1.
PLANSPONSOR -- “THERE ARE SOME 7,000 HEDGE FUNDS. ONLY A HANDFUL
SHOULD EVER MANAGE PENSION ASSETS. HERE’S WHY.”:
That provocative statement is the cover story in PlanSponsor’s March 2004 issue. And boy does the piece deliver! Very few hedge funds
are equipped to take on pension assets, a function of both style and
substance. Hedge fund managers often have little patience for the process
that accompanies an institutional relationship: long and rarely transferable
track records, endless presentations, client servicing, inquisitive
demanding consultants, interference from trustees and a novel level
of reporting transparency. As far as substance is concerned, only a
small number of hedge funds has investment, compliance and operational
processes that pension funds now demand in their asset managers. The
compromise: plan sponsors need to accept higher, performance-related
fees, suboptimal investment vehicles and somewhat less transparency.
On the other hand, a new breed of hedge fund needs to evolve, where
it is understood that pension funds have specific needs with respect
to process; that compliance, risk control and operational competence
matters as much as performance; and that some level of transparency
is a must. In a sidebar, PlanSponsor lists a top ten institutional
selection of hedge funds that are capable of handling institutional
money. Selected in large part for their investment expertise, these
funds also have demonstrated their ability to live up to the standards
that institutional fiduciaries demand. The panel accented quality of
people; integrity of the investment process; their understanding or
risks, operational and compliant aspect of their business; and, most
important of all, their ability to deliver profits to their investors
consistently. Kudos to PlanSponsor.
2. CITY
COMMISSIONER NOT AUTHORIZED TO REVIEW RECORDS OF EMERGENCY CALLS:
The Florida Attorney General was recently asked whether a City Commissioner
is authorized by Section 401.30(4), Florida Statutes, to review records
of emergency calls by the city’s fire-rescue department when
those records contain patient examination and treatment information.
In short, Section 401.30(4), Florida Statutes, provides that records
of emergency calls that contain patient examination or treatment information
may be released only on certain circumstances and to persons specified.
For example, the statute authorizes disclosure to the emergency medical
service’s supervising medical director, who may not be an employee,
and to hospital personnel providing treatment to the patient. The Attorney
General had previously concluded that records of emergency calls containing
patient examination or treatment information maintained by the county
may not be disclosed to local law enforcement officers except as provided
in the statute. The statute also recognizes that regulatory agencies,
such as the Department of Health, may be granted access to such records
in their regulatory and supervisory capacity. No exceptions to the
statutory scheme may be implied. Therefore, the Attorney General has
now concluded that a City Commissioner is not authorized by Section
401.30(4), Florida Statutes, to review the records of an emergency
call by the city’s fire-rescue department when those records
contain patient examination and treatment information, except with
consent of the patient. AGO 2004-09 (March 24, 2004).
3.
SCHOOL DISTRICT MAY NOT AGGREGATE YEARS OF SERVICE OF RETIRED TEACHER
FROM PRIOR EMPLOYMENT WITH SUBSEQUENT EMPLOYMENT TO INCREASE UNUSED
SICK LEAVE PAY UPON ULTIMATE TERMINATION:
A school teacher retired after 30 years of service. Upon retirement, the teacher
was paid for accumulated sick leave as part of terminal pay provided for in Section
1012.61(2)(a)4., Florida Statutes. The teacher was subsequently reemployed in
a teaching position and voluntarily terminated again after teaching for several
years. The teacher asserted that the number of years of service during the first
term of employment should be added to the years of service during the second
term in order to entitle the teacher to a higher repayment amount rather than
to the lesser amount that would result from a calculation based solely upon the
length of service during the second term of employment. The Florida Attorney
General, however, concluded that Section 1012.61(2)(a)4., Florida Statutes, does
not require or authorize a school district to aggregate the years of service
of a retired instructional employee from a prior term of employment for which
terminal pay for unused sick leave was received with the years of service from
a second term of employment in order to increase the percentage factor used to
calculate unused sick leave pay upon termination of the second period of employment.
AGO 2004-10 (March 24, 2004).
4.
