1.
REMEMBRANCE:
Today we remember those individuals, including
hundreds of firefighters and police officers, who lost
their lives in the terrorist attacks on September 11,
2001. Mere words are inadequate to express our sympathies
to
the families of the innocent people who were killed and
to the brave individuals who lost their lives trying
to save others. America will never forget its true heroes.
2. U.S. INSTITUTIONAL INVESTORS BOOST
OWNERSHIP IN DOMESTIC CORPORATIONS:
Institutional investors
have once again topped
their previous record ownership levels in the largest 1,000
U.S. corporations, according to The Conference Board. Data
on institutional investor ownership in the largest 1,000
U.S. corporations show that institutions have substantially
and consistently increased their holdings from 1987 with
an average of 46.6% of total stock to an average 61.4%
of total stock by 2000, and then rising to an unprecedented
76.4% of corporations by year-end 2007. Concentration of
ownership also tops all previous data when measured by
numbers of companies that have the largest institutional
ownership. For example, in 1985, no company had institutional
ownership of 60% or above; by 2007, 17 companies had institutional
ownership of 60% or above, including six with institutional
ownership of 70% or above. Latest available year-end 2006
data show that total institutional investors -- defined
as pension boards, investment companies, insurance companies,
banks and foundations -- controlled assets totaling $27.1
Trillion, up from $24 Trillion in 2005. Their 2006 level
represents a ten-fold increase from $2.7 Trillion in 1980.
The equity market value of total institutional equity holdings
increased from $571.2 Billion in 1980 (37.2% of total U.S.
equity markets) to $12.9 Trillion (66.3% of total U.S.
equity markets) in 2006. Pension funds continue to account
for the largest block of institutional investor assets,
with $10.4 Trillion, or 38.3% of total 2006 assets under
management. Within the pension fund category, state and
local pension funds -- which tend to be the most activist
in terms of exerting corporate governance pressures on
companies -- have grown more rapidly than other types of
pension funds, such as corporate pension funds. Moreover,
these state and local pension funds have also been growing
more rapidly in the amount of assets they allocate to equities
from bonds and other types of investments. For example,
public pension funds have increased their share of equity
markets from 2.9% in 1980 to 10% in 2006. By comparison,
corporate funds represent a smaller share of equity markets
in 2006 than they did in 1980, as their share declined
from 15.1% to 13.6%. Historically, U.S. pension funds put
very little of their assets into international equities.
This amount grew, however, and the largest 25 internationally
invested U.S. pension funds put a total of 18.0% of their
1999 assets into international equities. By 2005, this
amount had declined to 13.5% of assets, although the number
has risen to 15.3% for 2007. For the first time, the report
tracks hedge fund investments generally and investments
by pension funds into hedge funds. As of September 2007,
some $1.8 Trillion in assets was estimated to have been
managed by about 10,000 hedge funds worldwide. This amount
represents an increase of 23.6% in hedge fund assets and
5.8% growth in the number of funds since 2006. Of these
funds, more than half are domiciled in the United States.
Pension funds have been increasing investments they make
in hedge funds during the last three years. The report
shows the largest 200 U.S. employee retirement plans with
defined benefit assets in hedge funds. The amounts invested
in hedge funds by these pension funds rose from an insignificant
amount in prior years to $29.9 Billion for the year ended
September 30, 2005, to $50.5 Billion for the year ended
September 30, 2006, and then to $76.3 Billion for the year
ended September 30, 2007. Nevertheless, this amount represents
a fairly small percentage of total assets for these pension
funds -- 0.7% in 2005, 1.0% in 2006 and 1.4% in 2007. Thus,
while increasing rapidly, hedge fund investments remain
a small portion of the total defined benefit plan assets
invested by these pension funds. According to its website,
The Conference Board is the world’s preeminent business
membership and research organization. Best known for the
Consumer Confidence Index and the Leading Economic Indicators,
The Conference Board has, for over ninety years, equipped
the world’s leading corporations with practical knowledge
through issues-oriented research and senior executive peer-to-peer
meetings.
