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Cypen & Cypen
JULY 30, 2003

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001

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).

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).

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.

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 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).

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.

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).

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.

According to, 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, hiking, kayaking and rafting. Crime rate low, cost-of-living affordable and good hospitals.
  • Bend, Oregon -- in Pacific Northwest, offers high-desert climate and outdoor activities like skiing, golf, fly-fishing and hiking. 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.
  • Brunswick, 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.

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).

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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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