The voice Magazine

2946 Wellington Circle East, Suite A Tallahassee, FL 32309 Phone 800-842-4064or 850-668-8552 Fax 850-668-8514 www.fppta.org

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P A I DTALLAHASSEE, FL

PERMIT NO. 467

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Florida Public Pension Trustees Association spring 2011

INSIDE THIS ISSUE :

PROTECTING YOUR

PENSION

2010 Conference Highlights

Unintended Consequences

Municipality Bankruptcy

Client-Focused Investment Solutions

For more than 27 years, RBC Global Asset Management (U.S.) Inc. has provided institutional clients with investment solutions to help them achieve their goals in ever-changing financial markets. Our commitment to providing investment excellence and exemplary client service pervades everything we do. We focus first on understanding each client’s investment needs and then on serving those needs through well-articulated investment strategies.

Proud supporter of the Florida Public Pension Trustees Association

RBC Global Asset Management (RBC GAM) comprises RBC Global Asset Management (U.S.) Inc. (RBC GAM (US)), RBC Asset Management Inc. (RBC AM), Phillips, Hager & North Investment Management Ltd. (PH&N), and RBC Alternative Asset Management Inc. (RBC AAM), which are separate but affiliated corporate entities. ® Registered trademark of Royal Bank of Canada. RBC Global Asset Management is a trademark of Royal Bank of Canada. Used under license. © RBC Global Asset Management (U.S.) Inc. 2010.

RBC Global Asset Management (U.S.) Inc.Mike SpencerVice President, Senior Portfolio Manager155 Federal Street, 16th FloorBoston, MA 02110617-722-4700 • 800-861-8088www.rbcgam.us

Florida Public Pension Trustees Association spring 2011

A Message from the CEO

A Message from the COO

FPPTA Calendar of Events

Thanks to Our Sponsors

Election Committee Report

FPPTA Board of Directors

Chairman’s Message

Educational Programs

FPPTA Education Committee Report

FPPTA Education Committee

Active Pension Board Members

Associate Members

Associate Advisory Board and Members

A Photographic History

2010 Annual Conference Highlights

A CPPT Update

2010 CPPT Awards Ceremony Recipients

CPPT Recipients

Florida Has Many Faces

Freezing a Defined Benefit Plan

The Heat is On

Derivative and Transactional Litigation

How Real Estate Can Assist Defined Plans

Retirement Savings: Who’s on Your Team?

International Investing Opportunity

Safety and Soundness of Investor Assets

2010 Investment Return Rollercoaster

Retiree Health Care Funding

Spending Intelligently in Retirement


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PROTECTING YOUR

PENSION

By Raymond T. Edmondson, CPPT

Doing nothing is worsethan making a mistake.

The Florida Public Pension Trustees Association (FPPTA) is incorporated in the State of Florida as a non-profit educational corporation and holds a 501(c)3 Internal Revenue designation.

What does this mean to you?The FPPTA is not publicly traded – it is owned by its members.

Only Pension System members (termed “Active” in the Associationby-laws) have voting rights. All other members have full rights and

privileges with the exception of the right to vote. All members have a voice, and YES, wedo listen to the voices of ALL our members.

How can you make your opinions and concerns be heard?

• By attending the General Membership meeting held on Monday mornings at our conferences.

• By attending the Board of Directors meetings held at our schools and conferences. • By getting involved with committees. • By using the interactive portion of the monthly E-newsletter. • By asking to have a Town Hall meeting. • By suggesting topics for educational sessions• By writing articles for the E-newsletter and the Voice.

I constantly say, “Help us help you,” “Email me,” or “Write a letter.” For the mostpart, this has fallen on deaf ears.

The FPPTA constantly strives for more transparency. We put out financial reportseven though few read them. Recently we updated our website to include Board of Directors’ meeting minutes, the Association’s By-Laws and yearly budget.

WeWANT you to know how your organization is managed and administered. In 1992,the membership found out what complacency can do to an organization. The then president thought that FPPTA money was his money. Once his crime was exposed, greatturmoil ensued, but with the steadfast support of active and associate members we survived and prospered. Today we have built-in safeguards against this ever occurringagain, but a look-back still reflects how complacency by members can virtually destroyan organization. A new initiative “Get Involved” is coming soon. We are working on anew program where you can get involved on the local level to protect your pensions.

Thanks for allowing me to serve you. n

A Message from the CEORAYMOND T. EDMONDSON, JR. – FPPTA, CHIEF EXECUTIVE OFFICER

PublisherRaymond T. Edmondson, Jr.,

CPPT

EditorAnn Thompson, CPPT

Associate ConsultantsLois EdmondsonKim Ryals, CPPTTom Thompson

Graphic DesignVanessa Zein-Eldin

For more information on advertising,

please contact us: 800-842-4064, [email protected]

FPPTA Mission StatementThe FPPTA has been

established for the purpose of providing education and information for the public

pension system and to protectdefined benefit pension plans.

The information in this publication is presented in good faith. The publisher assumes no

responsibility for errors, omissions, or misinterpretations.

spring 2011

RAYMOND T.EDMONDSON, JR. CPPT, FPPTA CEO

Want to advertise in the next issue of the VOICE? See page 35 for details.