3. N.J. GOVERNOR’S BILL SIGNING
DELAY HELPS “NEW” EMPLOYEES:
New Jersey Governor
Jon Corzine’s sympathy with public-employee
unions has led to his delay in signing a controversial
pension and benefit reform bill long enough to give thousands
of new teachers, as well as other new public employees,
time to be eligible for bigger pensions. Corzine said he
delayed the bill after the New Jersey Education Association
asked for more time. The union said it needed time to notify
teachers about the measure, passed in late June. At that
time, the state’s powerful public-employee unions
were furious that lawmakers were even considering pension
and benefit reforms, according to pressofatlanticcity.com
The changes apply only to “new” workers. Inasmuch
as most new teachers start in September, they will be subject
to the older, more generous pension rules. Way to go, Guv. 4. BRIEF SUMMARIES OF RECENT FLORIDA ATTORNEY GENERAL
OPINIONS:
A. The City of Margate is authorized
by Section 112.0801(1), Florida Statutes, to offer
retiring employees a one-time
opportunity to participate in the city’s employee
group health and life insurance program without allowing
those retirees who subsequently reject participation in
the city’s insurance program another opportunity
to renew their participation in that program in the future.
Section 112.0801, Florida Statutes, requires a public
agency that provides life, health, accident, hospitalization
or
annuity insurance for its officers and employees through
a group insurance plan or self-insurance plan to allow
all former personnel who have retired, the option of
continuing to participate in the group insurance or self-insurance
plan. AGO 2008-41 (August 27, 2008).
B. A qualified interpreter may attend
collegial body executive sessions (“shade meetings”)
to interpret for hearing impaired board members of
the Florida School for
the Deaf and the Blind without violating the terms of
Section 286.011(a), Florida Statutes. On its face,
that statute
limits attendance at such meetings to members of the
governmental entity, the chief administrator or executive
officer of
the entity and its attorney. This question is the type
we like to see, rather than questions that have previously
been clearly answered. AGO 2008-42 (August 29, 2008).
C. Simultaneous service on the Florida
New Motor Vehicle Arbitration Board (“Lemon Law Arbitrator”)
pursuant to Section 681.1095(3), Florida Statutes, and
service on the Board of Directors of the Workforce Florida,
Inc., pursuant to Section 445.004, Florida Statutes, would
violate Article II, Section 5(a) of the Florida Constitution,
the prohibition against dual office-holding. For your information,
Workforce Florida, Inc. designs and implements strategies
to help Floridians enter, remain in and advance in the
workplace, becoming more highly skilled and successful,
benefitting these Floridians, Florida businesses and the
entire state, and assists in developing the state’s
business climate. AGO 2008-45 (August 28, 2008).
5. HOW RICH IS RICH?:
A million dollars
may sound like a fortune, but the club is not so exclusive
any more. According
to SmartMoney, some ten million U.S. households have a
net worth above $1 Million, excluding home equity. Moreover,
a recent survey found that only 8% of millionaires feel “extremely” or “very” rich,
while 19% do not feel rich at all. Indeed, while $1 Million
was a tidy sum 30 years ago, you need $3.6 Million for
the same buying power today. Half of all millionaires have
a net worth of $2.5 Million or less. So what does it take
to feel truly rich? Get ready for this one: the magic number
is $23 Million! Now get back to work.
6. WORKERS HIGHLY VALUE PAID SICK DAYS:
More
than three-quarters of workers view paid sick days as a
basic right of employment
that should be guaranteed by the government, according
to a survey reviewed in Employee Benefit News. About 77%
of workers say having paid sick days is “very important,“ while
86% think that employers should be required by law to provide
them. Likewise, 80% agree that part-time workers should
receive sick days proportional to their working hours.
Employees rank paid sick days on a par with the minimum
wage, overtime pay and family and medical leave. They considered
it more important than maximum hour limits and the right
to join union. The support for paid sick days crosses political
and demographic lines. More than 40% of private sector
workers and 75% of low-wage workers lack paid sick days.
A dozen states considered legislation requiring paid sick
days this year, and the issue will be on the ballot in
Milwaukee in November. (Just as we went to press, backers
of an Ohio sick-leave initiative pulled the issue from
November’s ballot. Opposition had grown in recent
weeks when the Democratic governor said he would not support
the measure.) Congress is considering the Healthy Families
Act, which would provide seven paid sick days annually
to workers in businesses with 15 or more employees. San
Francisco and Washington, D.C. already have paid sick day
laws in place. About 16% of workers say they, or a family
member, have been fired, suspended, punished or threatened
with being fired for taking time off due to personal illness
or to care for a sick child or other relative. In addition,
68% of workers without paid sick days reported going to
work with the flu or some other contagious illness, compared
to 53% of workers who received paid sick days. Actually,
providing paid sick leave may help employers avoid extra
costs from illnesses spread at the workplace. That makes
sense.
