Stephen H. Cypen, Esq., Editor

1. FORBES GIVES MIAMI-DADE BOOBY PRIZE:

In an article entitled “Miami Vise - Squeezed Between Ultrarich and Wretchedly Poor, the County Can’t Seem to Find its Business Footing,” Forbes gives Miami-Dade its booby prize this year. In the last five years, a net 151,000 people, many middle-class residents, have left to go elsewhere. Meanwhile, 238,000 people have arrived from abroad. During the same period, job growth has limped along at an average .6% annually. Based on 2002 Census data on large cities, Miami had the highest poverty rate, 31%. Personal income is also a sagging indicator. And the region has the third-highest crime rate of any metro area in Forbes’s Best Places for Business and Careers survey. Thus, Miami-Dade has dropped to 139 out of 150 on that survey, on a par with Detroit and Toledo. In all fairness, Forbes does mention the bright spots. Standard & Poor’s recently bumped up Miami’s bond rating three notches to A+. Crime is easing. Construction is booming. The region is becoming an even more vibrant cultural center. Plus, new jobs will abound if Miami is selected to become the permanent Secretariat of the Free Trade of the Americas.

2. OVERTIME RULES GO INTO EFFECT -- IN MOST STATES:

U.S. Department of Labor Overtime Regulations issued in April 2004 will go into place automatically in 32 states (including Florida) and the District of Columbia, according to plansponsor.com (see C&C Newsletter for April 22, 2004, Item 4). The remaining 18 states, however, have their own overtime requirements, some of which track the old, replaced federal rules. In certain states, legislative action is required to make changes. The federal rule is a minimum standard. Although states can have their own requirements, they cannot be less generous with overtime eligibility.

3. PRISON TERM FOR FORMER UNITED WAY HEAD:

A former top executive of the United Way in Washington, D.C. was sentenced to 27 months in prison for stealing from the charity. According to washingtonpost.com, he pleaded guilty to taking $500,000.00 from United Way and its pension fund. He was also ordered to pay restitution. The ex-head is a Turkish national, not a U.S. citizen, and could face deportation proceedings once he is released from prison. The scandal has severely hurt the Capital-Area United Way: after collecting $45 Million in pledges for 2001, the charity is headed for a third straight year of raising less than half that amount. Oh, the miscreant’s name? Oral Suer!

4. EEOC RETIREE HEALTH BENEFIT REGS MAY FACE CHALLENGE:

On April 22, 2004 the Equal Employment Opportunity Commission approved final regulations under the Age Discrimination in Employment Act, providing that altering, reducing or eliminating retiree benefits from eligibility from Medicare or State-sponsored retiree health benefits programs will not be considered an ADEA violation (see C&C Newsletter for May 12, 2004, Item 6). A report from Mellon indicates that AARP is challenging EEOC’s authority to grant such exemption, claiming it failed to make a strong enough case to support the public policy argument. If AARP’s challenge to the rules is not upheld, AARP may turn to Congress for legislative help (as it has often done in the past).

5. CIVIL RIGHTS OVERRIDE STATES’ RIGHTS:

Title II of the Americans with Disabilities Act of 1990 provides that “no qualified individual with a disability shall, by reason of such disability, be excluded from participation in or be denied the benefits of the services, programs or activities of a public entity, or be subjected to discrimination by such entity.” The United States Supreme Court was presented with the question of whether Title II exceeds Congress’ power to abrogate a state’s immunity under §5 of the Fourteenth Amendment. Determining whether Congress has constitutionally abrogated a State’s Eleventh Amendment immunity requires resolution of two predicate questions: (1) whether Congress unequivocally expressed its intent to abrogate and (2) if so, whether it acted pursuant to a valid grant of constitutional authority. The first question is easily answered because ADA specifically provides for abrogation. With regard to the second question, Congress can abrogate state sovereign immunity pursuant to a valid exercise of its power under §5 of the Fourteenth Amendment. Section 5 legislation is valid if it exhibits a congruence and proportionality between an injury and the means adopted to prevent or remedy it. Title II is an appropriate response to the history of inadequate provision of public services and access to public facilities. As such, Title II is a valid exercise of Congress’ §5 enforcement power. (The high court recently determined that Title I of ADA, dealing with employment, was not a valid exercise of Congress’ §5 power because the historical record and the statute’s broad sweep suggested that its true aim was not so much enforcement, but an attempt to rewrite the court’s Fourteenth Amendment jurisprudence.) The underlying case arose when two paraplegics sued the State of Tennessee, claiming they were denied access to, and the services of, the State court system by reason of their disabilities. Tennessee v. Lane, Case No. 02-1667 (U.S., May 17, 2004).