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By: Kim Ryals, CPPTCOO, FPPTA

As many of you are aware,we have been working on ournew website and database forthe past couple of years. Our objective was to provide a userfriendly site where you would

find the tools to better fulfill your responsibilities as atrustee and an associate. After countless e-mails andconference calls with our programmer, Feng Xiao, I amconfident that we have accomplished our goals. We have done much to improve the website and thedatabase to help make it an easy-to-use experience foryou, while at the same time gathering the data weneed to keep improving the quality of the organiza-tion’s service.

We still have a few more projects lined up. One isa survey of our pension system members. With thedata we gather from the survey we hope to provideyou information that will help you compare and network with other pension systems in the state ofFlorida. Toward the beginning of the 2011 we will beasking you to complete the survey and I do hope youwill take the time to fill it out. It will help us better serveyou.

Additionally, the website project remains a work in progress. I think we have created a much smootherand user friendly membership renewal process. Membership can be renewed online with a credit cardpayment or by choosing “check to follow.” The processrequires you to update and/or verify that the trusteelist is current and correct. This ensures we have the correct information and qualifies you to vote in the

Board of Directors Election that takes place annuallyduring the June Conference.

We have made some good changes and additionsto the website. We have added PDF versions of publi-cations and documents such as the Voicemagazine, theAssociation By-laws, and the minutes from Board of Directors meetings. All are online now and can beviewed with the new file reader program.

Sue Marden, our Public Relations Consultant, andMaurice Rivenbach have been working hard on theFaces of Florida initiative. They have developed a “60Second Spot” – an advertisement – to help get out themessage about protecting defined benefit pensionplans. You will find this spot posted on the FPPTA homepage. We have also added several new stories/videosto the Faces of Florida collection. Two of them areFPPTA Directors: Joe Liguori (Delray Beach Police & Fire)and Steve Aspinall (St. Petersburg Police). We hope thatwhen you speak with legislators from your districts and others who want to do away with your definedbenefit plan you will direct them to our site and all theinformation there at their fingertips.

We can also setup a Town Hall meeting for you, at no cost to your plan or municipality. A Town Hall meeting is designed to address the particular issue(s)that your plan is confronting. Professionals, from theFPPTA membership, will outline the pros and cons ofthe concerns for you. These individuals, all of whom volunteer their time for Town Hall meetings, are veryvaluable allies in the fight to maintain defined benefitplans.

We are also working on and are very excited abouta new educational initiative that will be introduced atthe January Trustees School at Renaissance Resort atWorld Golf Village. I hope to see you there! n

A Message from the COO

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Schools are structured classrooms, 9:00am- 5:00pm.We provide lunch and keep you under the same A/C. People in our CPPT program sign in and sign out and have roll-call attendance. A study hall and hospitality room are provided (withfree pizza and beverages). If you are in the CPPT program, examsare held on Wednesday morning. School attendance has beenapproximately 450 people per school.

Conferences are a much lighter atmosphere,family oriented, with more panel participation sessions analyzingthe economy and national issues along with some state and localconcerns. There are no sign-in sheets. Our sessions are very wellattended. We also have a vendor exposition area where you canmeet various service providers, supervised children’s breakfast,children’s activities and the Federal children’s ID program. Ourconference attendance totals run between 1,800-2,000 people,including family members. n

What is theDifference?FPPTA

eventsTrustee SchoolJanuary 30 – February 2, 2011Renaissance Resort at World Golf VillageSt. Augustine, FL

CPPT CEU Wall Street Program(FULL)March 23 – 26, 2011New York, NY

Annual ConferenceJune 26 – 29, 2011Renaissance Sea World ResortOrlando, FL

Trustees SchoolOctober 2 – 5, 2011Tampa Marriott WatersideTampa, FL

Trustee SchoolFebruary 5 – 8, 2012Hyatt Regency Jacksonville RiverfrontJacksonville, FL

Annual ConferenceJune 24 – 27, 2012Hilton DisneyOrlando, FL

Trustee SchoolOctober 7 – 10, 2012Hyatt Coconut PointBonita Springs, FL

MAKE PLANS TO ATTEND!

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This year experienced a hotly contested electionprocess as we had 3 candidates for 2 director positions.The outcome produced another close election for aFPPTA director position. There were only 14 votes between second and third place. The candidates as always worked hard to get the vote out, and we thankthem for their efforts. Vote turnout numbers continueto show strong interest in our organization; over 60% of our total membership attended our 2010 annualconference. Of those 127 boards present, 104 pickedup their ballot and voted. As usual we had to disqual-ify 1 ballot for voting for only 1 candidate, despite specific directions to vote for 2 candidates. This voteturn out was excellent, approximately 82% of theboards present exercised their ballot. The numbers indicate that over 40% of our total membership actu-ally voted in this election.

Once again we are pleased with the participationof out membership. Involvement by our member

boards remains a positive factor and we are encour-aged by this. Remember the FPPTA is run by and belongs to its membership so don’t become compla-cent, get involved and participate.

Congratulations, to all the candidates. Welcomeback to the board of directors the successful candi-dates, both incumbents returned to the board of directors. We express our thanks to the appointedcommittee members who worked hard and diligentlyon the election process.

