Source: http://cypen.com/pubs/1998jul.htm
Timestamp: 2019-04-23 17:58:33+00:00

Document:
FRS DROP AMENDED: Effective July 1, 1998, Chapter 98-18 amends the Florida Retirement System Deferred Retirement Option Program. Although many of the amendments are merely technical, there are some substantive changes. A member who has reached normal retirement date prior to the effective date of the DROP shall be eligible to participate in the DROP for a period of time not to exceed 60 calendar months immediately following the effective date of the DROP; a Special Risk member who has reached normal retirement date prior to the effective date of the DROP and whose total accrued value exceeds 75 percent of average final compensation as of his or her effective date of retirement shall be eligible to participate in the DROP for no more than 36 calendar months immediately following the effective date of the DROP. In addition, the beneficiary established under FRS shall also be the beneficiary eligible to receive any DROP benefits payable if the DROP participant dies prior to completion of the period of DROP participation. Finally, each employee who elects to participate in the DROP shall be allowed to elect to receive a lump-sum payment for accrued annual leave earned in accordance with agency policy upon beginning participation in the DROP. Such accumulated leave payment shall be included in calculation of the member's average final compensation. However, if the member elects to wait and receive such lump-sum payment upon termination of DROP and termination of employment, any accumulated leave payment made at that time cannot be included in the member's retirement benefit, which was determined and fixed by law when the employee elected to participated in the DROP.
BIG BOARD "HOLDS" PRESTIGIOUS TICKER SYMBOLS: Having a one-letter ticker symbol on the New York Stock Exchange is a real sign of status -- for example AT&T (T) and Ford (F). According to Money Magazine, all but three letters have been accounted for: Q, which can't be assigned because it denotes a company in bankruptcy; I, which is being "held" for Intel; and M, which is being "held" for Microsoft. Unfortunately for the NYSE, those companies have given no indication that they will abandon the NASDAQ market.
HOW TO OUTSOURCE THE RIGHT WAY: Our readers know that "outsourcing" is 1990's lingo for "farming out" (see C&C Newsletter for August, 1996). Although there is no magic formula for successful outsourcing, certain general rules apply. According to Software Magazine, you must: (1) understand your needs -- assess current systems and performance levels and define specifically the service you seek; (2) do your homework -- know the market trends, the going rates and the range of competition; (3) find a reliable, flexible relationship-oriented vendor; (4) negotiate a contract that balances precise definitions of expectations with ability to accommodate change; (5) put appropriate methods in place to monitor the service; and (6) work cooperatively with your outsourcer on a day-to-day basis.
FLORIDA SBA'S INVESTMENT POWERS MODIFIED: The Florida State Board of Administration invests public funds, including those of the Florida Retirement System. Chapter 98-47, inter alia, amends SBA's investment powers as follows: (1) an unlimited amount may be invested in notes, bonds and other obligations of agencies of the United States (previously, specific agencies, such as FHLMC, were listed); (2) an unlimited amount may be invested in negotiable certificates of deposit issued by domestic or foreign financial institutions in United States dollars (formerly, specific institutions, such as International Bank for Reconstruction and Development, were listed); (3) not more than 75%, up from 50%, of the fund may be in internally managed common stock (read: indexing); (4) no more than 20%, up from 10%, may be invested in foreign securities (just when fire and police funds get 10%, SBA jumps to 20%!); and (5) securities may now be loaned to financial institutions (previously, only to securities dealers) and may be collateralized by cash or any securities (not just United States government securities, as before) having a market value of at least 100% of the market value of the securities loaned. For your information, the SBA is composed of the Governor as Chair, the Treasurer and the Comptroller.
STATE-EMPLOYED ATTORNEYS HAVE RIGHT TO COLLECTIVE BARGAINING: Seeking to prohibit state employees working as attorneys from the right collectively to bargain, the Florida Legislature amended Section 447.203(3)(j), Florida Statutes (1997), to exclude from the definition of "public employee" those persons who by virtue of their positions of employment are regulated by the Florida Supreme Court. The First District Court of Appeal has now determined that the statute infringes upon the fundamental right of collective bargaining as provided by the Florida Constitution. Although the State of Florida does have a compelling interest in the attorney-client relationship between it and the attorneys it employs, that interest does not support a finding of a compelling state interest in preventing collective bargaining by state-employed attorneys. Chiles v. State Employees Attorneys Guild, 23 Fla. L. Weekly D1348 (Fla. 1st DCA, June 3, 1998).
