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January, 2002

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001

1. RECENT FLORIDA ATTORNEY GENERAL OPINIONS:

AGO-2001-67 (September 21, 2001) - In a very important ruling, the Attorney General found that the Legislature has mandated [in Chapters 175 and 185, Florida Statutes] that premium tax income must be used for "extra benefits" for firefighters and police officers and has defined that term "extra benefits" as "benefits in addition to or greater than those provided to general employees of the municipality." Accordingly, an increase in benefits to the general city employees will impact the use of the premium tax income since such income may only be used to fund "extra benefits," that is, benefits over and above provided to general city employees. Thus, if a city increases benefits for its general employees the benefits formerly provided to its firefighters and police officers by the premium tax income may no longer qualify as "extra benefits."

AGO-2001-76 (October 29, 2001) - A leave of absence granted to a board member of a soil and water conservation district due to active military duty does not create a vacancy in that office. Section 115.09, Florida Statutes, dealing with leaves of absence, applies to "all officials of the state, the several counties of the state and the municipalities or political subdivisions of the state, including district school and community college officers." It is unclear as to whether or not a municipal pension board trustee would be granted a leave of absence pursuant to said statute, which does not specifically mention same.

AGO-2001-61 (August 21, 2001) - In conducting an investigation under Section 112.532, Florida Statutes, part of the Law Enforcement Officers' Bill of Rights, a law enforcement agency is not authorized to substitute written interrogatories for a personal interrogation of the officer under investigation pursuant to that section.

AGO-2001-68 (September 25, 2001) - A city may contribute to a special law enforcement trust fund established pursuant to the Florida Contraband Forfeiture Act, so long as such expenditure serves a municipal purpose, is included in the budget and is made pursuant to an appropriation. However, funds from special law enforcement trusts cannot be used to repay money advanced by the city.

2. UPDATE ON MANDATORY SOCIAL SECURITY COVERAGE: The Coalition to Preserve Retirement Security was created by public pension plans to fight legislative proposals that would require newly-hired state and local government employees to join the Social Security System (see C&C Newsletter for September, 1998, Item 20). CPRS reports that Economist Alicia Munnell recently told members of the President's Commission to Strengthen Social Security that implementing mandatory coverage would be an "inherently fair" way to improve Social Security's finances. (Readers will remember that Munnell did a study for The Segal Company on the issue of mandatory coverage, see C&C Newsletter for November, 2000, Item 11, and was soundly criticized therefor by CPRS, see C&C Newsletter for January, 2001, Item 9.) Munnell urged the Commission to reject proposals to carve out Social Security taxes to fund private accounts and instead focus on reforming the system in ways that would not change its defined benefit nature. "I do not think that bringing in state and local workers would upset me," said Munnell, who also endorsed measures such as changing the taxation of Social Security benefits and altering the program's cost-of-living adjustments. Flash: On December 11, 2001 the Commission unanimously adopted a report recommending changes in Social Security and the establishment of voluntary retirement accounts. However, the Commission did not consider or recommend mandatory Social Security coverage as part of any plans to finance future Social Security benefits. (In light of the Enron debacle, the Commission should seriously reconsider the notion of permitting employees to invest their Social Security monies in a defined contribution plan.) The complete 141 page report dated December 21, 2001, entitled "Strengthening Social Security and Creating Personal Wealth for All Americans," can be accessed at http://www.csss.gov/reports/Final_report.pdf.

3. SHOULD CHICAGO FUND HAVE CALLED UPON "SAM SPADE?": An article in PlanSponsor indicates that a trustee of the $10.6 Billion Public School Teachers' Pension and Retirement Fund of Chicago (CTPF) recently requested a complete accounting from its consultant regarding the income received from the consultant's relationships with fund asset managers. He also wanted to know which of the fund's managers were using the consultant's broker/dealer to execute trades. The result: the trustee was dissed -- "as a matter of confidentiality, [the consultant] does not disclose revenue received from any individual client, plan sponsor or manager." The consultant recommended that the board question individual investment management firms regarding their brokerage activities. What's worse, the other trustees unanimously voted to retain the consultant's services for another two years! Now fast forward to Benchmark Companies' December 2001 Current Alert, authored by Ted Siedle, the Sam Spade of money management: "we successfully completed, on behalf of a pension client, what we believe to be the largest investigation of pension consultant abuse ever conducted. This investigation, involving dozens of money managers, confirmed our worst suspicions. Pension consultants are surreptitiously earning ten or even as much as thirty times their stated compensation without disclosure to their clients. ... Unfortunately, another pension trustee we advised was unsuccessful in persuading his fund's board to insist upon consultant compensation disclosure. In what surely represents one of the most blatant examples of trustee breach of fiduciary duty that we have witnessed, the board accepted the consultant's position that it had a duty to keep confidential which of the fund's managers were paying it commission and conference fee 'kick-backs.' Furthermore, the board renewed the consultant's contract in the face of this refusal to disclose." Hello, CTPF.

4. IRS ANNOUNCES PENSION LIMITS FOR 2002: Effective January 1, 2002, the Economic Growth and Tax Relief Reconciliation Act of 2001 changes many pension plan limitations. In IRS News Release IR-2001-115, IRS announces the new limits. The Section 415 defined benefit plan dollar limitation will increase from $140,000 to $160,000. The Section 415 defined contribution limit will increase from $35,000 to $40,000. The Section 401(a)(17) annual compensation limit will increase from $170,000 to $200,000. (At the risk of getting too esoteric, the annual compensation limit for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost-of-living adjustments to the compensation limit under Section 401(a)(17) to be taken into account, is increased from $285,000 to $295,000.) And the Section 457 deferred compensation limit will increase from $8,500 to $11,500. Incidentally, many people have been concerned about the "sunset" provision of EGTRRA that calls for a return to earlier laws as of 2011. Well, in Revenue Ruling 2001-51, IRS says to assume that the liberalized dollar limit remains in effect after December 31, 2010 and to ignore the sunset provision in that regard.

5. RAILROAD PENSION FUNDS MAY INVEST IN PRIVATE SECURITIES: On December 21, 2001 President Bush signed a bill that allows $15.3 Billion in railroad retirement assets to be transferred to a new National Railroad Retirement Investment Trust. The trust will be able to invest assets in a diversified portfolio, similar to private sector retirement plans, rather than only in U.S. Treasury securities. The bill also cuts railroad payroll taxes from 16.1% to 15.6%, with a further reduction to 14.2% in 2003. In addition, the measure permits employees to retire at age 60 with thirty years service rather than the current retirement age of 62. Opponents of the bill argue that taxpayers will have to pick up the tab for the program if stock market investments fare poorly. Does the name Enron ring a bell?

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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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