Vote totals:

Gary Clark . . . . . . 69Tim Olsen . . . . . . 55Ann Thompson . 84

104 member boards cast 208 votes. n

Election Committee Report9

theVOICE . S

PRING 2011

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Pete Prior, CPPTChairman,

Trustee

Hialeah Gardens

Police Officers’ Pension Fund

George J. Farrell, III,CPPT

Vice Chairman

Trustee, Sunrise Firefighters’

Pension Fund

Ann Thompson, CPPTSecretary,

Trustee

Vero Beach


Steve Aspinall, CPPTTreasurer,

Trustee

St. Petersburg


Brenda Clanton,CPPTDirector,

Human Resources Director

City of Wilton Manors

Joe Liguori, CPPTDirector,

Trustee

Delray Beach

Police and Fire Pension Fund

Renee Lipton, CPPTDirector Emeritus

Ken Harrison, CPPTDirector Emeritus

Raymond T. Edmondson, Jr., CPPT

FPPTA,

Chief Executive Officer

Kimberlie Ryals,CPPTFPPTA,

Chief Operating Officer

The FPPTA Board of Directors10


Gary Clark, CPPTDirector,

Trustee

Winter Haven

Firefighters’ Pension Plan

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By: Pete Prior, CPPTChairman, FPPTA Board of DirectorsTrustee, Hialeah Gardens Police Officer’s Pension Fund

Time is fast passing andhere we are with another yearbehind us all. As we bid good-

bye to 2010 and welcome 2011, I hope everyone hada Merry Christmas and very Happy Holidays and I wishyou a great New Year. The latter wish may be difficultdue to the proposed changes in legislation being ban-tered about, specifically for those members that arepart of the Florida Retirement System. Rumors wererunning rampant at the time of this writing, as to whatthe new Governor wants to do with FRS. It does appearthat he wants the 700,000 employees to share in making contributions to of their Plan, thereby savingthe State millions of dollars in contributions. It was rumored that the cost of living may be in jeopardy, aswell as the 6% fixed rate of return on DROP accounts.We know this was vetoed by Governor Crist but it appears that the Legislature may want to look at itagain. By the time this article is distributed we shouldalready have more information.

As for Municipal Plans, the League of Cities, not tobe outdone by the Governor, has their own plan ofdownsizing local and district pension plans enjoyed bythe employees that who provide services to the public,during good weather or bad, who answer the call ofduty, regardless of their own risk, to make the our communities a safer places to live. We all realize that in the private sector, people have been laid off or terminated for one reason or another. Homes are beinglost, foreclosed, or shortlisted, making the Americandream of home ownership a thing of the past. TheLeague of Cities is using this as an excuse to placeblame on the government worker stating that theirpensions have a direct correlation to these losses orbetter yet, the League wants us to believe that publicsalaries, benefits, and pensions have overshadowedthose in the private sector. No longer are governmentjobs sought after by those rejected by the private sector. Public safety employees are a highly skilledgroup of individuals with degrees in management,nursing, paramedic, public administration, and criminaljustice to name a few. Public works employees also playa vital role in public safety; from the clean water we allexpect and enjoy; the clean streets and manicured

medians that improve the look and quality of life weenjoy. Yet the League would like to change that by creating legislation that would do the following:

• Allow cities receiving insurance premium tax revenues under Chapters 175 or 185, Florida Statutes,(fire and police defined benefit pension plans) to usethese funds to pay for current plan benefits. Thiswould remove the state law mandate that specifiedinsurance premium tax revenues be used only for“new or extra” pension benefits for firefighters andpolice officers.

• Require that determinations of average final compensation in public employee defined benefitpension plans include salary only, and do not includepay for overtime, unused leave times, or any other additional payments.

• Allow cities to convert firefighter and police officerdefined benefit pension plans operating underChapters 175 or 185, Florida Statutes, to the FloridaRetirement System without losing insurance premium tax revenues.

• Allow cities desiring to place their public safety officers (fire and police) into the Special Risk Class ofthe Florida Retirement System the opportunity to purchase past credit service at an up-to-3% annualaccrual rate rather than the current up-to-2%. Thiswill remove a practical barrier to convert plans to theFlorida Retirement System.

• Change the governance structure of pension boardsof trustees to move away from having plan partici-pants serve on the boards.

• Require 30-year cost projections on any proposedbenefit increase to a defined benefit pension plan.

• Allow cities to reduce defined benefit pension levelswithin all plans if it is determined to be actuarially appropriate in order to stabilize the plan's fundingand keep the plan properly funded.

• Restrain the state Division of Retirement's non-rulebased administrative activities and restrict the Division's broad interpretations of the provisions inChapters 112,175 and 185, Florida Statutes that result in increased pension costs to cities.

Chairman’s Message12


• Provide flexibility to cities in the Florida RetirementSystem by allowing them to either retain a standarddefined benefit plan, or at the employer’s optionmove to a different retirement plan, such as a hybrid,or modified “defined benefit/defined contribution”plan. This will provide flexibility to cities in the FRS todecide at the employer level which pension plan toprovide to its employees. The goal would be to reduce long-term taxpayer impacts and provide areasonable pension plan with economic diversifica-tion for plan members.

• Remove statutory disability presumptions for fire-fighters and police officers claiming disability pension or workers’ compensation benefits.

• Remove statutory provisions requiring those citiesand other governments offer subsidized health, hospitalization and other insurance coverage’s to retirees.

As you can see, 2011 will be a very busy year. I encourage you all to contact your local municipal ordistrict commissioners, State and Federal Legislators

and advice them to not make wholesale changes toyour future livelihood. The consequences would bethat If so, we, the people voters, will make the nextchanges to their livelihood at the next election.

