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August, 2000

Stephen H. Cypen, Esq., Editor

1. UNDERSTANDING THE FED'S PORTFOLIO: Most people know something about the Federal Reserve's raising and lowering of interest rates. But few understand the finer activities that the Fed undertakes in executing monetary policy. And that's where the Fed's mammoth government portfolio -- about One Half Trillion Dollars out of a total of $3.1 Trillion outstanding -- comes in. When the Fed wants to add reserves to the banking system it buys Treasury securities from a primary government bond dealer. The Fed pays through a clearing bank that in turn credits the dealer's account at its bank. As the dealer spends those funds, reserves are released into the banking system, affording banks excess reserves to be lent out on an expansionary basis. Conversely, when the Fed wants to reduce banking system reserves, it sells Treasuries, which the dealer has to pay for. The payment draws down the dealer's deposits at banks, reducing reserves in the system. Sometimes the Fed lends money to a dealer via a repurchase agreement: The Fed gives money to the dealer and the dealer gives Treasuries to the Fed as collateral for the loan. A "repo" has the same economic effect as buying securities from a dealer. The opposite of such transaction, a collateralized loan from the dealer to the Fed, is called a reverse repurchase agreement. In this era of the Treasury's paydown/retirement of securities, the Fed's portfolio plays an important role in carrying out monetary policy. If all goes according to plan, the huge surpluses will allow the Treasury to pay down the debt held by the Fed. The real goal is to see how the Fed can assist the Treasury. This item summarizes an article by James Lebherz that appeared in the Miami Daily Business Review.

"I'd explain it to you, but your brain would explode."

2. MORE GREENSPEAK: We add the following quotes and interpretations from Federal Reserve Board Chairman Alan Greenspan (see C&C Newsletter for May, 2000, Item 5 and C&C Newsletter for July, 2000, Item 7). "Aggregate demand may be moving closer into line with the rate of advance in the economy's potential. Should this favorable outcome prevail, the immediate threat to our prosperity from growing imbalances in our economy would abate." Interpretation: If things stay on track, we won't need another rate hike. "There is little evidence to undermine the notion that most of the productivity increase of recent years has been structural and that structural projectivity may still be accelerating." Interpretation: We still don't quite believe what we're seeing. "We cannot yet be sure that the slower expansion of domestic final demand, at a pace more in line with potential supply, will persist." Interpretation: We're not ready to quit worrying just yet.

3. HOW MUCH IS YOUR RETIREMENT WORTH?: Fifty-five per cent of respondents to an Aon Consulting Survey said they would like an extra $10,000.00 a year in salary if their boss offered no retirement plan. Almost twenty-five per cent said they would prefer an extra $20,000.00. Given a choice, however, between a pay increase and more benefits, fifty-six per cent opted for benefits. Aon's pension data base indicates employers contribute between 6% and 8% of payroll to retirement programs, excluding Social Security. Other findings of the survey: (1) Only one-third of workers have a good idea of the amount of income their employer's plan will provide at retirement, (2) less than half don't know when they will retire, (3) nearly one-third do not think their employer's plan will provide enough income and (4) one-fourth say that their employer has not done a good job of helping them plan for retirement. Results of the Aon survey were reported by in its "Connect Newsletter."

4. MIAMI-FT.L. CPI RISES FASTER THAN REGION'S: According to a survey by the Department of Labor's Bureau of Labor Statistics, the Consumer Price Index for the Miami-Fort Lauderdale area rose .7% (to 168) during the two month period ending June 30, 2000. Since June of last year, the index has risen 4.2%, which is more than the 3.5% rise for the Southern United States.

5. HYBRID PLANS INCREASE: According to a survey by Watson Wyatt, nearly one-third of the Fortune 100 now offer hybrid pension plans (such as cash balance or pension equity), up from just 1% in 1985. The survey also indicates that the number of companies offering a traditional pension plan has declined to 52% (from 89%) fifteen years ago. And the number offering only a defined contribution plan has risen to 16%.

6. NYSE BEGINS DECIMAL PRICING: The New York Stock Exchange began its decimal pricing pilot program on August 28, 2000. At first, the program will involve only six stocks, including FedEx and Gateway. Eventually the program will expand to include fifty NYSE-listed stocks plus some from other markets.

"There are three kinds of people: those who can count and those who can't."

