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Cypen & Cypen
NEWSLETTER
for
MARCH 5, 2003

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001

1. DETROIT TRUSTEES TAKE TRAVEL TO A NEW HIGH -- OR LOW:

Since 1999, the ten Trustees of the $2.2 Billion Detroit General Retirement System have racked up a travel bill of almost $600,000.00. (More than half was expended by just three Trustees.) Now, according to a temporary restraining order issued by a state judge, the Trustees’ travels are limited to in-state. And here is the irony of ironies: the restraining order was issued in a case brought by the Trustees against the City and its Chief Financial Officer, who questioned why a Trustee who worked in the Finance Department was spending so much time away from his job. In their suit, the Trustees sought a declaration that the Trustee’s board membership took precedence over his job for the City. The dispute then sparked a review by the CFO, who discovered the apparent travel abuses! Any editorial comment would be unduly cruel. http://www.detnews.com.2993/politics/0302/28/a01-96447.htm

2. MILWAUKEE STUDY RECOMMENDS REMOVAL OF ELECTED OFFICIALS FROM PENSION PLAN

After almost one year of study, the Select Committee on Milwaukee County Government has made several key recommendations to improve county practices. Although the blue-ribbon panel came to no clear conclusions on board size and pay for elected supervisors, it does call for removing county elected officials from the county’s pension plan. In light of last year’s pension scandal that shook public confidence, the committee reasoned that the change would avoid conflicts in voting on pension changes. If a pension is to continue for the benefit of elected officials, it could be a free-standing defined contribution plan or the State of Wisconsin Pension Plan. Reacting to this particular recommendation, one supervisor said it did not make sense: “it was the executive branch that misled supervisors on the pension deal.” http://www.jsonline.com/news/metro/feb03/121510.asp

3. SIX-WEEK STINT IN OFFICE NETS $1 MILLION PENSION GAIN:

A former Republican Illinois state lawmaker worked only six weeks at the Secretary of State’s Office. However, according to testimony in a political corruption trial of a former friend, that stint could net him $1 Million more in his state pension. Based upon state pension rules, the ex-legislator would receive $1.6 Million from his state pension if he lives till his 78th birthday. Without the short tenure at State, the pension would be less than $700,000. The explanation is quite elementary: the pension is based on last state salary. During the period of his job with the Secretary of State, the annual salary was about $65,000. Otherwise, the pension would have been based on the salary of a state lawmaker, about $28,000. The subject criminal trial involves a former top aide to the Governor, who helped the ex-representative obtain the temporary state job for the purpose of boosting his pension. Ya gotta have friends..... http://www.suntimes.com/cgi-bin/print.cgi

4. SAN DIEGO FUND FACES NEAR-$60 MILLION SHORTFALL:

In an annual report issued in January of this year, the San Diego City Employees’ Retirement System actuary estimates that the City’s $54 Million payment in 2003 will cover less than half of the $113 Million he recommends be injected into the system for this year. This nearly-$60 Million estimate dwarfs the previous high in 1998, when the City’s payment was short $8.7 Million of the recommended amount. And the deficit does not include last year’s increase in benefits (a $5.6 Million cost) and unrealized losses ($55.5 Million) in the first five months of fiscal 2003. The $2.5 Billion fund has an unfunded liability of $720 Million that accrues interest at 8% annually, adding $57 Million a year in costs. Now, do your problems seem that bad? http://story.news.yahoo.com/news?tmpl+story&u=/030227/31/3dct0.html

5. UNION MEMBERSHIP AT SEVEN-YEAR LOW:

A report from PlanSponsor.com indicates that the number of union members fell 1.7% in 2002, to about 16.1 million, or 13.2% of the workforce. The decrease, brought about as companies in union-heavy sectors struggled to cut costs and boost productivity by operating with fewer workers, represents a decrease from 16.4 million American workers (or 13.4% of the total workforce being represented by unions in 2001). In addition to changes in work rules, unionized workers also faced sharp wage and benefit concessions -- more of which may be ahead. One bright spot: union membership in the public sector rose 2.3%, to about 7.4 million workers. That increase, however, paled in comparison to the 4.8% drop in the number of private sector union workers. http://www.plansponsor.com./pi_type10/?RECORD_ID=19687

