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April, 2001

Stephen H. Cypen, Esq., Editor

1. FLORIDA DIVISION OF RETIREMENT ANSWERS IMPORTANT DROP QUESTIONS: In a letter dated March 29, 2001, Patricia F. Shoemaker, Benefits Administrator, Municipal Police Officers' and Firefighters' Retirement Funds, Division of Retirement, has answered several important questions concerning Deferred Retirement Option Plans. Initially, Trish recognizes that Sections 175.032(5) and 185.02(6), Florida Statutes, contemplate possible adoption by a local plan of a DROP as a retirement option. If a firefighter or police officer elects to participate in the DROP, he may retire for purposes of the plan and defer receipt of retirement benefits into a DROP account while continuing employment. The following is a summary of the Division's answers to the specific questions posed by a Florida municipal police pension plan coordinator:

  1. Are DROP monies considered to be Plan assets? - Yes. The Board has sole and exclusive authority to administer the plan and invest its assets. Participant-directed DROP accounts are plan assets until distributed to the participant, and, as such, are under control and authority of the Board. Participant-directed monies remain subject to the terms of plan documents as long as they are in DROP accounts.
  2. If yes, do we then assume the DROP monies must comply with all Chapter 185 regulations? - Yes. Again, the Board has sole and exclusive responsibility to administer the plan. All assets must be invested pursuant to statutory provisions or as provided in a local ordinance. The 10 percent foreign investment restriction may not be amended by local ordinance. The answer also applies to firefighter plans under Chapter 175, Florida Statutes.
  3. Including restrictions on the investment grade of bonds and limitation on foreign investments? - Yes. Although local ordinance may vary the standard with regard to quality of bonds, the 10 percent foreign restriction cannot be altered.
  4. If yes, will a performance evaluation need to be conducted on all investments in each individual's self-directed account? - Yes. A performance evaluation of all plan assets is required at least once every 3 years.
  5. In securing investments that individual DROP participants can select from for their self-directed investments, do Board members have any fiduciary responsibilities and potential liabilities for the performance of the investments selected by the member and for the variety of the investments offered? - Yes. The Board should use the same procedures for selection and review of investment providers for self-directed DROP accounts as for assets in the regular plan. The Board may, in adoption of its investment policy pursuant to Section 112.661, Florida Statutes, specify selection criteria and monitoring standards for self-directed funds. The Board's advisors may provide guidance as to selection of a sufficient number of providers to allow diversification among asset classes, yet limit the number of providers to enable the Board to perform due diligence in monitoring the funds. In addition, the Board's advisors may review service agreements to ensure the Board's control and to incorporate provisions from plan documents with regard to distributions, forfeitures, etc.
  6. Has any ... city in the state implemented or inquired on self-directed DROP investments for its members? - Yes. A number of plans have made inquiries concerning self-directed DROPs. The Division understands that some plans have adopted these provisions; however, the Division does not capture this information. Of course, the Division has a list of cities that have implemented a DROP provision.

We appreciate Trish's having taken the time necessary to investigate and answer these burning questions. Indeed, many plans have been awaiting the answers before proceeding with plans for self-directed DROPs.

"Today I will gladly share my experience and advice,
for there are no sweeter words than 'I told you so.'"

2. SEC REG FD MAY LEAD TO LESS DISCLOSURE: Securities and Exchange Commission Regulation FD was designed to promote the full and fair disclosure of information by issuers and to clarify and enhance existing prohibitions against insider trading. (See C&C Newsletter for December, 2000, Item 10). However, a survey by the Association for Investment Management and Research, reported on by Pensions & Investments, indicates that the regulation may have led to a decrease in the volume and quality of information released by public companies. Nearly two-thirds of respondents said the quality of oral communications has declined and more than half said clarity has deteriorated. And even though the regulation may have resulted in professionals having to do more analyses, 52% of sell-side analysts and 39% on the buy-side said confidence in their own corporate earnings forecasts has declined. As one respondent put it, "companies can hide behind the rule when their fundamentals are deteriorating."

3. SHOULD PERFORMANCE OF TERMINATED MANAGERS BE TRACKED?: In a recent editorial, Pensions & Investments lauds the California Public Employees' Retirement System for continuing to track performance of three value managers after they were dropped and to compare their returns with those of the four replacements. Although results of the six -month tracking were mixed, P&I suggests that the effort produced valuable lessons other pension funds should emulate and CalPERS should expand: funds should continue to track their former managers, at least for a number of years after termination, and compare them with the current ones. One lesson to be learned is whether a fund moved too quickly (which may have turned out to be the case with at least one dropped CalPERS manager). A second lesson: it's not always easy to find a better manager than the one that has been terminated. In any event, CalPERS gets kudos for not going into denial or avoiding the psychological pain of regret.