7. STATE EMPLOYEE SALARIES RISE, BUT
MORE INVESTMENT IS NEEDED:
Salaries for state government
professionals
registered a modest 2.4% increase from 2007 to 2008, according
to the Ninth Annual American Federation of Teachers and
Public Employees Compensation Survey. The 2.4% increase,
the average across the 45 occupations surveyed, was less
than the inflation rate (4%) for the time period surveyed
and significantly less than the previous year’s average
increase of 5.7%. The increase was also lower than the
increase in overall state spending for fiscal year 2008,
estimated at 5.1%. Salary changes from 2007 to 2008 ranged
from a low of -2.6% to a high of 5.8%. The highest-paying
jobs were senior psychologists ($71,010) attorneys ($67,985)
senior environmental engineers ($66,576) and senior economists
($65,804). The lowest-paying jobs were data-processing
clerks ($26,801), correctional officers ($36,495), licensed
practical nurses ($37,803) and family support specialists
($37,885). For the ninth consecutive year, the AFT study
shows that salaries of most state-employed professionals
trail those of their private sector peers. This year, private
sector salaries exceed state employee salaries in 20 of
the 24 job classifications in which comparisons were made.
Across all 24 classifications, private sector salaries
average 26% higher than those of state employees. The report
also finds that, for the ninth consecutive year, collective
bargaining is a key factor in reducing the private-public
sector salary gap. For example, foresters in collective-bargaining
states earn 18% more than their noncollective-bargaining
counterparts, licensed practical nurses earn 15% more and
economists earn 14% more. The study shows a collective-bargaining
advantage in 42 of the 45 occupations surveyed; in 25 job
classifications, the advantage is 10% or more. Despite
the results of this survey, Florida state workers should
not hold their breath.
8. MIAMI POLICE CHIEF SUBJECT TO CIVILIAN
INVESTIGATIVE PANEL JURISDICTION:
Miami Police Chief John
Timoney appealed
from a Circuit Court order denying his motion to dismiss
the City of Miami’s Civilian Investigative Panel’s
investigation for lack of jurisdiction, and granting CIP’s
petition to enforce a subpoena requiring him to testify
before the panel and provide documents. In 2002, as authorized
by a Charter amendment, the City of Miami passed an ordinance
creating CIP; describing its purposes, powers and duties;
explaining its procedures; and granting CIP subpoena power
in order to conduct its activities consistent with applicable
law. The purpose of CIP is to act as an independent civilian
oversight of the sworn police department. CIP is charged
with conducting investigations, inquiries and public hearings
to make factual determinations, facilitate resolution and
propose recommendations regarding allegations of misconduct
by any sworn officer of the city police department. CIP
received a written complaint alleging that Chief Timoney
accepted a free Lexus and drove the car for approximately
fifteen months in violation of local police regulations
and state laws. CIP initiated an investigation into the
complaint and served subpoenas upon Chief Timoney, requiring
him to appear, produce documents and testify. When Chief
Timoney declined, CIP filed a petition to enforce subpoenas
in the Circuit Court, which granted CIP’s petition
and directed Chief Timoney to comply with the subpoenas.
Again, Chief Timoney declined, and moved to quash the subpoenas,
alleging that he was not subject to CIP’s jurisdiction
and that the documents CIP requested were not public records
and therefore not subject to subpoena. Subsequently, Chief
Timoney moved to dismiss the petition for lack of jurisdiction,
claiming that CIP no longer had jurisdiction to investigate
his alleged misconduct because CIP’s prescribed deadline
of 120 days for completing an investigation had passed
four days earlier. The Third District Court of Appeal affirmed:
A. Although the Chief of Police is exempt
from an internal police investigation as set forth in
Section 112.532, Florida
Statutes, the “Police Officers’ Bill of Rights,” CIP’s
authority extends to independent, external investigations,
from which the Chief of Police is not exempt.
B. The fact that CIP is required to
give the Chief of Police, among others, a written report
of its findings,
to which he is required to respond, does not evidence
an intent to exclude the Chief of Police from CIP’s
authority.
C. CIP has power to execute its investigations
by requesting issuance of subpoenas, after consultation
with the State
Attorney and approval of CIP independent counsel, for
purpose of obtaining evidence and witnesses and productions
of
books, papers and other evidence. CIP’s subpoena
authority is not limited to public records.