6. TALLAHASSEE, FLORIDA MAY NOT FORCE RETIREMENT FUND TRANSFERS AFTER ALL:

On February 12, 2003 Tallahassee City Commissioners voted to make certain investment fund changes. In an effort to avoid an apparent conflict of interest in keeping Prudential as both recordkeeper and investment manager, employees would be forced to move their retirement plan balances from Prudential Mutual Funds to ones offered by Fidelity Investments and ING. Prudential currently provides half the ten mutual funds available to city employees. Despite pledges that the new funds would be comparable to those existing, workers are up in arms. And now that the Florida Police Benevolent Association has weighed in heavily against the change, the City Commission will rethink the brainstorm. This story was also reported by PlanSponsor.com. http://www.plansponsor.com./pi_type10/?RECORD_ID=19685

7. POLICE OFFICER'S HYPERTENSION NOT REGARDED AS DISABILITY UNDER ADA:

Sheehan was a member of the Gloucester, Massachusetts, Police Department, who at age 53 was involuntarily retired on a disability for hypertension. He had been found physically incapacitated and substantially incapable of performing his particular job, and his incapacity was likely to be permanent. However, he brought suit, claiming that denial of his request for a reasonable accommodation violated his rights under the Americans with Disabilities Act. The trial court granted summary judgment in favor of the City, and the United States Court of Appeals for the First Circuit affirmed. Sheehan failed to demonstrate that his physical impairment rendered him incapable of performing a broad class of jobs. The United States Supreme Court has repeatedly noted that even assuming working is a major life activity, a claimant must show an inability to work in a “broad range of jobs,” rather than one specific job. Inasmuch as Sheehan continued to work full time as a security guard, his physical impairment simply did not preclude him from a substantial class of jobs. Moreover, the City’s belief that Sheehan was incapable of working as a Gloucester police officer is not sufficient for Sheehan to be considered disabled for purposes of the ADA. Sheehan did not demonstrate that the City “regarded” his hypertension as rendering him unable to perform a broad range of jobs. Sheehan v. City of Gloucester, Case No. 02-1357 (U.S. 1st Cir., February 25, 2003). http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=1st&navby=case&no=021357

8. MEMBERS AND RETIREES HAVE NO STANDING TO CHALLENGE CITY=S FAILURE TO LEVY TAXES FOR PENSION CONTRIBUTIONS:

The City of Clayton, Missouri, enacted an ordinance providing for the annual levy of taxes to fund the fire fighters pension plan at the rate of 2.5 mills of assessed value of all taxable property in the City. The ordinance was approved by a referendum. However, future ordinances levied property taxes at a rate lower than originally established, resulting in less contributions to the pension plan. The International Association of Fire Fighters, together with current and retired fire fighters, brought suit challenging the City’s failure and requesting an accounting to determine amounts the City should have levied for the pension plan. The United States Court of Appeals for the Eighth Circuit affirmed dismissal of the action. As a general rule, a beneficiary may not bring an action on behalf of a trust against a third party. The right to bring such action belongs to the trustee. Thus, although the trustees of the pension plan could possibly bring an action against the City for failing to levy taxes for contribution to the plan, the fire fighters, as beneficiaries, cannot bring suit. Significantly, the plaintiffs did not bring suit as a derivative action on behalf of the plan. Had they done so, they might have had standing if they complied with Federal Rule of Civil Procedure 23.1. The rule requires a derivative complaint to allege that plaintiff has sought to obtain the desired action (here, that the trustees of the pension plan sue the city) and been unsuccessful. International Association of Fire Fighters v. City of Clayton, Case No. 02-2387 (U.S. 8th Cir., February 28, 2003).

9. U.S. PENSION FUNDS LOSE OVER $1 TRILLION IN 2000-2002:

According to a Greenwich Associates Report, summarized in PlanSponsor.com, the average corporate pension fund declined 14.6% in 2002. This decline follows the 10%+ loss sustained in 2001. Among public funds, the loss last year was only 9.3%, slightly worse than the 8.9% reduction in 2000. In the total asset mix from two years ago, domestic equity dropped from 49.4% to 46.8%. For public funds, the average earnings assumption fell from 8.3% to 8%. Yet, corporate funds stayed at 8.9%. Again, public plans are ahead of the curve.

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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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