I would be remiss if I did not take the time to thankthe FPPTA staff for the work they do in providing theformat of education to all the trustees. In 2010 theBoard of Directors made difficult decisions with regarding the 2011 budget. We froze salaries for thestaff, something we did not like doing, but felt was necessary. We have again asked the CEO to continue tobe creative in delivering services to the membershipwhile containing costs to all. We recognize that it is achallenge but knowing Ray for as long as I have knownhim, he is up to the challenge. I look forward to seeingeveryone at the upcoming schools and conference andmay 2011 bring much good health and much luck –I think we may need it. n

13

theVOICE . S

PRING 2011

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FPPTA New Member Orientation Program: The FPPTA has created a formal “New Member Orien-tation Program” for all of its new members. If you’re a trustee, administrator, or associate member, this program will provide you with information aboutFPPTA educational programs, public pension researchand communication offerings, as well as an introduc-tion to FPPTA’s national affiliations. This program is conducted at the two Trustee Schools held each year.

FPPTA New Trustee Program: The FPPTA will conduct a New Trustee Program startingat its October Trustee School. A panel consisting of anactuary, administrator, attorney and consultant will informally present “What the New Trustee Needs toKnow.” The panel will allow the new trustee a forumto ask the many pertinent questions about being andtrustee. The panel will also assist in identifying the keyissues that every new trustee should be aware of regarding the public pension industry. This program isconducted at the two Trustee Schools held each year.

FPPTA CPPT Program: The goal of the CPPT Program is to provide an educa-tional setting that is conducive to the development ofwell-informed trustees, so that they will be able to ac-tively and meaningfully participate in the managementof their retirement boards. Attaining certification willenhance your fiduciary role as a contributing memberin your retirement system. The CPPT Program has beendesigned to accommodate both the novice just start-ing in the pension trustee role, as well as the seasoned

veteran who has served many terms. There are threelevels: (1) basic; (2) intermediate and (3) advanced. Tobe eligible for the CPPT certification, you will need topass examinations at all three levels. After passing theadvanced course, your certification begins. After youare certified, you maintain your accreditation by com-pleting the annual post certification requirements.

FPPTA Wall Street Program: The FPPTA conducts this educational program eachspring in New York City. Program participants have theopportunity to experience the excitement of the NewYork Stock Exchange. This three day program consistsof a tour and presentation about how stocks are traded,participation in a day of “Building a Pension Portfolio”with our program sponsors, and finishes up with a visitand a presentation of the history of Wall Street. Program participants must have already completed theCPPT Program.

FPPTA Town Hall Program: The public pension industry is in crisis. This programhas been designed to assist the pension board trusteeto convey necessary information that its members andlocal officials need to understand. The Florida Legisla-ture has introduced a number of legislative initiativesthat would drastically impact the defined benefit plansoffered to public employees in Florida. The FPPTA hasput together a panel of pension professionals who willprovide program participants with updated informa-tion about defined benefit plans and the legislative actions that have been introduced in Tallahassee. n

FPPTA Educational Programs14


By: Peter C. Hapgood, FPPTA Education Consultant

As government revenues,from sales and income taxes, decline due to double digit unemployment, coupled withthe impact of the massive num-ber of foreclosures and the

depreciation of property values averaging around 40%,resulting in lower property taxes, state and local governments are facing many tough decisions. Actually theNational Conference of State Legislators(NCSL) is predicting that the next two years will beworse than the last two. Obviously with this in mind,public employee benefits are at the top of everybudget reduction hit list.

Unlike the federal government, state and localbudgets MUST be balanced on an annual basis sosome very tough decisions will be made with con-cerned and sometimes angry taxpayers watching veryclosely (as they should) on how each decision is goingto impact them personally. The major fear that we haveis that drastic short-term decisions will be made by ourstate and local leaders without them having all thefacts.

Through our educational programs, the FPPTA emphasizes the need for effective communications todecision makers on all levels throughout the state ofFlorida. The message must be communicated by ourpension trustees and pension professionals to ensurethe beneficiaries of these public pension plans a safe,secure and adequate retirement benefit. Our goal iswhen these tough decisions are made they are madewith a better understanding of the pension issues thatalso address the long-term ramifications of their decisions.

The FPPTA throughout its 2010 trustee educationalprograms has concentrated on the main issues that allpublic plan fiduciaries need to understand. All pro-grams include fiduciary and ethical practices, benefitcomposition, benefit analysis and funding schedules,asset allocation and portfolio construction, economicforecasts, legal opinions as well as legislative activityon the local, state and federal level. The FPPTA alsojoined the National Institute on Retirement Security

(NIRS) which has provided a significant amount of research on Defined Benefit Plans nationwide that canbe broken down and utilized by the FPPTA member-ship. Throughout 2010 we have also utilized and incorporated the expertise of Susan Marden and FredNesbitt, FPPTA’s public relations and media consultantsrespectively, into our educational programs.

Our winter and fall Trustee Schools were very well attended. Our 26th Annual Conference held in Naples, FL had over 600 attending trustees who enjoyed our program theme: “Communications: Defined Benefit Plans Setting the Record Straight”,obviously emphasizing the importance of communi-cating to the constituency groups who make up thepublic pension fund industry.

I’d like to personally thank all of the members ofthe FPPTA Education Committee who volunteer theirtime, industry knowledge and public pension experi-ence; who dedicate many hours to assure that themembership receives the best possible education thatcan be provided.

We are busy preparing for the four scheduled programs for 2011. Our first program of the New Yearwill be held at the Renaissance Resort at the World GolfVillage in St. Augustine January 30th through February2nd. The FPPTA has established its role as an educatorof pension trustees and is available to any and all pension boards and trustees who would like to take advantage of our quality programs that will assist themin performing their duties as a public pension plantrustee.