REVOCATION OF CRIMINAL JUSTICE CERTIFICATION SHOULD BE DECIDED ON MERITS: The subject employee was an eight-year veteran with a strong employment record, who had always passed previous drug screenings. She brought forward evidence in the form of hair analysis by a nationally-recognized expert, as well as a private urinalysis performed by her own physician as soon as she learned of the positive drug test. The Department's own expert acknowledged that this type of hair analysis is precisely the tool which is used when there is a claim of error in a urinalysis for cocaine. The Department has a responsibility to enforce its standards, but as a public agency, also has a responsibility to conduct an appropriate and thorough inquiry where it appears that someone has been wrongly accused, to the end that one wrongly accused will be vindicated. Evidence must meet the clear and convincing standard in order to revoke a law enforcement certification. Bass v. Florida Department of Law Enforcement, Criminal Justice Standards and Training Commission, 23 Fla. L. Weekly D1455 (Fla. 3d DCA, June 17, 1998).
RATING UPGRADES DOMINATE MUNICIPAL MARKET: For eleven consecutive quarters rating upgrades have topped downgrades in the municipal market. State forecasts of the national economy have tended to be less optimistic than the forecasts of private economists. And although the financial results are excellent, the states were still reluctant to cut taxes or increase spending. Therefore, low forecasts were partly responsible for state surpluses. In turn, the surpluses were partly responsible for credit upgrades outstripping credit downgrades. Benefits from sound state fiscal management flow through to local governments in one form or another. New municipal issues for the first half of this year reached $146 Billion, a 50% increase from 1997. In fact, this half was exceeded only by the first half of 1993 (when refunding skyrocketed because yields plummeted) and the second half of 1995 (when issuers rushed to beat proposed limitations under the Tax Reform Act). Obviously, economic expansion creates needs at the state and local government levels that have to be satisfied with new infrastructure and other services, many of these needs being met through sale of municipal bonds.
ANOTHER PUBLIC PENSION PLAN TAKES CHANCE ON FLORIDA REAL ESTATE: Undeterred by the prior disastrous investments of public plans in Florida real estate (see C&C Newsletters for August, 1996; December, 1996; August, 1997; January, 1998), the California State Teachers Retirement System has paid almost $35 Million for Coastal Tower, a 262,000 square-foot office building in Fort Lauderdale. We don't know who advised CalSTRS on the purchase, but four years ago the building sold for $11 Million -- less than one-third the current price! One broker said the fund paid "top dollar." Another said the purchase is "very pricey in my book." And we can understand why: for CalSTRS to come out, the building will have to lease at a full-service rate of $23 per square foot; the 18,000 square feet currently available leases at $15 per square foot net.
TEMPORARY POSSESSION NOT CUSTODY UNDER PUBLIC RECORDS ACT: Section 119.07(1)(a), Florida Statutes, provides that every person who has custody of a public record shall permit the record to be inspected and examined by any person desiring to do so, at any reasonable time, under reasonable conditions, and under supervision by the custodian of the public record or the custodian's designee. The term "custodian" under the Public Records Act refers to agency personnel who have it within their power to release or communicate public records. In order to have custody, one must have supervision and control over the document or have legal responsibility for its care, keeping or guardianship. Thus, a police lieutenant involved in an internal affairs investigation, who had temporary possession of a document, was not in custody of the document for purposes of the Public Records Act and could not be compelled to provide it in response to a public records request. Mintus v. City of West Palm Beach, 23 Fla. L. Weekly D1453 (Fla. 4th DCA, June 17, 1998).
HEARSAY STATEMENTS ALONE NOT SUFFICIENT TO SUPPORT DENIAL OF DISABILITY: A member of the Florida Retirement System was injured in the line of duty and subsequently suffered a nonwork-related automobile accident. At a hearing on her application for disability pension, her doctor testified that she was totally and permanently disabled as a result of the in-line-of-duty accident. The Division of Retirement presented no witnesses, relying solely upon information contained in medical reports. In overturning the State Retirement Commission's order granting nonservice disability and denying service disability, the District Court of Appeal held that although hearsay is admissible in an administrative hearing it cannot be solely relied upon to deny a work-related disability. Here, the employee sustained the requisite burden of proof by presenting competent medical evidence "by a licensed medical professional, who has either treated or examined the individual, who testifies under oath at the hearing or deposition and is subject to cross examination by the Division of Retirement." Hartley v. Department of Management Services, Division of Retirement, 23 Fla. L. Weekly D1498 (Fla. 5th DCA, June 19, 1998).
