has not followed corporate profits -- meaning that companies may now be paying for performance more than ever before. In 1998 the median CEO total compensation package (salary, bonus, stock option gains and value of restricted stock) amounted to more than $2,600,000.00.
15. DOL SETTLES WITH CHICAGO PENSION FUND: An investigation by the Department of Labor of a Chicago electrical workers pension plan revealed that almost 200 plan participants had not received credit for military service due them under the Uniformed Services Employment and Reemployment Rights Act. The settlement requires the trustees to pay those participants almost $900,000.00 and to recalculate subsequent monthly benefits. Future increased liabilities are expected to exceed $1,000,000.00, reports BNA.
16. CALSTRS ATTAINS FULL FUNDING: Because of higher-than-anticipated returns, California State Teachers' Retirement System has over 100% of the funds it needs to pay benefits to its retirees. BNA says that CalSTRS will save the state over $700 Million in contributions next year. As of June 30, 1998, CalSTRS boasted assets in excess of $88 Billion.
17. IN WORKERS' COMP, PI AND PTD ARE ALTERNATIVE REMEDIES: In Workers' Compensation, permanent impairment (PI) benefits and permanent total disability (PTD) benefits are alternative -- not cumulative -- remedies. This decision should dispel any contention that PI benefits are not subject to a pension offset where otherwise appropriate. Claims Management, Inc. v. Drewno, 24 Fla. L. Weekly D682 (1st DCA, March 10, 1999).
18. "FIFTH MEMBER" OF POLICE PENSION BOARD WHOSE TERM HAS EXPIRED MAY REMAIN IN OFFICE: The City of Coral Springs Police Pension Fund is administered by a board of trustees selected in accordance with Section 185.05, Florida Statutes. The current "fifth member" was appointed for a two-year term ending January 27, 1999. Upon expiration of this member's term, a majority of the other four members could not agree upon a successor; two members favored the current office holder succeeding himself and two members favored seeking a replacement. Upon our advice as board counsel, the "fifth member" remained in office, but some question arose as to whether he could do so. The Attorney General concluded that the "fifth member" is authorized, but not required, to hold over as a de facto officer exercising the functions of the office until a successor has been selected and qualified. AGO 99-25 (May 5, 1999). Of course, counterpart Section 175.061, Florida Statutes, should be similarly interpreted as to a firefighters' pension fund.
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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.