For more information on membership or simplyjust our program offerings, please go to www.fppta.orgor call (800) 842-4064. n

FPPTA Education Committee Report15

theVOICE . S

PRING 2011

The Future is Now…Providing Security to Public Employees

ANNUAL MEETING

PHOTOSPAGES 26-31

FPPTA Education Committee 16


Peter C. Hapgood, CPPTEducation Committee Chairman

Public Pensions Inc.

Kim Ryals, CPPTCPPT Program Coordinator

FPPTA Chief Operating Officer

Ray Edmondson, CPPTFPPTA Chief Executive Officer

Pete Prior, CPPTFPPTA Board Chairman

Hialeah Gardens Police Pension Fund

Steve Aspinall, CPPTFPPTA Board Treasurer

St. Petersburg Police Pension Fund

Ann Thompson, CPPTFPPTA Board Secretary

Vero Beach Police Officers Pension Fund

Joseph Liguori, CPPTFPPTA Board Member

Delray Beach P&F Pension Fund

Katie Byrne, CPPTFPPTA Advisory Board Member

DePrince, Race & Zollo

Jack Farland, CPPTPublic Pensions On-Line, inc.

Grant McMurry, CPPTFPPTA Advisory Board Member

ICC Capital Management

Michael Spencer, CPPTFPPTA Advisory Board Member

RBC Global Asset Management (U.S.) Inc.

Steve Corbet, CPPTSt. Petersburg Police Pension Fund (former trustee)

Richard Grover, CPPTPensacola Fire Pension Fund

Dennis Hole, CPPTFt. Lauderdale P&F Pension Fund

Tim Olsen, CPPTMelbourne Fire Pension Board

FPPTA Staff:

FPPTA Board of Directors Representatives:

FPPTA Associate Members:

FPPTA Trustee Members:

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The FPPTA has taken the public pension industry to a higher level through its educationalprograms and membership in other organizationssuch as:

National Conference on Public Employees Retirement Systems (NCPERS):We purchase necessary research materials fromits research series, produced by the best mindsand resources in the industry.

National Pension Education Association:Excellent pre-retirement programs.

Public Pensions OnLine (PPO):The best source of pension information and legislation information in the country. We havepurchased a membership for each FPPTA pensionsystem member. You can utilize this free of charge.Individual memberships and corporate member-ships are also available.

The FPPTA draws on this brain trust for speak-ers and advice. We work closely with the FloridaProfessional Firefighters on legislative issues that concern the local municipalities and ourmembership in the pension areas as well as with other issues that may impact pension systems. Thanks to their membership in theFPPTA, pension systems, trustees, protective asso-ciations and associate members, the FPPTA hasbeen able to create the best education organiza-tion in the country. Because we have reached outto other states and organizations, we have beenable to increase our membership and attendanceat our functions. The best compliment we receiveis when others ask “how can we do what youdid?”

The FPPTA Board of Directors has played avital part in this development by employing contracted employees who perform the day-to-day business of the organization and by allowingnew programs to be created – some that were, at the time, iffy. They never micromanaged theoperation of the corporation, yet their oversightwas, and still is, always there. n

Continuing Your Education... 17

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Like many industries, the retirement profession is acronym and abbreviation crazy. Here is a list from www.401khelpcenter.comwith some of the more common acronyms and abbreviations:

COBRA = Consolidated Omnibus Budget Reconciliation Act COLA = Cost of Living Adjustment DB = Defined Benefit DC = Defined Contribution DOL = Department of Labor DRO = Domestic Relations Order EE = Employee EESA = Emergency Economic Stabilization Act EFT = Electronic Fund Transfer EGTRRA = Economic Growth and Tax Relief Reconciliation Act of 2001 EIN = Employer Identification Number EPCRS = Employee Plans Compliance Resolution System ER = Employer ERISA = Employee Retirement Income Security Act ETF = Exchange Traded Fund FICA = Federal Insurance Contributions Act GIC = Guaranteed Investment Contract GUST = Four tax laws that changed how retirement plans operate. IPS = Investment Policy Statement IRA = Individual Retirement Account IRC = Internal Revenue Code IRS = Internal Revenue Service NRA = Normal Retirement Age PBGC = Pension Benefit Guaranty Corporation PPA = Pension Protection Act of 2006 QDRO = Qualified Domestic Relations Order QJSA = Qualified Joint and Survivor Annuity QPAM = Qualified Professional Asset Manager REIT = Real Estate Investment Trust RMD = Required Minimum Distribution SBJPA = Small Business Job Protection Act SPD = Summary Plan Description SSA = Social Security Administration SSN = Social Security Number TAMRA = Technical and Miscellaneous Revenue Act TEFRA = Tax Equity and Fiscal Responsibility Act TPA = Third Party Administrator TRA = Taxpayer Relief Act of 1997 UPIA = Uniform Prudent Investment Act USERRA = Uniformed Services Employment and Reemployment Rights Act

We hope you will find these acronyms and abbreviations helpful, including the one we made up just to see ifyou were paying attention. The unabridged version is at http://www.401khelpcenter.com/acronyms.html. n

Retirement Industry Acronyms & Abbreviations18


19

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2010 Active Pension Board MembersAmalgamated Transit 1577 Pension Fund