6. PRE-TERMINATION PANEL SUBJECT TO FLORIDA SUNSHINE ACT, WHERE DECISION-MAKING AUTHORITY DELEGATED:

In Palm Beach County, the County Administrator has sole authority to discipline or terminate County employees. The County Merit System Rules require that prior to termination, notice shall be provided informing an employee of the reason for proposed termination. A pre-termination conference is conducted by the department head, with the personnel director and director of Office of Equal Opportunity present. After considering all the evidence, the department head decides whether to affirm the recommendation to discharge the employee or take other action as deemed appropriate. Thus, the County Administrator’s power to terminate employees is delegated to the department head. Nowhere in the rules is any decision-making authority delegated to the committee as a whole. Nevertheless, intended or not, the department head deliberates with the panel to determine whether to terminate the employee. As such, members of the panel participate in the decision-making authority delegated to the department head, subjecting their meeting to the Florida Sunshine Act. Similarly, meetings of a grievance committee are also subject to the Sunshine Act because it is the final hearing body for all matters determined to be grievances, and exercises the authority to uphold, modify or deny any grievance. Dascott v. Palm Beach County, Florida, 29 Fla. L. Weekly D998 (Fla. 4th DCA, April 21, 2004).

7. EMPLOYEE WHO SOUGHT RELIEF THROUGH GRIEVANCE PROCEDURE NOT PRECLUDED FROM SEEKING RELIEF BEFORE PERSONNEL BOARD:

DePaola was terminated from the Town of Davie Fire Department. After being terminated, DePaola filed a grievance but he was told he was not entitled to a grievance. He requested that the union take the grievance to arbitration, but no action was taken. DePaola filed a complaint in the circuit court seeking declaratory and injunctive relief. Dismissing the suit, the trial court agreed with the Town, that DePaola had the option of either pursuing a grievance under the Collective Bargaining Agreement or electing to challenge his termination at a personnel review board. In accordance with Section 447.401, Florida Statutes, a career service public employee who is also a union member may contest a disciplinary action taken by his employer either through the union or by filing a civil service appeal, but may not pursue both avenues for relief. Here, the Town did not process the grievance. As a result, DePaola was not precluded from seeking alternative relief. Thus, the appellate court reversed and remanded for further proceedings. By the way, the trial court also incorrectly concluded that DePaola would have been limited to an administrative appeal or certiorari review, not a de novo action in the trial court. DePaola v. The Town of Davie, Florida, 29 Fla. L. Weekly D1052 (Fla. 4th DCA, April 28, 2004).

8. DISTRIBUTION OF PENSION NOT VIOLATIVE OF RULE AGAINST IN-SERVICE DISTRIBUTIONS, IF PAYMENT BEGINS ON MEMBER’S ATTAINMENT OF NORMAL RETIREMENT AGE WHILE EMPLOYED:

A state statute provides that normal (unreduced) retirement is attainment of age 60 with 5 or more years of creditable service or attainment of age 50 with 25 years of creditable service. Typically, covered employees retire once they have attained 25 years of creditable service and age 50, going on to employment with other unrelated employers. An amendment to the statute provides that a member reaching age 60 with 5 years of service may elect to retire and receive a normal service retirement allowance but remain employed for up to one year (or two years, if appropriately extended). In a Private Letter Ruling, IRS’s Employee Plans Technical Office not the Employee Plans Determinations program, concluded that continued payment of pension benefits from the plan will not violate the rule against in-service distributions from a pension plan. In passing, IRS also noted that because the distribution option commences only after attainment of age 60, there is no issue with respect to the additional tax imposed by section 72(t) of the Internal Revenue Code. Private Letter Ruling 200420030 (February 19, 2004).

9. AMERICAN BENEFITS COUNCIL WORRIES ABOUT DB SYSTEMS:

The American Benefits Council represents Fortune 500 employers and other organizations that assist employers of all sizes in providing benefits to employees. Collectively, the Council’s members either sponsor directly or provide services to retirement and health plans covering more than 100,000,000 Americans. The Council has just published a paper entitled “Pensions at the Precipice: The multiple threats facing our nation’s defined benefit pension system.” Much like the CIEBA report released a few months ago (see C&C Newsletter to April 7, 2004, Item 2), the Council believes that defined benefit pensions face an unprecedented series of policy and legal threats that endanger their continued existence. These threats have reluctantly pushed many employers to the precipice of outright abandonment of such programs. In order to preserve these plans -- and the retirement security they deliver to American families -- Congress must decide whether to adopt the urgently needed policy prescriptions or to continue down the current road of policy hostility that will likely lead to the demise of these plans. The Council prepared its paper to (1) provide background on defined benefit plans and the defined benefit system, (2) articulate the unique and unprecedented confluence of threats to the system and (3) set forth the policy solutions that will alleviate these threats and stop the erosion of the retirement futures of millions of Americans. In 35 pages, the Council discusses the following four threats to today’s defined benefit system and what it believes must be done in each area to ensure defined benefit pension plans remain a viable retirement plan designed for employers and employees in the 21st Century:

• The attacks on hybrid defined benefit plans
• Failure permanently to replace the obsolete 30-year Treasury bond rate for pension calculations
• Flawed pension funding regime and flawed proposals for funding reform
• The movement to impose “snapshot” accounting standards

.