"Stop thinking, and end all your problems."

4. U.S. SUPREME COURT LETS ERIE DECISION STAND: Last August, the U.S. Court of Appeals for the Third Circuit ruled that the Age Discrimination in Employment Act, as amended by the Older Workers' Benefit Protection Act, applies to retirees (see C&C Newsletter for September, 2000, Item 14). Because of the strong dissent below, employers and other opponents had hoped the United States Supreme Court would overturn the decision. The high court did grant several opponents leave to file amicus curiae briefs, but was obviously unswayed because it refused to hear the case. Even the American Association for Retired Persons is worried. As an AARP spokesman said, "I like the reasoning of the decision, but I'm worried about the implications for the future of retiree health benefits. The decision has huge and scary implications for retirees. AARP recognizes that, for early retirees, these benefits are crucial and would hate to see employers eliminate these benefits for those retirees because of this decision." Perhaps we should have said an "Eerie" decision. As of now, only Congress can change the result.

5. EX-ARIZONA GOVERNOR MUST REPAY PENSION FUNDS: Even though former Arizona governor J. Fife Symington III had his 1997 fraud conviction overturned on what nonlawyers call a "technicality" (see C&C Newsletter for July, 1999, Item 12), he must pay $18 Million to six union pension funds to compensate them for money he borrowed for a failed development deal. The ruling, by a federal bankruptcy court judge in Phoenix, includes the $10 Million he appropriated and $8 Million in interest.

6. SHERIFF SUES TO DELAY PENSION: The Sheriff is suing Los Angeles County to avoid being paid $142,000 a year in retirement benefits on top of his $207,000 annual salary! Yes, you read that right. The complicated case stems from the Sheriff's resignation as Chief Deputy in 1998 successfully to run for the top job. So what's the problem? The county considers the Sheriff to be a new employee who is now entitled to his retirement benefits. But the Sheriff, who joined the department in 1965, doesn't want them. Another curiosity: if the Sheriff had resigned and was then reinstated as an employee, a "superior" could have requested that his benefits be held until actual retirement. But because a Sheriff has no superior, there is no one to reinstate him. Still, a win for the Sheriff could eventually result in a boost in his pension of more than $50,000 a year, because he would retire as Sheriff rather than as Chief Deputy.

"No way will I accept YES for an answer!"

7. INDIVIDUALS MAY NOT SUE STATES UNDER ADA IN FEDERAL COURT: States may not be sued by individuals in federal court for violation of Title I of the Americans With Disabilities Act, 42 U.S.C. §§ 12111-12117, the United States Supreme Court has ruled. Clearing up confusion on the matter (see C&C Newsletter for November, 1998, Item 26), the Supreme Court held that the Eleventh Amendment to the United States Constitution grants state government employers immunity from suits for money damages in federal court under the ADA. Like its decision last year finding similar immunity from Age Discrimination in Employment Act claims (see C&C Newsletter for January, 2000, Item 1), the Court did not abrogate ADA-like claims in state courts. In fact, in a footnote the Court found that "it is worth noting that by the time that Congress enacted the ADA in 1990, every State in the Union had enacted such measures." Predictably, the four liberal justices -- Breyer, Ginsburg, Souter and Stevens -- dissented. Board of Trustees of the University of Alabama v. Garrett, 14 Fla. L. Weekly Fed. S92 (U.S., February 21, 2001).

8. SUPREME COURT DECLINES TO HEAR CASH BALANCE PLAN CASE: Last summer the United States Court of Appeals for the Eleventh Circuit held that an employer violated the Employee Retirement Income Security Act when it failed to use the Internal Revenue Service method of discounting a cash balance plan participant's lump-sum distribution to present value. Lyons v. Georgia Pacific Corporation Salaried Employees Retirement Plan, Case No. 99-10640 (U.S. 11th Cir., August 11, 2000), a case we apparently missed. The Court found that such failure resulted in employees who left the company before reaching normal retirement age being severely undercompensated. The Court noted that since cash balance plans are actually defined benefit plans, payments should be calculated using the same type of formulas used for such plans. Those formulas involve projecting an employee balance ahead to normal retirement date, using an interest rate specified in the plan, and then discounting the amount back to the termination date, using a Treasury-specified rate of interest. The IRS standard is sometimes referred to as the "whipsaw" calculation, because the two-step calculation requires cash balance plan sponsors to annuitize participants' lump sums and then convert the benefit back to a lump sum again. In any event, the United States Supreme Court has now refused further review, meaning the appellate court decision will stand. Readers will remember that, in an unpublished opinion, a federal trial court held cash balance plans do not violate the Age Discrimination in Employment Act. (See C&C Newsletter for October, 2000, Item 6.)