Amalgamated Transit 1596 Pension Fund

Atlantic Beach General & Police Employees

Aventura Police Officers Pension Fund

Avon Park Firefighters Pension Fund

Avon Park Police Officers Pension Fund

Bal Harbour Police Officers Pension Fund

Bartow Firefighters Pension Fund

Bartow Police Officers Trust Fund

Boca Raton General Employees Pension Fund *

Boca Raton Police &Fire Pension Fund

Bonita Springs Firefighters Pension Fund

Bonita Springs Fire District General Employees

Boynton Beach Firefighters Pension Fund

Boynton Beach General Employees Pension Fund

Boynton Beach Police Pension Fund

Bradenton Firefighters Pension Fund

Bradenton Police Officers Pension Fund

Cape Coral Firefighters Pension Fund

Cape Coral General Employees Pension Fund

Cape Coral Police Pension Fund

Clearwater Firefighters Pension Fund

Clearwater General Employees Pension Fund

Cocoa Firefighters Pension Fund

Cocoa General Employees Pension Fund

Cocoa Police Pension Fund

Cooper City Firefighters Pension Fund

Cooper City General Employees Pension Fund

Cooper City Police Officers Pension Fund

Coral Gables General Employees Pension Fund

Coral Gables Police Officers Pension Fund

Coral Springs Firefighters Pension Fund

Coral Springs Police Pension Fund

Dade County Firefighters Insurance Trust

Dania Beach General Employees Pension Fund

Dania Beach Police & Fire Pension Fund

Davie Firefighters Pension Fund

Davie Management and General Employees Pension

Davie Police Officers Pension Fund

Daytona Beach Police & Fire

Deerfield Beach Firefighters Pension Fund

Deerfield Beach General Employees Pension Fund

Deerfield Beach Police Officers Pension Fund

Deland Police Officers Pension Fund

Delray Beach General Employees Pension Fund

Delray Beach Police & Fire Pension Fund

Dunedin Fire

East Lake Tarpon

East Naples Firefighters Pension Fund

East Point (GA) Employees Retirement Plan Pension

Board

Edgewater General Employees

Edgewater Police Officers Pension Fund

Englewood Firefighters Pension Fund

Eustis Fire

Fernandina Beach General Employees Pension Fund

Fernandina Beach Police & Fire Pension Fund

Fort Pierce General Employees Pension Fund

Fort Pierce Police Pension Fund

Ft. Lauderdale General Employees Pension Fund

Ft. Lauderdale Police & Fire Pension Fund

Ft. Myers General Employees

Ft. Walton Beach Firefighters Pension Fund

Ft. Walton Beach General Employees Pension Fund

Gainesville Consolidated Board of Trustees

Gainesville General Employees Pension Fund

Georgia Firefighters Pension Fund

Georgia Judges Pension Fund

Georgia Peace Officers Pension

Golden Beach General Employees Pension Fund

Greater Orlando Aviation Authority

Hialeah Firemen's Relief and Pension Fund

Hialeah Gardens Police Pension Fund

Hialeah General Employees Pension Fund

Hialeah Police Officers Pension Fund

Holly Hill Firefighters Pension Fund

Holly Hill Police Officers’ Retirement Fund

Hollywood Employees’ Retirement Fund

Hollywood Firefighters Pension Fund

Hollywood Police Officers’ Retirement System

Homestead Firefighters Retirement Plan

Homestead General Employees Pension Fund

Homestead Municipal Police Officers’ Retirement

Trust Fund

Indiatlantic Police & Fire

Jackson Health Systems

Jacksonville Beach Firefighters Retirement System

Jacksonville Beach General Employees Retirement

System

Jacksonville Beach Police Officers’ Retirement

System

Jacksonville Retirement System

Jupiter Police Officers Pension Fund

Key Biscayne Police & Fire Retirement Plan

Key West General Employees Pension Fund

Key West Housing Authority Pension Fund

Key West Police & Fire Pension Board

Key West Utility Board

Kissimmee Firefighters Pension Fund

Kissimmee General Employees Pension Fund

Kissimmee Police Officers Pension Fund

Kissimmee Utility Authority Employees’ Retirement

Lake City Firefighters Pension Fund

Lake City General Employees Pension Fund

Lake Wales Firefighters Pension Fund

Lake Wales General Employees Pension Fund

Lake Wales Police Officers Pension Fund

Lake Worth Firefighters Division II Pension Fund

Lake Worth Firefighters Pension Fund

Lake Worth General Employees Pension Fund

Lake Worth Police

Lake Worth Police Relief & Pension Fund – Division II

Lakeland Employees’ Pension Board

Lakeland Firefighters’ Pension Fund

Lakeland Police Officers Pension Fund

Lantana Firefighters’ Pension Fund

Largo Police & Fire Pension Fund

Lauderhill Confidential & Managerial

Lauderhill Firefighters’ Pension Fund

Lauderhill Police Officers Pension Fund

Lighthouse Point Police & Fire

Longboat Key Firefighters Pension Fund

Longboat Key General Employees Pension Fund

Longboat Key Police Officers Pension Fund

Maitland Police & Fire Pension Fund

Marathon Firefighters Pension Fund

Marco Island Firefighters Pension Fund

Melbourne Fire Pension

Melbourne General Employees Pension Fund

Melbourne Police Officers Pension Fund

Miami Beach Employees’ Retirement Plan

Miami Beach Police & Fire

Miami Beach Police Relief & Pension Fund

Miami Fire & Police Pension Fund

Miami Firefighters’ Relief & Pension Fund

Miami General Employees

Miami Springs General Employees Pension Fund

Miami Springs Police Pension Fund

Milton General Employees Pension Fund

Miramar Firefighters Pension Fund

Miramar General Employees Pension Fund

Miramar Police Pension Fund

Mount Dora General Employees Pension Fund

Mount Dora Police Officers Pension Fund

New Port Richey Firefighters Pension Fund

New Port Richey Police Officers Pension Fund

New Smyrna Beach Firefighters Pension Fund

North Miami Beach General Employees Pension

Fund

North Miami Beach Police & Fire

North Miami Police Officers Pension Fund

North Miami Singerman Pension Fund

North Naples Firefighters Pension Fund

North Palm Beach Police & Fire Pension Fund

North Port Firefighters Pension Fund

North Port Police Officers Pension Fund

continues on page 20

OVER 40 YEARS OF HIGH QUALITY INVESTING

Mary McTague [email protected] Jim Skesavage [email protected]