10. NASD WARNS MEMBERS ABOUT USE OF AFFIDAVITS TO OBTAIN EXPUNGEMENT OF CUSTOMER DISPUTE INFORMATION AND ABOUT IMPERMISSIBLE PROVISIONS IN SETTLEMENT AGREEMENTS:

The National Association of Securities Dealers has recently issued two Notices to Members:

NASD Notice to Members 04-43. This National Association of Securities Dealers NtM deals with members’ use of affidavits in connection with stipulated awards and settlements to obtain expungement of customer dispute information. On December 16, 2003 the Securities and Exchange Commission approved new rule 2130 concerning expungement of customer dispute information from the Central Registration Depository. The rule applies to any request made to a court of competent jurisdiction to expunge customer dispute information from the CRD system that has its basis in an arbitration or civil lawsuit filed on or after April 12, 2004. In any event, NASD has recently become aware of instances in which claimants and respondents appear to be settling customer claims for monetary compensation to the claimant in return (at least in part) for a customer affidavit that “absolves” one or more of the respondents of responsibility for any alleged wrongdoing. These affidavits, attested to in connection with settlements that are often incorporated into stipulated awards, appear to be inconsistent on their face with the initial claim in terms of the settlement. NASD cautions its members and their associated persons that when they submit affidavits in which the content is the product of a bargained-for-consideration as opposed to the truth, members and their associated persons subject themselves to a panoply of applicable sanctions, including possible disciplinary action for violation of NASD rules and other penalties, including possible criminal sanctions.

NASD Notice to Members 04-44. This NtM deals with impermissible confidentiality provisions and complaint withdrawal provisions in settlement agreements. Recent NASD examinations have revealed that, despite repeated cautioning, some members continue to use settlement agreements with customers and other persons that impede NASD investigations and the prosecution of NASD enforcement actions. In this regard, some members require customers and other settling parties to agree to overly broad confidentiality provisions in settlement agreements as a condition of settlement. In addition, some firms require customers and other persons to withdraw pending complaints with NASD or other regulators as a condition to a settlement, or require customers or other persons, as a condition to settlement, to submit affidavits or statements that falsely or misleadingly repudiate or otherwise contradict prior claims or complaints. Member firms and their associated persons are reminded that these practices constitute conduct inconsistent with just and equitable principles of trade in violation of NASD rules. The NtM gives an example of an acceptable confidentiality provision: “Any non-disclosure provision in this agreement does not prohibit or restrict you (or your attorney) from responding to any inquiry, or providing testimony, about this settlement or its underlying facts and circumstances by, or before, the Securities and Exchange Commission, NASD, any other self-regulatory organization or any other federal or state regulatory authority.” NASD also suggests that members give notice to parties to past settlement agreements to clarify that they do not prohibit disclosure to regulatory authorities

.11. STATE RETIREMENT FUNDS CRITICIZE WILSHIRE REPORT:

As in the past, the National Association of State Retirement Administrators has sent a letter to Wilshire Associates, raising concerns about the alarmist tone of its newest report (see C&C Newsletter for June 3, 2004, Item 4), which again presents a “distorted and misleading view of the fiscal condition of state pension funds.” Specific NASRA concerns include:

• The report’s failure to explain the term “underfunding” or to describe the consequences of various levels of funding
• The continued use of market -- rather than actuarial -- values, despite the fact that a substantial majority of public retirement systems use actuarial value of assets to measure their funding level
• Ranking states by dollar value of their plans’ collective unfunded liabilities, resulting in a bias against larger states
• Ranking plans against each other using disparate valuation dates, especially in light of recent unprecedented market volatility and the report’s use of market rather than actuarial values

NASRA’s members are directors and administrators of the nation’s state employee retirement plans and most of the largest statewide public retirement systems, which together provide pension coverage for more than 15 million working and retired public employees, and oversee assets exceeding $1.5 Trillion.

12. MAN PLEADS GUILTY TO DEFRAUDING PENSION FUND:

The guy who collected his mother’s pension check for eighteen years after she died and sent the pension fund a forged obituary, pleaded guilty in Federal Court to one count of mail fraud (see C&C Newsletter for March 22, 2004, Item 3). Phillip W. Hyde, 62, faces up to five years in prison, three years of probation and a $250,000.00 fine. In all, the pension fund lost $317,678.00 from the scheme.