9. SURVEY SHOWS AMERICAN HOUSEHOLDS' FINANCES: New research from the Consumer Federation of America shows that the typical American household has net assets of $71,700, but only net financial assets of $9,850, including retirement accounts. Still, nearly two-thirds view participating in an employer's retirement plan as a very effective way to save. Forty percent were most likely to consider using free financial advice services from their bank or credit union, compared with 33% who would turn to their employer and 26% to their church. We read about the survey in Plan Sponsor's NewsDash.

"The sooner you fall behind the more time you'll have to catch up."

10. A SUMMARY OF RECENT FLORIDA ATTORNEY GENERAL OPINIONS:

AGO 2001-10 (February 22, 2001):

The clerk of the court is not entitled to attend a meeting of the Board of county commissioners held pursuant to Section 286.011(8), Florida Statutes. (That section authorizes "shade meetings" to discuss pending litigation, and specifies who may attend such meeting; the clerk is not included.)

AGO 2001-17 (March 13, 2001):

A law enforcement officer's chosen representative is not authorized by Section 112.533, Florida Statutes, to review the complaint and statements made against the officer immediately prior to commencement of an investigative interview conducted pursuant to the statute. (That section is part of the Law Enforcement Officers' Bill of Rights.)

AGO 2001-20 (March 20, 2001):

E-mail communication of factual background information from one city council member to other council members that does not result in the exchange of council members' comments or responses on subjects requiring council action does not constitute a meeting subject to the Government in the Sunshine Law. (Be very careful on this one.)

AGO 2001-21 (March 20, 2001):

While the Attorney General would strongly discourage such activity, it is not a direct violation of the Government in the Sunshine Law for city council members to prepare and circulate their own written position statements to other council members so long as the council members avoid any discussion or debate among themselves on these statements. (Believe it or not, this opinion is to the same city as in AGO 2001-20. What's with these guys?)

11. ST. PETE C.B.A.'S VIOLATE FLSA: The City of St. Petersburg and the Police Benevolent Association entered into two Collective Bargaining Agreements governing terms and conditions of employment for police officers and technicians. Neither agreement called for payment of shift differentials to employees for more than forty hours of shift differential during a week, even if those hours were worked during times of the day when employees would otherwise qualify for shift differential. The agreements violate the Fair Labor Standards Act of 1938, which fixes not just minimum wages, but maximum hours, at forty per workweek, unless the employee receives compensation for hours in excess of forty at a rate of not less than one and one-half times the "regular rate at which he is employed." Thus, once an employer agrees to pay a shift differential, the overtime rate includes these shift differentials in calculating overtime. In granting the Secretary of Labor's motion for partial summary judgment, a federal trial court found that the overtime provisions of FLSA serve two purposes: one is to spread employment by placing financial pressure on the employer to hire additional workers rather than continually employ the same number of workers for longer hours and the other is to compensate employees who do work overtime for the burden of having to do so. Herman v. City of St. Petersburg, Florida, Police Department, 14 Fla. L. Weekly, Fed. D232 (M.D. Fla., February 12, 2001).

12. FLORIDA SUPREME COURT LETS DOMESTIC PARTNER ORDINANCE STAND: The Florida Supreme Court has declined to review the Fourth District Court of Appeal decision upholding constitutionality of Broward County's Domestic Partnership Law (see C&C Newsletter for October, 2000, Item 18). Remember that the appellate court had certified to the Supreme Court a question of great public importance. Often, the Florida high court will take jurisdiction in these circumstances, even if it ultimately affirms the lower court's decision. Here, the Supreme Court determined that it should decline to exercise jurisdiction, apparently finding that the issue is not necessarily of great public importance because it does not have a statewide effect. Sounds like a question of great public importance to us.

13. ACCUSED SPY MAY KEEP PENSION: Robert Hanssen, spying suspect and former FBI top counterintelligence specialist, may just luck out by virtue of an obscure law intended to help prosecutors win cooperation from spouses of accused federal agents. For Hanssen's wife and six children, pension benefits could amount to $36,000 a year. Thus, when Hanssen's lawyers meet government lawyers to discuss a plea deal, the pension issue could trump warding off the death penalty. In other words, Hanssen, whose perfidy possibly caused the death of several Russian agents he betrayed, may be executed while U.S. taxpayers fund his pension. Is this a great country or what? (We hasten to add that Bonnie Hanssen had no knowledge of her husband's alleged espionage activities and has been cooperating with the FBI.)

"Conscience is what hurts when everything else feels so good."