D. CIP did not lose jurisdiction over
the matter upon expiration of the 120-day limitations
period provided in
its enabling ordinance. The doctrine of equitable estoppel
prevents Chief Timoney from profiting by his own purposeful
delay or misconduct. Because Chief Timoney chose to rebuff
or postpone CIP’s legal inquiries and directly caused
delay of CIP’s investigation, he is barred by asserting
expiration of the 120-day limitations period.
On the last point, considering Chief Timoney’s conduct,
he is fortunate that the appellate court did not use much
harsher language. Timoney v. City of Miami Civilian Investigative
Panel, 33 Fla. L. Weekly D2095 (Fla. 3d DCA, September
3, 2008).
9. CLAIMANT DID NOT MEET ELIGIBILITY
REQUIREMENTS OF LTD PLAN:
Dobos appealed from a trial court
judgment denying
her petition for writ of administrative mandate brought
against Voluntary Plan Administrators, Inc. Long Term Disability
and Survivor Benefit Plan and Los Angeles County. In her
petition, Dobos challenged an administrative decision that
upheld denial of her application for benefits under the
long-term disability benefit plan provided by her former
employer, the County. The trial court denied the petition
on grounds that Dobos did not meet eligibility requirements
of the plan because she was not employed by the County
for the duration of a six-month qualifying period. The
appellate court concluded that, based on the plain language
of the County Code provisions setting forth terms and conditions
of the plan, Dobos had to be employed by the County until
end of the qualifying period to be eligible for long-term
disability benefits. Because it was undisputed that Dobos’s
employment with the County terminated before expiration
of the qualifying period, she was not eligible for benefits
under the County plan. Among other things, Dobos claimed
that construing the County Code to require current employment
with the County would create an illusory promise by granting
the County unilateral power to discharge employees without
preserving their vested disability benefits. She also argued
that such interpretation would be contrary to public policy
because it would allow an employer to discharge employees
who are on disability-related leaves of absence in violation
of both Family Medical Leave Act and California Family
Rights Act. (Notably, however, Dobos did not contend that
the County terminated her employment because she took a
disability leave or because she filed an application for
long-term disability benefits. She simply asserted that
such a scenario could exist for other disabled employees.)
Dobos’s argument was unavailing. To begin with, a
County employee does not become entitled to long-term disability
benefits until she completes six-month qualifying period
and satisfies the other requirements for eligibility. Thus,
the County’s decision to discharge an employee who
has not yet met eligibility criteria for reasons unrelated
to her application for benefits does not deprive the employee
of right to any vested disability benefits. Moreover, the
requirement that an applicant for benefits be employed
by the County at end of the qualifying period does not
give the County free reign to discharge disabled employees
in violation of state and federal law. The County’s
plan simply requires that a disabled employee be employed
by the County at end of the qualifying period to be eligible
for long-term disability benefits. It does not in any manner
exempt the County from compliance with applicable state
and federal laws protecting rights of disabled employees.
Dobos v. Voluntary Plan Administrators, Inc., Case No.
B199870 (Cal. App. 2d, September 3, 2008).
10. SEC PROPOSES ROADMAP TOWARD GLOBAL
ACCOUNTING STANDARDS:
The Securities and Exchange Commission
voted to publish for comment a proposed road map that could
lead to use
of International Financial Reporting Standards by U.S.
issuers beginning in 2014. Currently, U.S. issuers use
U.S. Generally Accepted Accounting Principles. The Commission
would make a decision in 2011 on whether adoption of IFRS
is in the public interest and would benefit investors.
The proposed multi-year plan sets out several milestones
that, if achieved, could lead to use of IFRS by U.S. issuers
in their filings with the Commission. Increasing integration
of the world’s capital markets, which has resulted
in two-thirds of U.S. investors owing securities issued
by foreign companies that report their financial information
using IFRS, has made establishment of a single set of high
quality accounting standards a matter of growing importance.
A common accounting language around the world could give
investors greater comparability and greater confidence
in the transparency of financial reporting worldwide. Today,
more than 100 countries around the world, including all
of Europe, currently require or permit IFRS reporting.
Approximately 85 of those countries require IFRS reporting
for all domestic, listed companies. (Our understanding
is that IFRS prohibits, or at least frowns upon, asset
smoothing of any kind.) We see a bad moon a-rising. SEC
Release 2008-184 (August 27, 2008).
