1.
FLORIDA ATTORNEY GENERAL REAFFIRMS POSITION ON PENSION TRUSTEE DUAL
OFFICEHOLDING:
An appointed trustee serving
on the Board of Trustees of the City of Miami Beach Pension Fund
for Firefighters and Police
Officers was appointed Director of Human Resources for the City
of Miami Beach. In that capacity, she automatically serves as an
ex
officio member of the Firefighters Relief and Pension Fund Board,
a Chapter 175 board. In light of Article II, Section 5(a), Florida
Constitution, she asked whether she may simultaneously serve on
the City’s Fire and Police Pension Board and on the Chapter 175
pension board. As our readers know, the foregoing constitutional
provision prohibits a person from simultaneously serving in more
than one state, county or municipal office. While the constitution
does not expressly provide for an exception for ex officio service,
it is well settled that the legislative designation of an officer
to perform ex officio the functions of another or additional office
does not violate the dual office holding provision, if the duties
imposed are consistent with those already being exercised. The Fire
and Police pension board is composed of nine members, three of whom
must be members of the “City Administration.” Thus, the
Director of Human Resources took the position that her service on
the Fire and Police pension board was also ex officio. The Attorney
General recognized that the city code required her as Director of
Human Resources to serve on the Chapter 175 pension board. “The
city code, however, does not require your service on the Fire and
Police Pension Board. While you serve on the Fire and Police Pension
Board as an administration member appointee, nothing in the city
code requires that the administration member appointee to the board
be the human resources director. In light of your service on the
Firefighters Relief and Pension Fund Board as Director of Human Resources,
your service on the Fire and Police Pension Board, which is not required
by the city code, appears to violate Article II, section 5(a), Florida
Constitution, which was adopted to ensure that multiple state, county,
and municipal offices would not be held by the same person.” AGO
2005-15 (March 16, 2005). (Incidentally, as counsel for both boards
involved, we informally advised that Ms. Diaz Buttacavoli’s
further service on the Fire and Police board was prohibited, but
upon suggestion of the city attorney, she sought the Attorney General’s
advice.)
2. HOW DO EXECUTIVES INVEST FOR RETIREMENT?:
When
investing for retirement, executives tend to favor fixed-rate options
and large-cap funds over
other asset classes, according to the Clark Consulting Executive
Retirement Report. Among eleven asset classes, ones that provide a
fixed rate
of return were most popular, accounting for 26.3% of all assets measured.
Large-cap funds rank second in popularity, at 24.9%. The report examines
investment selections of more than 17,000 executives with annual
compensation typically in excess of $100,000, across the following
asset classes:
balanced, fixed income, fixed rate, foreign, large-cap, medium-cap,
small-cap, money market, company stock, specialty and world. According
to the report, small-cap funds rank third in popularity among executives,
with 10.9% of measured assets, less than half of the amount invested
in large-cap funds (but more than twice as popular as mid-caps with
5.1%). And these executives only invested 5.3% in their own company
stock. The conclusion is that executives tend to prefer investments
perceived as “safer,” considering over 61% is committed
to fixed-rate/income and large-cap equities. Do these guys know something
that pension plans do not?
3. RETIREES MAY BE ENTITLED TO HEALTH BENEFITS
FOR LIFE:
A “lifetime” can
be a slippery concept in context of retiree benefits litigation under the
Employee Retirement Income Security Act. Under ERISA, employee
benefit plans are classified
either as welfare benefit plans or as pension plans. Pension plans provide
retirement income to employees or allow them to defer receipt of income
until or beyond termination of covered employments. Welfare benefits,
on the other
hand, provide medical, surgical or hospital care or benefits, or benefits
in event of sickness, accident, disability, death or unemployment.
While pension
benefits are subject to strict vesting requirements, welfare benefits such
as health and life insurance are vested only if the plan contract so provides.
Welfare benefits may vest, however, when employers elect to enter into
a private contract with employees as set forth in benefit plan documents.
A federal appeals
court recently reviewed a summary judgment against plaintiff-retirees who
claimed that their former employer could not change their medical
benefits after “promising” that
they would continue to receive these benefits at little or no cost until
their death. The court was required to consider whether designating
retiree benefits
as “lifetime” really means “for life.” Unlike previous
cases, where interpretation of explicit “lifetime” language
was constrained by reservation of rights clauses allowing an employer to
modify
or terminate retiree welfare benefits, the plan documents at issue contained
no such limiting language. Accordingly, the appeals court found that the “lifetime” language,
as used, was ambiguous as to vesting, and thus reversed the grant of summary
judgment and remanded the case for further proceedings. Bland v. Fiatallis
North America, Inc., Case No. 04-2703 (U.S. 7th Cir., March 15, 2005).
4.
2005 WILSHIRE REPORT ON STATE RETIREMENT SYSTEMS SHOWS IMPROVEMENTS:
The following are selected findings from the summary
of Wilshire’s
2005 Report on State Retirement Systems:
- For
the 64 state retirement systems that provided actuarial data
for 2004, pension assets were $779 Billion and liabilities were $942
Billion. The ratio of pension assets-to-liabilities (funding ratio)
for all 64 state pension plans was 83% in 2004, up from 77% for
the
same 64 plans in 2003.
- For the 64 state retirement systems that
provided actuarial data for 2004, pension assets grew 14%, or $97
Billion, from $682 Billion
in 2003 to $779 Billion in 2004, while liabilities grew 6%, or $53
Billion, from $889 Billion to $942 Billion. Rising asset values combined
with continued growth and liabilities caused the 64 state pension
plans to go from a $208 Billion shortfall in 2003 to a $163 Billion
shortfall
in 2004.
- For the 109 state retirement systems that provided
actuarial data for 2003, pension assets and liabilities were $1.6
Trillion and $1.976
Trillion, respectively. Funding ratio for all such plans was 81%
in 2003. The asset shortfall for state pension plans is similar to
that
of city and county retirement systems. Wilshire estimates that as
of June 30, 2003, city and county pension assets totaled $149 Billion,
$31 Billion less than pension liabilities of $179 Billion, an aggregate
funding ratio for city and county retirement systems of 83%.
- For the
64 state retirement systems that provided actuarial data for 2004,
84% have market value of assets less than
pension liabilities
(underfunded). The average underfunded plan has a ratio of assets-to-liabilities
equal to 77%.
- Of the 109 state retirement systems that provided
actuarial data for 2003, 94% are underfunded. The average underfunded
plan has a ratio
of assets-to-liabilities equal to 79%.
- State pension portfolios
have a 67% average allocation to equities (including real estate
and
private equity) and a 33% allocation
to
fixed income. The 67% equity allocation is higher than the 65%
the prior year.
- Asset allocation varies widely by retirement system.
Twenty-six (up from 6) of 125 retirement systems have allocations
to equity that
equal or exceed 75% and 6 (down from 9) systems have equity allocations
below 50%. The 25th and 75th percentile range for equity allocation
is 63% to 74% (versus last year’s 57% to 67%).
- Wilshire forecasts
a long-term return on state pension assets equal to 7.5% per
annum, .5 percentage points below the average
actuarial
interest rate assumption of 8%. Last year the forecast was for
7.2%, .8% below the same assumption.
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