INCREASE IN HEARING OFFICER'S RECOMMENDED DISCIPLINE MUST COMPORT WITH STRICT STANDARDS: A hearing officer recommended that a Florida Highway Patrol corporal be suspended for sixty days. However, the Public Employees Relations Commission increased the discipline to dismissal from employment. The District of Appeal reversed: in order to increase or decrease a recommended penalty, the agency must (1) conduct a review of the complete record and (2) state with particularity its reasons therefor in the order, by citing to the record in justifying the action. Here, the corporal had been an excellent employee for ten years, and PERC's increase in penalty did not comport with the foregoing standards. Washington v. Department of Highway Safety and Motor Vehicles, 23 Fla. L. Weekly D1512 (Fla. 2d DCA, June 19, 1998).
LEGISLATURE NOT REQUIRED TO TAKE UP VETO MESSAGES AT TIME THEY ARE PRESENTED: Perhaps apropos of Governor Chiles's veto of House Bill 3075 (see Special Supplement to C&C Newsletter dated May 28, 1998 and C&C Newsletter for June, 1998), the Florida Supreme Court has interpreted Article III, Section 8, of the Florida Constitution, which deals with legislative override of gubernatorial vetoes. The Supreme Court held that although the Secretary of State is required to lay the Governor's veto messages before the appropriate house "at its next regular or special session," there is no express requirement that the Legislature take up the veto messages at the time they are presented. Thus, the Legislature had authority to postpone until the next regular session its consideration of vetoed bills which were previously presented at a special session. Chiles v. Phelps, 23 Fla. L. Weekly S372 (Fla., July 2, 1998).
SECRETARY OF LABOR TO ACT ON SOFT-DOLLAR REPORT:Following the ERISA Advisory Council's Working Group Report on Soft-Dollars (see C&C Newsletter for January, 1998), the Department of Labor will issue guidance for fiduciaries on soft-dollar transactions. BNA reports that the guidance should be issued before the end of summer.
BUT FIDUCIARIES SHOULD MONITOR SOFT-DOLLARS NOW: A report from BNA states that pension plan fiduciaries are obligated to monitor and ask questions concerning soft-dollar transactions. Speaking at a conference sponsored by the International Foundation of Employee Benefit Plans, Securities and Exchange Commission officials warned fiduciaries not to wait until the law requires further disclosure before they ask questions and monitor deals made by their investment advisers. Among other things, there should be specific guidelines for responsible soft-dollar and directed brokerage programs. Trustees should make an effort to understand soft-dollar transactions and monitor how their own plan's investment manager's soft-dollar deals are affecting plan assets.
VAST MAJORITY OF STATES PROVIDE DEPENDENT CARE ACCOUNTS: A Workplace Economics Inc. survey indicates that all states except Delaware, Hawaii, Idaho and Rhode Island provide state employees with pre-tax dependent care accounts. More than half the states provide other forms of child care assistance, such as on-site daycare facilities or subsidies for off-site child care arrangements. In twenty-two states, the full costs of health insurance for individual employees is paid and nine states also pay the full premium for family coverage. We read about the survey in BNA.
BNA SURVEYS EXPENSES AND BUSINESS TRAVEL POLICIES: In addition to everything else that the Bureau of National Affairs does, it also looks at expense reimbursement and business travel policies. The 1997 survey found that meals consumed on business trips are paid for in full by most employers. In fact, only 39% of firms with business travelers impose reimbursement limits for travel meals. Of the 12% that do provide for per diem food allowances, the median per diem allowance was $32.00, up from $29.50 in 1995. Over 70% of firms surveyed impose no restrictions on lodging accommodations or expenditures.
WISCONSIN MUNICIPAL FIREFIGHTERS GET PRESUMPTION FOR CANCER: A bill enacted by the Wisconsin Legislature and reported in BNA creates a presumption that municipal firefighters who get certain kinds of cancer would qualify for service-connected disability or death. In order to be eligible for the new presumption, a firefighter must have undergone an employment physical showing no evidence of the disease and must have worked for at least ten years. Well, it's better than nothing.