404-876-9411 | www.atlcap.com

IS PROUD TO SUPPORT THE FLORIDA PUBLIC PENSION TRUSTEES ASSOCIATION

North River Firefighters Pension Fund

Oakland Park Police & Fire Pension Fund

Ocala Firefighters Pension Fund

Ocala General Employees Pension Fund

Ocala Police Officers Pension Fund

Ocoee General Employees Pension Fund

Ocoee P&F Pension Fund

Orange Park Police Officers Pension Fund

Orlando Fire

Orlando Police Officers Pension Fund

Ormond Beach Firefighters Pension Fund

Ormond Beach General Employees Pension Fund

Ormond Beach Police Officers Pension Fund

Oviedo Firefighters Pension Fund

Palm Bay Police & Fire Pension Fund

Palm Beach County Firefighters Retirement &

Insurance Fund

Palm Beach Gardens Fire

Palm Beach Gardens Police Officers Pension Fund

Palm Harbor Firefighters Pension Fund

Palm Springs General Employees Pension Fund

Palm Springs Police

Palmetto General Employees Pension Fund

Palmetto Police Officers Pension Fund

Parrish Medical Center

Pembroke Pines Police & Fire Pension Fund

Pensacola Firefighters Pension Fund

Pensacola General Employees Pension Fund

Pensacola Police Officers Pension Fund

Pinellas Park Firefighters Pension Fund

Pinellas Park General Employees Pension Fund

Pinellas Park Police Officers Pension Fund

Plantation General Employees Pension Fund

Plantation Police Officers Pension Fund

Plantation Volunteer Fire Pension Fund

Pompano Beach General Employees Retirement

System

Pompano Beach Police & Fire Pension Fund

Port Orange General Employees

Port Orange Police Officers Pension Fund

Port St. Lucie Police Officers Pension Fund

Punta Gorda General Employees Pension Fund

Riviera Beach Firefighters Pension Fund

Riviera Beach General Employees Pension Fund

Riviera Beach Police Officers Pension Fund

Rockledge Firefighters Pension Fund

Rockledge General Employees Pension Fund

Rockledge Police Officers Pension Fund

Sanford Firefighters Pension Fund

Sanford Police Officers Pension Fund

Sanibel General Employees Pension Fund

Sarasota Firefighters Pension Fund

Sarasota General Employees Pension Fund

Sarasota Police Officers Pension Fund

Sebring Police Officers' Retirement Trust Fund

Seminole Firefighters Pension Fund

South Miami General Employees Pension Fund

South Miami Police Officers Pension Fund

St. Augustine Firefighters Pension Fund

St. Augustine General Employees Pension Fund

St. Augustine Police Officers Pension Fund

St. Cloud General Employees Pension Fund

St. Cloud Police & Fire Pension Fund

St. Lucie County Firefighters Pension Fund

St. Lucie County General Employees Pension Fund

St. Petersburg Beach Firefighters Pension Fund

St. Petersburg Beach Police Officers Pension Fund

St. Petersburg Firefighters Pension Fund

St. Petersburg General Employees Pension Fund

St. Petersburg Police Officers Pension Fund

Starke Firefighters Pension Fund

Starke General Employees Pension Fund

Starke Police Officers Pension Fund

Sunrise Firefighters Pension Fund

Sunrise General Employees Pension Fund

Sunrise Police Officers Pension Fund

Tallahassee 175 Pension Fund

Tallahassee 185 Pension Fund

Tallahassee General Employees Pension Fund

Tamarac Firefighter Pension Fund

Tamarac General Employees Pension Fund

Tamarac Police Officers Pension Fund

Tampa Fire & Police Pension Fund

Tampa General Employees Pension Fund

Tarpon Springs Firefighters Pension Fund

Temple Terrace Firefighters Pension Fund

Tequesta General Employees Pension Fund

Tequesta Public Safety Pension Fund

Titusville General Employees Pension Fund

Titusville Police & Fire Pension Fund

Town of Palm Beach Firefighter Retirement System

Venice Police Officers Pension Fund

Vero Beach Police Officers Pension Fund

West Palm Beach Firefighters Pension Fund

West Palm Beach General Employees Pension Fund

West Palm Beach Police Officers Pension Fund

Wilton Manors General Employees & Police Pension

Fund

Winter Garden General Employees

Winter Haven Firefighters Pension Fund

Winter Haven Police Officers Pension Fund

* Boca Raton General Employees Pension Fund was

inadvertently omitted from 2009 membership

listing published in prior issue of the Voice. n

2010 Active Pension Board Members continued...20


3E Tech Corp

Aberdeen Asset Management

Acadian Asset Management

Advanced Investment Partners

Agincourt Capital Management

Allegro Capital Management

American Century Investments

American Realty Advisors

AmeriPlan Financial

Ancora Advisors

Argent Capital Management