7. DO MONEY MANAGERS HIDE ILLEGALITIES FROM INVESTORS?: Ted Siedle, dubbed by Pensions & Investments as the "Sam Spade of Money Management," heads Florida-based Benchmark Financial Services, Inc. BFS says it serves institutional investors exclusively, providing investment banking securities brokerage and specialized consulting. BFS's "Current Alert" for August, 2000 is entitled "Too Many Secrets: How Money Managers Hide Illegalities From Investors." The following are but a few of the provocative (to say the least) statements made: Securities regulators, law enforcement agencies, pension fund executives and the money management industry itself, together, are responsible for the lack of public awareness of the dangers related to the management of the nation's retirement savings. There has been a concerted effort to conceal the wrongdoing from investors by everyone who might be held accountable, including pension trustees, plan administrators, pension staffs and money managers. And the regulators have let it happen. As the practices of regulatory agencies have become lax and predictable, the ability of money managers, including mutual fund managers, to manipulate information regarding their operations and performance has grown. Today the largest money managers, except in the most blatantly mismanaged cases, can conceal any unethical or illegal practices in which they engage. If only a fraction of the five-page piece is true, all of us better get more informed in order to fight back.

8. VOTE REQUIRING "A MAJORITY OF MEMBERS" MEANS OF ALL MEMBERS: The enabling legislation that created the Sebring Airport Authority provides that any action taken by the Authority shall be by a "majority of members." It is a rule of statutory construction that when language of a statute is clear and unequivocal, legislative intent may be gleaned from the words used without applying incidental rules of construction. Where the language of a statute is plain and definite in meaning without ambiguity, it fixes the legislative intention such that interpretation and construction are not needed. With regard to parliamentary law, where a legal quorum is present the general rule in the absence of any provision to the contrary is that a proposition is carried by a majority of the legal votes cast. Thus, if the legislature had intended a majority of the quorum present at an Authority board meeting to effect valid official action, no provision other than "quorum language" would be necessary. Here, the legislature specified that approval of a "majority of members" is necessary to take official action, and the legislature is presumed not to enact purposeless or useless legislation. AGO 2000-46 (August 1, 2000). Why, you ask perceptively, should our readers care about the Sebring Airport Authority? Well, we wrote this piece simply to dispel the notion that Sections 175.071(2) and 185.06(2), Florida Statutes (1999) -- "any and all acts and decisions shall be effectuated by vote of a majority of the members of the board" -- authorize action by a vote of a majority of a quorum.

9. FRS IN-LINE-OF-DUTY DISABILITY BENEFIT BOOSTED: In our "excitement" to report on the Florida Retirement System's public employee optional retirement program (see C&C Newsletter for July, 2000, Item 5), we overlooked the fact that on the same day (June 1, 2000) Governor Bush signed into law C.S.S.B. 94, creating Chapter 00-167, effective July 1, 2000. For special risk class members (generally law enforcement officers and firefighters) who retire on or after July 1, 2000, the minimum benefit for in-line-of-duty disability is increased from 42% of average monthly compensation to 65% of average monthly compensation. The minimum benefit for other than in-line-of-duty remains at 25% of average monthly compensation. Hopefully, the existing 42% minimum in Sections 175.191 and 185.18, Florida Statutes, will be looked at in the next legislative session.

"I've used up all my sick days, so I'm calling in dead."

10. FLORIDA SUPREME COURT MAY DECIDE DEPUTY SHERIFF/EMPLOYEE ISSUE: The Fifth District Court of Appeal has certified the following question to the Supreme Court of Florida as one of great public importance: "Are deputy sheriffs categorically excluded from having collective bargaining rights under Chapter 447?" Brevard County Sheriff Williams sought to bar proceedings before the Public Employees Relations Commission regarding union certification as collective bargaining agent for his deputy sheriffs. The Sheriff relied upon a 1978 Florida Supreme Court decision holding that a deputy sheriff is not a public employee for purposes of Chapter 447, Florida Statutes, and as a group, deputy sheriffs are not entitled to collective bargaining rights. That decision turned on historical views of the role of deputy sheriff, and emphasized that a deputy sheriff is appointed not employed and in such process shares the sovereign powers of the Sheriff. However, as we reported here, in deciding a similar question concerning deputy court clerks, the Florida Supreme Court criticized its own earlier decision and found that the test is the simple public employee/managerial employee dichotomy set forth in Section 447.203, Florida Statutes. (See C&C Newsletter for February, 2000, Item 2). Once again, we predict that the Florida Supreme Court will follow its recent deputy court clerk's case rather than its earlier deputy sheriff's case. Williams v. Coastal Florida Police Benevolent Association, 25 Fla. L. Weekly D1567 (Fla. 5th DCA, June 30, 2000).