FAA "AGE 60 RULE" SURVIVES CHALLENGE: Since 1959, the Federal Aviation Administration has had a rule requiring that airline pilots retire at age 60. Although FAA has reviewed the rule many times and has decided to retain it, the Professional Pilots Federation sought repeal in 1993. FAA's denial of the union's petition was affirmed by the United States Court of Appeals for the District of Columbia Circuit, which in a 2-1 decision agreed that individualized performance tests and medical evaluations would not be able to predict with sufficient accuracy which pilots over the age of 60 would be subject to sudden incapacitation due to an age-related condition. In opposition to the pilots' petition for review by the United States Supreme Court, the Justice Department argued, inter alia, that the Age Discrimination in Employment Act prohibits age bias only by an employer, permitting an agency like FAA to impose age-based regulation on the airline industry without violating the statute. Now that the Supreme Court has denied review, the issue should be laid to rest (at least until the next challenge).
EEOC PUBLISHES FINAL WAIVER STANDARDS UNDER OWBPA: The Age Discrimination in Employment Act, as amended by the Older Workers Benefit Protection Act of 1990, requires that an individual may not waive any right or claim unless the waiver is "knowing and voluntary," and sets out minimum statutory requirements for waivers. The Equal Employment Opportunity Commission has now issued regulations which address the wording of waiver agreements, consideration offered in exchange for a waiver, time periods for employees to consider whether to sign a waiver or to revoke it, information employers must provide the covered employees and the burden of proof in disputes over the validity of a waiver. The full text of the rules appears in Pension & Benefits Reporter.
MEANWHILE, EEOC SUES NEW YORK FOR AGE DISCRIMINATION: Alleging that the New York State Pension Fund has engaged in unlawful age discrimination in providing death and disability benefits, the Equal Employment Opportunity Commission has charged the state with violation of the Age Discrimination in Employment Act. The suit, filed in United States District Court, contends that the pension fund uses a service retirement formula instead of a disability retirement formula to determine benefits for workers disabled after age 60. Similarly, the death benefit plan allegedly discriminates against older workers by restricting the benefit for members joining after age 51. Admirably, Comptroller H. Carl McCall, the fund's sole trustee, has repeatedly urged the legislature and governor to change the statute. EEOC's suit was reported by BNA.
OKLAHOMA RETIREES TO RECEIVE COLA INCREASES: Effective July 1, Oklahoma retired general state employees, firefighters, police and other state law enforcement officers will receive improved cost-of-living increases. Retired members would receive an annual benefit increase by adding a specified amount to their final average compensation for pension computation purposes. COLA increases for retired state employees average over 17%; for retired police officers, 10%; for retired law enforcement officers, 16.7%; and for retired firefighters, 6.7%. BNA reported on the legislation.
FLORIDA "CAP" APPOINTED: As we indicated would be the case (see C&C Newsletter for May, 1998), the nation's first Internal Revenue Service Citizen Advocacy Panel was appointed in South Florida. The 11 members of the CAP, including a police officer, are supposed to identify problems and make recommendations to improve IRS systems and procedures.
NEW YORK ENACTS BLOCKBUSTER PENSION LEGISLATION: The New York State Legislature has approved a package of four bills, one of which provides a cost-of-living increase to retirees and three of which greatly improve benefits to current public employees. The first bill provides a cost-of-living increase for retirees, ranging from 1.5% for recent retirees to more than 500% for those who retired many years ago! The second reduces the vesting period from ten years to five years. Bill number three reduces from twenty-five years to twenty years service needed to receive the maximum benefit. And the fourth bill provides a death benefit to the beneficiary of a vested public employee who dies while not in service. Governor Pataki, says BNA, is expected to sign the legislation, which will cost public employers about $370 Million.
LINE ITEM VETO ACT RULED UNCONSTITUTIONAL: Upholding a ruling earlier this year by the United States District Court for the District of Columbia (see C&C Newsletter for March, 1998), the United States Supreme Court has invalidated the 1996 Line Item Veto Act giving Presidents the power to strike specific spending items from bills. The law violates Article I, Section 7, Clause 2: "Every Bill which shall have passed the House of Representatives and the Senate, shall, before it become a Law, be presented to the President of the United States; If he approve he shall sign it, but if not he shall return it, with his Objections to that House in which it shall have originated... ."
STATE CAN'T "MAKE UP" FOR TAXES BY BENEFIT INCREASES: Almost ten years ago the United States Supreme Court held that a state cannot grant more favorable tax treatment to its retirees than it does to federal retirees. After that decision, in 1991, Oregon ended its exemption from state income tax for state and local government workers. Subsequently, the state legislature also increased benefits to state and local retirees for service prior to the date on which the foregoing exemption was repealed. Finding that said increase constituted a tax rebate in violation of the doctrine of intergovernmental tax immunity as set forth by the United States Supreme Court, the Oregon Supreme Court recently ordered that federal retirees receive an equivalent tax benefit. BNA estimates rebates will total more than $300 Million.
