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Cypen & Cypen
MAY 12, 2003

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001

The Fort Walton Beach City Clerk asked the Florida Attorney General about validity of a City Charter provision, in light of Section 286.011, Florida Statutes, the Government-in-the-Sunshine Law. Initially, the Attorney General advised that his office cannot interpret or otherwise comment upon charter provisions of a municipality, as he provides legal advice and opinions on questions of state law. (We were wondering ourselves why the clerk did not address her question to the City Attorney, as usual.) In any event, the Attorney General offered the following informal comments. The Charter provision that a special meeting of the city council shall be called by the clerk upon written request of the mayor, city manager or three members of the council -- with notice thereof being given -- appears to satisfy requirements of the Government-in-the-Sunshine Law. That law does not address who may call meetings; rather, this decision is left to the discretion of local governments. The Attorney General cautioned, however, that council members must be mindful not to discuss substantive issues that may come before them, in their consideration of whether a special meeting is necessary. Florida Attorney General Advisory Legal Opinion dated April 23, 2003 (Informal).

The Fair Labor Standards Act requires all employers, including states and their political subdivisions, to provide overtime compensation for employees who work more than 40 hours per week. In the private sector, compensation for excess hours is to be paid at a rate of not less than one-and-a-half times the employee’s hourly wage. To ease the burden on public employers, however, Congress allows such entities to provide overtime compensation in the form of compensatory time at a rate of one-and-a-half hours for every excess hour worked. To utilize this provision, an employer must have a collective bargaining agreement with its employees or agreements with individual employees explicitly permitting such practice. Despite a Department of Labor regulation to the contrary, FLSA does not require a public agency to allow its employees the use of accrued compensatory time on those days specifically requested by the employees, unless to do so would “unduly disrupt” the agency’s function. Rather, the statute requires that compensatory time be permitted within a reasonable period after the employee requests its use. The Department of Labor’s regulation is not entitled to deference because the statutory language is clear. Houston Police Officers’ Union v. City of Houston, Texas, Case No. 01-21117 (U.S. 5th Cir., April 29, 2003).

The Florida Contraband Forfeiture Act covers disposition of property that has been obtained by a seizing agency through forfeiture proceedings. Upon obtaining a final judgment granting forfeiture of real or personal property, the seizing agency has the option of retaining the property for its use. The statute is silent, however, as to whether the restrictions on use of such property continue as long as the property is held by the agency. Relying upon an earlier opinion dealing with a Florida statute similar to the Contraband Forfeiture Act, the Florida Attorney General held that nothing in the Florida Contraband Forfeiture Act restricts subsequent use or disposition of real property that is no longer needed for the purpose for which it was originally obtained. Once the governmental entity has procured property through forfeiture proceedings and title thereto has been vested in the governmental entity, then the requirements of the Florida Contraband Forfeiture Act have been exhausted. AGO 2003-16 (April 30, 2003).

Section 457 provides rules for nonqualified deferred compensation plans established by eligible employers. State and local governments and tax-exempt organizations are eligible employers. They can establish either eligible plans that meet the requirements of §457(b) or plans that do not meet the requirements of §457(b) and that are therefore subject to §457(f). The Economic Growth and Tax Relief Reconciliation Act of 2001 made numerous revisions to §457, most of them effective after December 31, 2001. EGTRRA provides that remuneration paid to an employee or beneficiary from a §457(b) plan maintained by a state or local governmental employer is no longer treated as wages for purposes of income tax withholding under IRC §3402(a), but is now subject to income tax withholding under IRC §3405. In other words, the direct rollover and mandatory 20% withholding rules that have long applied to §401(k) plans apply to governmental §457(b) plan distributions that qualify as eligible rollover distributions. EGTRRA also amended the Internal Revenue Code to make plan administrators of eligible governmental plans, rather than the payor of the designated distribution, generally liable for withholding under §3405. However, the notice says that a plan administrator is not liable for withholding if the administrator directs the payor to withhold income tax under IRC §3405 and provides the payor with necessary information required by the regulations -- in which case, the payor is liable for withholding income tax. Distributions from a governmental §457(b) plan are reported on Form 1099-R, and income tax withheld is reported on Form 945. Although FICA (Social Security and Medicare) taxes are still to be withheld, the Federal Unemployment Tax Act (FUTA) does not apply to governmental plans. Notice 2003-20 is applicable with respect to deferrals on distributions made after December 31, 2001. However, for deferrals or distributions made after December 31, 2001, and before January 1, 2004, IRS will not assert that there has been a failure to comply with applicable reporting and withholding requirements if applicable reporting and withholding requirements set forth in Notice 2000-38 have been satisfied. The current notice will be published in Internal Revenue Bulletin 2003-19, dated May 12, 2003. Meanwhile, it is available at

Internal Revenue Service has published Revenue Ruling 2003-47, approving something we had never heard of: a length of service award plan described in §457(e)(11)(A)(ii) of the Internal Revenue Code. A county established a plan for the benefit of long-term bona fide volunteer firefighters who perform firefighting, prevention and rescue squad services for the department. The plan provides length of service awards to participating volunteers in recognition of their volunteer services to the fire department. Benefits are provided only to volunteers who do not receive compensation. Under the plan, a bookkeeping account is established for each participating volunteer and, when a participating volunteer satisfies the plan’s age and service requirements for distribution of benefits, he automatically receives the balance of his account, payable in 60 monthly installments. All amounts credited to the bookkeeping accounts remain solely the property of the county and its fire department, and, until paid or made available to a participant or beneficiary, are subject to the claims of the county’s and fire department’s general creditors. The plan also provides that a participating volunteer or beneficiary has only an unsecured right to an award and those rights cannot be assigned or transferred. If a participating volunteer ceases to provide services to the department prior to satisfying the plan’s age and service requirements for distribution of benefits, all rights under the plan are forfeited. In the circumstances, IRS concluded that the plan is a length of service award plan as described in the foregoing section and is not subject to §457(a) or §457(f). Further, an award under the plan is includable in a cash basis taxpayer’s gross income only in the taxable year when paid or made available without substantial limitation or restriction. Finally, awards paid under the plan are not wages for purposes of FICA taxes.

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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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