DEFERRED COMPENSATION PARTICIPANTS HAVE NO STANDING TO RECOVER ADMINISTRATIVE
FEES ACCESSED IN CONTRACTS BETWEEN STATE AND PROVIDERS:
Appellants participated in the Florida Government Employees’ Deferred
Compensation Plan under §112.215, Florida Statutes. The Statue charges
the state treasurer with various duties, including establishment and approval
of such plans for deferred compensation with investment vehicles and providers.
In accordance with this procedure, the state entered into contracts with
qualifying investment providers, which then entered into separate contracts
with employees who chose a particular investment program. The state’s
contracts specified the amounts of monthly charges that the providers were
obligated to pay for administrative functions and recordkeeping services.
Apparently such amounts were then imposed upon the participating employees
under their individual contracts. To be sure, the enrollment forms clearly
advised employees of the charges that the providers were imposing for participation
in the selected investment program. After voluntarily participating and
enrolling in individual programs through their chosen providers, appellants
filed an action against the state and the treasurer, seeking to compel
remission of the disputed assessments directly to them, rather than to
the investment providers ( which were not parties). The Circuit Court granted
summary judgment against appellants on several grounds. On appeal, however,
the District Court of Appeal found it unnecessary to review the rulings
on the merits. Instead, denial of appellants’ claim was upheld because
they did not have standing to pursue the claim. Even if appellants were
able to prevail, the providers’ separate contracts with the state
would not be invalidated. Thus, a successful challenge to the contested
amounts would not necessarily benefit appellants, who would presumably
still be obligated for the fees in their contracts with the providers.
Nedeau v. Gallagher, 28 Fla. L. Weekly D1537 (Fla. 1st DCA, June 30, 2003).
STATE RETIREMENT COMMISSION STILL CONFUSES “IMPAIRMENT” WITH “DISABILITY”:
Adhering to prior authority, a Florida District Court of Appeal has
reversed the State Retirement Commission’s denial of disability
retirement benefits, based upon application of an incorrect legal standard.
The applicable statute does not require an applicant to present a physician’s
certificate or opinion that he or she is totally and permanently disabled
to prevail before the State Retirement Commission. While the statute
does require medical evidence of the impairment, the commission has
broader discretion than the State Retirement Director, and may determine
whether an applicant is permanently totally disabled based upon medical
testimony, vocational testimony or any other pertinent evidence before
it. In addition, the Court recognized that the commission still misunderstands
the difference between an impairment rating and a disability. As the
same Court told the commission and the rest of the world ten years
ago, “the accurate and proper use of medical information to assess
impairment depends on the recognition that, whereas impairment is a
medical matter, disability arises out of the interaction between impairment
and external demands, especially those of an individual’s occupation.
As used in the Guides to the Evaluation of Permanent Impairment, ‘impairment’ means
an alteration of an individual’s health status that is assessed
by medical means; ‘disability,’ which is assessed by non-medical
means, is an alteration of an individual’s capacity to meet personal,
social, or occupational demands or statutory or regulatory requirements.
Stated another way, ‘impairment’ is what is wrong with
a body part or organ system and its functioning; ‘disability’ is
the gap between what an individual can do and what the individual needs
or wants to do.” So, while determination of impairment is a medical
matter, determination of disability is not solely a medical issue,
but involves using non-medical evidence as well. The Court also certified
to the Supreme Court of Florida the question of what medical evidence
is required to be presented before the State Retirement Commission.
Carver v. State of Florida, Division of Retirement, 28 Fla. L. Weekly
D1540 (Fla. 1st DCA, July 3, 2003).
MISCREANTS COME FORWARD:
As reported in our last newsletter (See C&C Newsletter for July
10, 2003, item 8), Atlanta pension officials are looking into the legality
of a substantial number of pension payments. Apparently this news has
prompted at least four people to contact the city and promise to make
restitution. In addition, many others have called to ask that payments
stop, although they have not offered to return money already received.
One woman, who had received pension checks totaling more than $40,000.00
after her husband’s death, has returned some of the money in
uncashed checks. Ultimately, results of the investigation could effect
families of hundreds of Atlanta pensioners, since pension officials
say they will seek repayment even if overpayments were made just in
error. The Atlanta Journal-Constitution reported this story.
MA, FUND SUES CUSTODIAN:
The $500 Million Middlesex, Massachusetts, Pension Fund, third largest
in the state, has sued its prior custodian, Mellon Financial, for $40
Million, according to a Plansponsor.com report. The fund contends that
Mellon did not accurately verify pricing data from a firm investing
pension money in foreign currency options. Mellon has denied the allegations,
contending that its role was to take the values reported by the money
manager and transmit them to the fund. Mellon also noted that the fund
did not sue the manager, who Mellon contends had full responsibility
for the foreign currency options contracts and who reported false pricing
information to Mellon (and, ultimately, to the fund).