BUFFETT’S 2004 LETTER TO SHAREHOLDERS WORTH READING:
Considering Warren Buffett’s track record at Berkshire Hathaway,
his annual letter to shareholders has a certain credibility. Buffett’s
company has shown an average annual increase in book value of 22.2% from 1965
to 2003 versus the 10.4% gain for the Standard & Poor’s 500 with dividends
included. The gain in net worth during 2003 was $13.6 Billion, increasing the
per-share book value of the stock by 21%. Under Buffett’s stewardship over
the last 39 years, per-share book value has grown from $19 to $50,498. Ever the
storyteller, Buffett relates, among others, the following tale:
On May 20, 2003, The Washington Post ran an op-ed piece by me that
was critical of the Bush tax proposals. Thirteen days later, Pamela
Olson, Assistant Secretary for Tax Policy at the U.S. Treasury,
delivered a speech about the new tax legislation saying, “That means a
certain midwestern oracle, who, it must be noted, has played the tax
code like a fiddle, is still safe retaining all his earnings.” I
think she was talking about me.
Alas, my “fiddle playing” will not get me to Carnegie
Hall - or even to a high school recital. Berkshire, on your behalf
and mine, will send the Treasury $3.3 billion for tax on its 2003 income,
a sum equaling 2 1/2% of the total income tax paid by all U.S. corporations
in fiscal 2003. (In contrast, Berkshire's market valuation is about
1% of the value of all American corporations.) Our payment will almost
certainly place us among our country's top ten taxpayers. Indeed, if
only 540 taxpayers paid the amount Berkshire will pay, no other individual
or corporation would have to pay anything to Uncle Sam. That's right:
290 million Americans and all other businesses would not have to pay
a dime in income, social security, excise or estate taxes to the federal
government. (Here's the math: Federal tax receipts, including social
security receipts, in fiscal 2003 totaled $1.782 trillion and 540 “Berkshires,” each
paying $3.3 billion, would deliver the same $1.782 trillion.)
Our federal tax return for 2002 (2003 is not finalized), when we
paid $1.75 billion, covered a mere 8,905 pages. As is required, we
dutifully filed two copies of this return, creating a pile of paper
seven feet tall. At World Headquarters, our small band of 15.8, though
exhausted, momentarily flushed with pride: Berkshire, we felt, was
surely pulling its share of our country's fiscal load.
But Ms. Olson sees things otherwise. And if that means Charlie and
I need to try harder, we are ready to do so.
I do wish, however, that Ms. Olson would give me some credit for
the progress I've already made. In 1944, I filed my first 1040, reporting
my income as a thirteen-year-old newspaper carrier. The return covered
three pages. After I claimed the appropriate business deductions, such
as $35 for a bicycle, my tax bill was $7. I sent my check to the Treasury
and it - without comment - promptly cashed it. We lived in peace.
One thing of passing interest: in telling that story, Buffett did
not mention that Berkshire Hathaway actually owns over 18% of The Washington
Post company, an investment worth almost $1.4 Billion, which he picked
up for a mere $11 Million. Read the whole letter at http://www.berkshirehathaway.com/letters/2003ltr.pdf.
5.
PARTICIPANTS IN A 401(a) PLAN WHO PURCHASED PAST SERVICE CREDITS
WITH AFTER-TAX CONTRIBUTIONS MAY THEN PURCHASE SAME CREDITS WITH
PRE-TAX AMOUNTS USING A PLAN-TO-PLAN TRANSFER BETWEEN 401(a) PLANS
OR A SECTION 402(c) ROLLOVER:
In a private letter ruling, issued in mid- March, 2004 but with no number
yet assigned, Internal Revenue Service ruled that participants in a 401(a) plan
who purchased past service credits with after-tax contributions may then purchase
the same credits with pre-tax amounts using a plan-to-plan transfer between 401(a)
plans or a Section 402(c) rollover. IRS assumed that the amount of service credit
purchased is the actuarial equivalent of the amount of transfer or rollover.
As always, a private letter ruling is directed solely to the taxpayer requesting
it. The Internal Revenue Code provides that a private letter ruling may not be
used or cited by others as precedent.
6.
SAN DIEGO CITY MANAGER RESIGNS IN WAKE OF PENSION SCANDAL:
Per a story in the San Diego Union-Tribune, the City Manager of
San Diego has resigned amid a federal investigation into the City’s
financial practices. San Diego is California’s second-largest city
(a surprise to us), with 10,000 workers and a $2.3 Billion annual budget.
The Securities and Exchange Commission and the U.S. Attorney’s
Office have opened preliminary investigations into whether city officials
provided fraudulent information to investors to sell more than $2 Billion
in bonds. Investigators are also looking into the City’s $1.1 Billion
pension fund deficit. City officials have disclosed that the City intentionally
underfunded its pension system for the last 7 years in order to bridge
budget shortfalls. Because San Diego’s charter provides for a strong
City Manager government, the City Manager is basically the Chief Executive
Officer, responsible for most City operations. |