11. POLICE OFFICER GETS FEES FROM RIVIERA BEACH: In a prior appeal from a trial court order retroactively to promote a police officer to the rank of sergeant, the City of Riviera Beach successfully argued that such grant of specific performance was not an appropriate remedy. (See C&C Newsletter for January, 1999, Item 7.) On remand, the trial court recalculated damages and entered final judgment in favor of the police officer. However, the trial court did not reserve jurisdiction to award attorneys' fees on remand but did not expressly deny such claim. Neither party appealed. Subsequently, the police officer sought prevailing party attorneys' fees under Section 448.08, Florida Statutes: "The Court may award to the prevailing party in an action for unpaid wages costs of the action and a reasonable attorney's fee." On appeal from denial of attorneys' fees, the appellate court reversed and found that the trial court had jurisdiction because courts may entertain and grant such motions after the time for appealing the final judgment has expired and even absent an express reservation of jurisdiction for award of fees in the final judgment. Barber v. City of Riviera Beach, 25 Fla. L. Weekly D1538 (Fla.4th DCA, June 28, 2000).

12. PENSION OFFSET REPEAL UNLIKELY THIS YEAR: According to the Coalition to Preserve Retirement Security, although a House Subcommittee took testimony on the plight of victims of a law that cuts back Social Security benefits for widowed public sector retirees, it decided nothing could be done this year. Sympathetic lawmakers from both parties heard from advocates of a bill that would restore some of the Social Security benefits lost as a result of the Government Pension Offset (see C&C Newsletter for October, 1997, Page 6 and May, 1999, Item 13). Under the GPO, Social Security spousal benefits of a public sector retiree are reduced by two-thirds of the amount of a retiree's government pension. The GPO law was passed about twenty years ago to address inequities between treatment of government workers and those covered by Social Security. Previously, federal and state government workers, who paid little or nothing into the Social Security system, were entitled to receive full spousal benefits from Social Security in addition to their government pension. As an unintended consequence, however, many widows are forced to continue working because of the reduction in their otherwise-expected Social Security benefits. The weird thing about this inaction is that the bill has 246 co-sponsors -- more than a majority of the entire 435-member House of Representatives.

"Talk is cheap because supply exceeds demand."

13. FLORIDA SUPREME COURT ANSWERS WORKERS' COMP OFFSET QUESTION: The Supreme Court of Florida has answered the following certified question in the negative: " Whether the holding in Escambia County Sheriff's Department v. Grice, 692 So.2d 896 (Fla. 1997), capping total benefits received by a worker at 100 percent of his or her average weekly wage, applies when Social Security disability is one of the benefits received by the worker, and 80 percent of his or her average current earnings, as computed by the Social Security Administration, are greater than his or her average weekly wage?" (See C&C Newsletter for June, 1997, Page 2 and December, 1999, Item 1.) While Section 440.15(10), Florida Statutes, permits an employer/carrier to offset workers' compensation payments to claimants by the amount of any Social Security disability benefits that claimant is receiving, the offset cannot be taken such that it decreases a claimant's total benefits below 80 percent of the claimant's average weekly wage (as determined by workers' compensation) or 80 percent of the claimant's average current earnings (as determined by Social Security), whichever amount is greater. The benefits may not be reduced below such amount, even though the claimant may be receiving in excess of 100 percent of average weekly wage at time of the accident. The court distinguished its Grice decision: Because Grice's average current earnings did not exceed his average weekly wage, the limits of Section 440.15(10), Florida Statutes, were not an issue; there, the court interpreted Section 440.20(15), Florida Statutes, to mean that "an injured worker, except where expressly given such a right by contract, may not receive benefits from his employer and other collateral sources which, when totaled exceed 100% of [a claimant's] average weekly wage." Dixon v. GAB Business Services, Inc., 25 Fla. L. Weekly S629 (Fla. August 24, 2000).

14. BE A MILLIONAIRE: Bottom Line Personal interviewed 170 investors, each of whom has a portfolio value in excess of $1 Million and 85% of whom had no investment experience when they started. Yet, the average portfolio value for these investors is $2.2 Million. Here are the lessons from these everyday people: (1) Set a goal -- any goal; for example, to have enough money to retire in style and leave a big estate to heirs. (2) Buy only stocks and stock mutual funds; since 1926, there has been only one 20-year period in which large-company stocks did not outperform long-term government bonds. (3) Invest every month; spending is negative compounding because it begets more spending and money spent cannot be invested. (4) Buy and hold ... and hold ... and hold; of those interviewed, 75% held stocks an average of five years and 40%, an average of ten years. (5) Swing for singles; you don't need to earn 30% to get rich but only to grow your money at 11% a year -- the average S&P annual return since 1926. (6) Limit shocks to your finances; the more costs you incur, the less you have to invest and the more you are distracted from making wise investment decisions.

"How did a fool and his money get together in the first place?"