FAVORED NATION’S” CLAUSES MAY NOT BE EFFICACIOUS:
The July 2003 “Current Alert” from Benchmark Companies
deals with “most favored nation’s” clauses, concluding
that their protection may be illusory. Briefly, an MFN clause provides
that the money manager represents the fee the client is paying is the
lowest fee the manager charges similarly situated clients. Unfortunately,
the language in most MFN clauses is open to interpretation. For example,
a manager may believe “similar accounts” include only other
public pension funds and not corporate plans. (As the rule, “performance
fees” and “wrap fees” are not considered similar
for MFN compliance purposes.) In short, managers are very skilled at
distinguishing between clients and accounts to justify different fees
for similar accounts, yet claiming compliance with MFN clauses. Because
few plans even attempt to monitor compliance with MFN clauses, managers
believe they have little to fear. Besides, MFN clauses are dependent
upon managers coming forth in good faith to notify the client that
it is entitled to a fee reduction--perhaps years after initial fee
negotiation. If an agreement contains an MFN clause, it should also
require periodic certification, under oath, that the manager is in
compliance with such clause. Pension boards should also check managers’ Forms
ADV, but they generally show the maximum fees chargeable, which are
always subject to negotiation.
COURT DECIDES ITEMS NOT INCLUDED IN “FINAL COMPENSATION”:
The California Court of Appeal, in eight coordinated cases, has decided
the issue of whether certain items of remuneration paid to employees
qualify as “compensation” under the County Employees Retirement
Law. The higher court ruled that the trial court correctly decided
that CERL did not mandate that various items of remuneration involving
noncash payments to employees had to be included in calculations of “final
compensation” for retirement benefits. These items include cash-outs
of unused leave upon separation, employer’s payments of insurance
premiums and employer’s payments to the retirement fund. In Re:
RETIREMENT CASES, Case No’s. A097568, A097692, A097701, A097705,
A097744, A097924 and A098686 (Cal. App. 1st Dist., July 11, 2003).
BUT CALIFORNIA RULING WILL COST LOS ANGELES COUNTY ALMOST TWO HUNDRED
The ruling in In Re: RETIREMENT CASES, Item 6 above, dealt with another very
important issue: whether or not a 1997 Supreme Court of California ruling is
to be applied retroactively. Prior to 1997, retirement boards operating under
the county employees retirement law included an item of “compensation” only
if the item was received by all employees in the applicable grade or class of
position. The Supreme Court of California in 1997 overruled its earlier decision,
holding that items of compensation paid in cash, even if not earned by all employees
in the same grade or class, must be included in the final compensation on which
an employee’s pension is based. The appellate court in In Re: RETIREMENT
CASES, held that the 1997 decision is retroactive. According to the Los Angeles
Daily News, the decision will cost Los Angeles County $190 Million. Statewide,
the cost to California counties could exceed $500 Million, adding to the drain
of tax dollars being paid into public employee pension funds. Just the news Governor
Gray Davis needs at this time.
BEST PLACES TO RETIRE:
According to msn.com, when thinking about where to live, retirees often look
for cities that boast interesting cultural amenities, excellent medical care,
easy access to outdoor recreation and opportunities to keep learning. The following
five cities offer the best in affordable taxes, homes and cost-of-living:
- Bradenton, Florida -- oasis on the Gulf Coast, offers sea and sunshine.
Activities include fishing, sailing and golf. Excellent health care
facilities, plus theaters, art galleries and museums.
- Fort Collins, Colorado -- Rocky Mountain city, where activities
center around culture and the outdoors. Lots of skiing, golf,
and rafting. Crime rate low, cost-of-living affordable and good
- Bend, Oregon -- in Pacific Northwest, offers high-desert
climate and outdoor activities like skiing, golf, fly-fishing and
Good medical center and very low crime rate.
- Asheville, North Carolina -- in Blue Ridge Mountains, offering beautiful scenery, low cost-of-living
and cultural amenities. Features restaurants,
art galleries and a symphony, as well as outdoor activities like
golf, skiing and hiking. Known for its Center for Creative Retirement.
Maine -- small-college atmosphere, offering opportunity to take
classes and attend lectures at Bowdoin College. Great fishing
and sailing, low crime rate. Proximity to Boston offers retirees
small-and large-city cultural attractions.
The five runners-up are Santa Fee, New Mexico; Hot Springs, Arkansas;
San Luis Obispo, California; Madison, Wisconsin and Amherst, Massachusetts.
9. AND HE WASN’T
EVEN CHARGED WITH MOONSHINING:
From the Associated Press, we have this story of some rather cheeky behavior.
During his trial on armed burglary and aggravated battery charges, Cornell Jackson
punctuated his insanity defense by loudly hooting “cuckoo-cuckoo” and
then dropping his pants to moon the jury. Thereafter, it took jurors only thirty
minutes to convict Jackson for a box-cutter attack on his then-girlfriend. Defense
counsel had argued that a personality disorder caused Jackson to commit the attack
(and, presumably, also to drop trou).