14. LAW ENFORCEMENT OFFICER MAY ADMINISTER OATHS: Section 117.10, Florida Statutes, provides that law enforcement officers are authorized to administer oaths when engaged in the performance of official duties. Section 117.107(12), Florida Statutes, prohibits a notary public from notarizing a signature on a document if the notary public has a financial interest in or is a party to the underlying transaction; however, a notary public who is an employee may notarize a signature for his or her employer and such employment does not constitute a financial interest in the transaction or make the notary a party to the transaction. When a law enforcement officer administers an oath while engaged in the performance of official duties, no financial interest exists. Furthermore, the exception in Section 117.107(12), Florida Statutes, illustrates the relationship between a law enforcement officer and the State of Florida. Hildreth v. State of Florida, Department of Highway Safety and Motor Vehicles, 8 Fla. L. Weekly Supp. 292 (Fla. 15th Cir., February 28, 2001).

15. STATUTE PROVIDING THAT DESIGNATION OF SPOUSE AS BENEFICIARY OF EMPLOYEE BENEFIT PLAN IS AUTOMATICALLY REVOKED UPON DIVORCE PREEMPTED BY ERISA: The United States Supreme Court has decided a case of importance to our private-sector colleagues. A Washington statute provided that designation of a spouse as beneficiary of a nonprobate asset is automatically revoked upon divorce. The Washington Supreme Court held that the statute, although applicable to employee benefit plans, does not "refer to" or have a "connection with" an ERISA plan that would compel preemption under that statute. On review, the United States Supreme Court reversed the state supreme court and held that the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§1001 et seq., preempts the statute to the extent it applies to ERISA plans. Egelhoff v. Egelhoff, 14 Fla. L. Weekly Fed. S147 (U.S., March 21, 2001).

16. IN ANTI-DISCRIMINATION ACTION, LOSS OF PRESTIGE OR SELF-ESTEEM NOT SUFFICIENT: In a race discrimination claim, the protections of Title VII simply do not extend to everything that makes an employee unhappy even though an employee who receives criticism may lose self-esteem and conceivably suffer a loss of prestige in the eyes of others who become aware of the situation. Employer criticism, like employer praise, is an ordinary and appropriate feature of the workplace. Expanding the scope of Title VII to permit discrimination lawsuits predicated only on unwelcome day-to-day critiques and assertedly unjustified negative evaluations would threaten the flow of communication between employees and supervisors, and limit an employer's ability to maintain and improve job performance. Federal courts ought not to be put in the position of monitoring and second-guessing the feedback that an employer gives, and should be encouraged to give, an employee. Simply put, the loss of prestige or self-esteem felt by an employee who receives what he believes to be unwarranted job criticism or performance review will rarely -- without more -- establish the adverse action necessary to pursue a claim under Title VII's anti-discrimination clause. Davis v. Town of Lake Park, Florida, 14 Fla. L. Weekly Fed. C543 (U.S. 11th Cir., March 26, 2001).

"Flattery is the sincerest form of lying."

17. IN CLAIM FOR SOCIAL SECURITY DISABILITY, CLAIMANT BEARS BURDEN TO PROVE SUBSTANCE ABUSE IS NOT CONTRIBUTING FACTOR: The Contract with America Advancement Act of 1996 amended the Social Security Act to preclude the award of benefits when alcoholism or drug addiction is determined to be a contributing factor material to the determination that a claimant is disabled. The CAAA did not directly address, however, whether claimant or the Commissioner bears the burden of proving whether claimant would be disabled if he stopped using drugs or alcohol. In a case of first impression in the Circuit, the United States Court of Appeals for the Eleventh Circuit has held claimant bears that burden. Doughty v. Apfel, 14 Fla. L. Weekly Fed. C540 (U.S. 11th Cir., March 28, 2001).

18. BILL WOULD CHANGE FLORIDA "GOING OR COMING" RULE: House Bill 1055, if enacted into law, would change Florida's always-confusing and often-unfair "going or coming" rule (see C&C Newsletter for September, 2000, Item 2). Section 440.092(2), Florida Statutes, would be amended to deem a law enforcement officer going to or coming from work, during an assigned work schedule, in an official law enforcement vehicle (marked or unmarked) to be engaged in a "special errand or mission" for the employer. Thus injuries suffered would be covered by workers' compensation. The amendment applies to law enforcement officers and not correctional officers or correctional probation officers. The House Committee on Insurance analysis found that current state policy is to cover state employees for injuries suffered while driving a state car to or from work, so that the bill would not change current practice for state law enforcement officers. In addition, to the extent local enforcement agencies have a similar policy, the bill would not change current practice for such local law enforcement officers. The main exception to the "going or coming" rule is contained in Section 440.091, Florida Statutes, which deems a law enforcement officer to have been acting within the course of his employment if he was discharging his primary responsibility and was not engaged in services for which he was paid by a private employer (see C&C Newsletter for September, 2000, Item 2).

"I don't mind going nowhere as long as it's an interesting path."

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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