11. DESPITE DESIRE FOR CHANGE, U.S. EMPLOYERS
OPPOSE PROPOSED NEW PENSION ACCOUNTING RULES:
PRNewswire
reports that employers
believe changes to current pension accounting standards
are necessary, but most are not in favor of changes proposed
by International Accounting Standards Board’s preliminary
views paper. With last week’s Securities and Exchange
Commission’s vote to move the United States toward
international accounting rules (see Item 10 above), the
proposed changes could have a significant impact on U.S.
employers’ financial statements. A recent survey
shows that most respondents said change is needed in several
key areas of pension accounting. The improvements to requirements
for measurement of cash balance and similar pension plans
are viewed as most necessary, with 8 in 10 employers desiring
change in this area. A narrower majority (56%) agrees that
pension accounting should change by removing options to
defer recognition of plan gains and losses. Eighty percent
of respondents, however, do not support the suggestion
to recognize all plan experience immediately in the profit
and loss account, one of three IFRS options in this area.
We see trouble on the way.
12. “CLASS-OF-ONE” THEORY
OF EQUAL PROTECTION NOT APPLICABLE IN PUBLIC EMPLOYMENT
CONTEXT:
A 2000 United
States Supreme Court case held that a plaintiff can successfully
state a class-of-one claim by alleging that it was intentionally
treated differently from others similarly situated and
that there is no rational basis for the difference in treatment.
The Supreme Court revisited the class-of-one theory this
year, in a case where a state employee alleged she had
been effectively laid off for arbitrary, vindictive and
malicious reasons. The 2008 Court began by setting forth
the long held view that there is a crucial difference,
with respect to constitutional analysis, between government
exercising the power to regulate or license, as lawmaker,
and government acting as proprietor, to manage its internal
operation. The Court explained that government’s
interest in achieving its goals as effectively and efficiently
as possible is elevated from relatively subordinate interest
when it acts as sovereign to a significant one when it
acts as employer. Therefore, government has significantly
greater leeway in its dealings with citizen employees than
it does when it brings its sovereign power to bear on citizens
at large. To treat like employees differently is not to
violate the equal protection clause; rather, it is an accepted
consequence of the broad discretion that typically characterizes
the employer-employee relationship. As a result, the class-of-one
theory of equal protection has no application in the public
employment context. In a recent case, a contractor brought
suit against Georgia Department of Transportation asserting
that GDOT intentionally treated it differently without
rational basis by authorizing invalid testing procedures
that were not performed on others. The federal trial judge,
relying upon the 2000 United States Supreme Court decision,
partially denied GDOT’s motion for judgment on the
pleadings, finding that GDOT was not sheltered from liability
by its defense of qualified immunity with respect to the
contractor’s class-of-one equal protection claim.
In reversing, on appeal, the Eleventh Circuit had little
trouble applying the reasoning of the 2008 U.S. Supreme
Court case, directed at the government-employee relationship,
to circumstances involving a government-contractor relationship.
The government needs to be free to terminate both employees
and contractors for poor performance, to improve efficiency,
efficacy and responsiveness of service to the public, and
to prevent appearance of corruption. Absent contractual,
statutory or constitutional restriction, government is
entitled to terminate employees and contractors for no
reason at all. Douglas Asphalt Co. v. Qore, Inc., Case
No. 07-14849 (U.S. 11th Cir., September 2, 2008).
13. CALIFORNIA CITY MAY PROCEED IN BANKRUPTCY:
City
that has been and likely will continue to incur fiscal
deficits,
that is authorized under state law to file for bankruptcy
and that has negotiated unsuccessfully with its union and
with the bank that serves as credit enhancer of its bond
obligations is entitled to seek Chapter 9 protection under
a Pendency Plan that caps at 6% debt service it will pay
on its municipal debt obligations. Adverse economic conditions
have negatively impacted city’s primary revenue sources:
property taxes, sales taxes, assessments and fees. Achieving
solvency will require, among other things, serious consideration
of economic concessions from the city’s labor groups.
Our thanks to Chuck Carlson, who digested the entire 52-page
opinion. In Re: City of Vallejo, California, Case No. 08-26813-A-9
(Bankr. E.D. Cal., September 5, 2008). 14. APHORISM:
Be careful reading the fine print. There's
no way you're going to like it. 15. QUOTE OF THE WEEK:
“The biggest argument against
democracy is a five-minute discussion with the average
voter.” Winston Churchill (Boy, is this one ever
timely!)
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