THE MYTHS ABOUT LOW-BACK PAIN: An article in the August 1998 Scientific American deals with seven fallacies about low-back pain: No. 1 -- if you have a slipped disc (that is, herniated or ruptured) you must have surgery. No. 2 -- x-ray and newer imaging tests (like CAT scans and MRI's) can always identify the cause of pain. No. 3 -- if your back hurts, you should take it easy until the pain goes away. No. 4 -- most back pain is caused by injuries or heavy lifting. No. 5 -- back pain is usually disabling. No. 6 -- everyone with back pain should have a spinal x-ray. No. 7 -- bed rest is the mainstay of therapy. Clearly one of our society's most significant nonlethal medical conditions, back pain-related medical care and disability compensation may soon reach $50 Billion. Quite paradoxical, when one considers that the American economy now involves less heavy labor and more automation, while medicine has consistently improved diagnostic imaging of the spine and developed new forms of surgical and nonsurgical therapy. The good news is that most back-pain patients will substantially and rapidly recover, even when their pain is severe. And this prognosis holds true regardless of treatment method or even without treatment. Once serious conditions are ruled out, a sufferer is usually best served by simply attempting to cope as well as possible with a condition that will almost certainly improve in days or a few weeks. Basically, one should take pain relievers as needed, stay in good overall physical condition, keep active through an acute attack if at all possible and monitor the condition for changes over a period of several days.
Edward Yardeni, Deutsche Morgan Grenfell Chief Economist -- "There is a 60% chance that the year 2000 problem could cause a global recession, and that recession may be as severe as the 1973-74 one, when stock prices fell 42%."
Edward Kelly Jr., Federal Reserve governor -- "We are not going to have a catastrophic situation on our hands. Nor will the year 2000 be problem-free. Where will it come out between the two extremes? I don't know that."
Edward Kerschner, PaineWebber Chief Investment Strategist -- "Year 2000 fears are overblown. Even if there are disruptions, a recession is unlikely. Companies have had at least a decade to prepare for the year 2000, and common sense will prevail."
BILL WOULD REQUIRE PRIVATE PLANS TO CONSIDER Y2K ISSUES WHEN MAKING INVESTMENTS: And speaking of Y2K problems, a bill introduced into the United States Senate would amend the Employee Retirement Income Security Act to require that fiduciaries consider Year 2000 computer problems when making investment decisions. The bill, as reported in BNA, would require plan fiduciaries to determine that the issuer of a security has taken, or is taking, steps to remove Y2K problems and that the market in which the security is traded can continue to operate without interruption through the year 2000. Although ERISA does not apply to public plans, its mandates often also make sense in the governmental pension arena.
AND SEC RULE WOULD REQUIRE INVESTMENT ADVISERS TO REPORT Y2K PREPARATIONS: The Securities and Exchange Commission has published for comment a proposed new rule and form under the Investment Advisers Act of 1940 that would require most registered investment advisers to file with the SEC a report regarding preparations for the Year 2000 computer problem. The reports would inform the SEC about the steps that investment advisers have taken, and will take, to prepare for the challenges posed by the Year 2000 problem. New Rule 204-5 would require most registered investment advisers to file new Form ADV-Y2K. Investment advisers would be required to provide information on the following areas: (1) the scope and status of the adviser's Year 2000 compliance plan; (2) the commitment by the adviser of resources and personnel (including consultants) to address Year 2000 issues; (3) the systems that may be affected by the Year 2000 problem; (4) progress on each of six specific steps (awareness, assessment, implementation, internal testing, point-to-point testing and activation of tested software); (5) contingency plans in the event that the adviser experiences Year 2000 difficulties after December 31, 1999; and (6) the readiness of third parties upon whom the adviser relies for critical systems. The form will have to be filed within thirty days after the rule becomes effective and updated, to reflect progress, no later than eight months thereafter.
OUR Y2K QUESTIONNAIRES GO OUT TO CLIENTS: As we indicated we would (see C&C Newsletter for June, 1998), we have transmitted to our clients Y2K Questionnaires to be sent to their providers in order to determine Y2K preparedness. Upon request, we will make available to any reader copies of those materials.

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