15. EVALUATING THE INVESTMENT CONSULTANT: For investment managers and professional staff, trustees have generally constructed performance evaluation processes. However, very few pension funds have considered adopting a formal evaluation process for their investment consultants. In lieu of a formal performance evaluation process, public pension funds often place the investment consultant contract out for competitive bidding in order to understand the overall marketplace for investment consulting services. Although clearly not an evaluation process, this method can meet some evaluation needs of the pension fund: A "market value" for investment consulting fees can be assessed; the pension fund can learn the range of investment consulting services offered; the incumbent investment consultant is subjected to competitive pressure that may cause the firm, if rehired, to be more responsive to its client; and a competitive process can be documented as a due diligence effort. Nevertheless, this type of evaluation is lacking in several ways: Fees bid tend to be distorted from their true market value, as many firms seek to acquire new business through a "low bid;" competitive bidding tends to select only those firms that at the particular time have made a key business decision to allocate significant resources toward the expensive bidding process; resources of pension funds and investment consultants are spent on conducting a bidding process rather than a performance evaluation process; superior consulting relationships could be terminated for inopportune reasons; and the process that is documented does not necessarily reflect a true performance evaluation process. A quality performance evaluation of any investment advisory firm should take into consideration the following factors: (1) assessment of key objectives of the professional engagement; (2) review of the short- and long-term goals and objectives of the engagement; (3) evaluation of performance based upon the agreed quantitative and qualitative measures; (4) identification of any significant changes in the firm's structure or the individual assigned to the account; (5) identification of significant changes in the firm's fundamental characteristics and (6) determination of appropriate (market) compensation. Thus, at a minimum, the following key assessments must be made: (1) determine whether the business structure of the firm aligns its interests with the pension fund's interests and determine whether the business structure has changed since hire; (2) determine what resources the firm commits to the investment consulting process and determine whether any significant changes in these areas have occurred since hire; (3) learn what the recent and past experiences of the firm's current and former clients have been; (4) understand key trends in the overall investment consulting industry and how they may affect the current relationship and (5) learn whether the fees paid to the firm are commensurate with services that are provided by the firm. With reference to the last point, most trustees know that many firms now derive a significant portion of their revenues from clients' portfolio transactions. Those revenues may come in the form of clients' security transactions (brokerage), clients' manager transactions (searches), clients' asset management or through a firm's own direct advisory transactions with the asset managers its clients employ. All of these business relationships -- see Newsletter Item 7 above -- have the potential to create significant conflicts of interest for the firms. This item was adapted from an article in the August 2000 NAPPA Report.

16. CANDIDATES FOR PUBLIC OFFICE NO LONGER REQUIRED TO TAKE LEAVE OF ABSENCE: Section 99.012(5)(a), Florida Statutes, requires that a person who is a subordinate officer, deputy sheriff or police officer must resign effective upon qualifying if the person is seeking to qualify for a public office that is currently held by an officer who has authority to appoint, employ, promote or otherwise supervise that person and who has qualified as a candidate for reelection to that office. Until now, paragraph (b) of the same subsection provided that upon qualifying, a subordinate officer, deputy sheriff or police officer who is seeking public office and who is not required to resign under paragraph (a), must take a leave of absence without pay during the period in which he or she is a candidate for office. By virtue of Chapter 00-274, paragraph (b) has been repealed, eliminating the requirement for a leave of absence in the circumstances.

"Keep your boss's boss off your boss's back."

17. DISCRIMINATION SUIT TIMELY WHERE FILED WITHIN ONE YEAR OF FCHR DETERMINATION: Distinguishing one of its own cases and one from the Fourth District Court of Appeal, the First District Court of Appeal held that where the Florida Commission on Human Relations issued untimely notice of determination of reasonable cause more than a year after plaintiff had filed complaint of discrimination, plaintiff's suit in circuit court, filed within one year of Commission's determination but more than two years after filing of complaint with Commission, was timely. The court also certified the following question to the Supreme Court of Florida as one of great public importance: "Does the bar of the 180-day, plus one year limitations period, proved in Milano v. Moldmaster, 703 So.2d 1093 (Fla. 4th DCA 1997), and Joshua v. City of Gainesville, 734 So.2d 1068 (Fla. 1st DCA 1999), apply when the Commission issues a determination of reasonable cause after the expiration of the 180-day period permitted in Section 760.11(3), Florida Statutes (1993), and the plaintiff thereafter files suit within one year therefrom, but outside the one and one-half year limitations?" McDowell v. The School Board of Leon County, 25 Fla. L. Weekly D1899 (Fla. 1st DCA, August 7, 2000).

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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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