Artio Global Investors

Asset Consulting Group

Asset Protection Group

Atlanta Capital Management Co., LLC

Aviance Capital Partners

Babson Capital Management

Barroway, Topaz, Kessler, Meltzer & Check

Benefits USA

Berman DeValerio

Bernstein Liebhard

Bernstein Litowitz Berger & Grossmann

BNY Mellon

Bogdahn Group

Boyd Watterson Asset Management

Bradford & Marzec, Inc.

Broadridge Financial Solutions, Inc.

Buck Consultants

Buckhead Capital Management

Burgess Chambers Associates

Capital Institutional Services

Capital Management Associates, LLC

CapTrust Advisors, LLC

Cavanaugh Macdonald Consulting

Christiansen & Dehner, P.A.

ClearBridge Advisors

Cohen & Rind, P.A.

Comerica Bank

ConvergEx Group

Cornerstone Real Estate Advisers, LLC

Cortina Asset Management

Credo Capital Management

Cypen & Cypen

D.E. Shaw Investment Management

Dahab Associates

Dana Investment Advisors

Database Financial Services

Davidson, Jamieson & Cristini

Delaware Investments

Denver Investments

DePrince, Race & Zollo

Development Corporation For Israel/Israel Bonds

Dimensional Fund Advisors

Dow Jones Indexes

DuPont Capital Management

Eagle Asset Management

EFI Actuaries

ENDEX Capital Management, LLC

EnTrust Capital Inc.

Faf Advisors

Fifth Third Bank

FISCO

Foster & Foster Consulting Actuaries, Inc.

Frazer Hubard Brandt Trask

Freiman Little Actuaries, LLC

Gabriel, Roeder, Smith & Co.

Garcia Hamilton & Associates

Gator Capital Management

George Ling (Individual Member)

GE Asset Management

Grant & Eisenhoffer

Gray Robinson , P.A.

Great Lakes Advisors

Greenberg Traurig, P.A.

GTIS

GTS Advisors

Guidance Capital

Hansberger Global Investments

Harris Investment Management

Hermes Investment Management (NA)

Highmark Capital Management

Howland & Associates

ICC Capital Management

Intech Investment Management

Integrity Fixed Income

Intercontinental Capital Management

Intercontinental Real Estate Corporation

Janus Capital Group Institutional

JK Milne Asset Management

JP Morgan Chase

Kennedy Capital Management

Klausner & Kaufman, P.A.

Knight Equity Markets, L.P.

Lazard Asset Management

Lee Munder Capital Group

Lifestage Advisors

Lighthouse Investment Partners

Logan Capital Management, Inc.

Loomis Sayles

Lord Abbett

Lotsoff Capital Management

M.D. Sass Associates, Inc.

Macquarie Capital

McDonnell Investment Management, LLC

Meketa Investment Group

Mesirow Financial

Metropolitan Real Estate Equity Management,

LLC

MFS Investment Management

Michael J. Stebbins, P.L.

Mierzwa & Associates P.A.

Milberg, LLP

Morgan Institutional Asset Management

Morgan Stanley Smith Barney

Munder Capital Management

Mutual Of America Capital Management

Muzinich & Co.

Navellier & Associates

Nomura Asset Management U.S.A. Inc.

Northern Trust Company

Numeric Investors, LLC

OFI Institutional Asset Management

Orleans Capital Management

Pathway Capital Management

Peachtree Settlement Funding

PENN Capital Management

Pension Resource Centers

Perry & Jensen, LLC

PFM Asset Management

PNC Capital Advisors, LLC

Principal Global Investors

Provident Financial Consulting

Public Pension Professionals

Pyramis Global Advisors

RBC Global Asset Management

Regions

Rhumbline Advisers

Richmond Capital Management

RidgeWorth Investments

Rigel Capital, LLC

Robbins Geller Rudman & Dowd, LLP

Rock Maple Funds

Rockwood Capital Advisors

RS Investments

Salem Trust

Sawgrass Asset Management

Saxena White

Scott + Scott Attorneys At Law, LLP

Segal Advisors

Seizert Capital

Shepherd Finkelman Miller & Shah

Southeastern Advisory Services

Star Benefit Providers

State Street Bank & Trust

State Street Global Advisors

Sugarman & Susskind

SunTrust Banks

Systematic Financial Management

Ta Associates Realty

Taplin, Canida & Habacht

The Boston Company

The Hartford

Thistle Asset Consulting

Thompson, Siegel & Walmsley

Todd-Veredus Asset Management, LLC

Transcendent Investments Management

Ullico Inc.

Virtus Investment Partners

Wells Capital Management

Wells Fargo

Wentworth, Hauser And Violich

Westwood Distributors

William Blair & Company

Winslow Capital Management n

2010 Associate Members22


In 1992 the FPPTA underwent a structural reor-ganization. The concept of an Advisory Board was proposed by an associate member from New York. Thisboard would give the associate members a voice.Using their business expertise, their function would beto lend guidance and support to the FPPTA. The ideaseemed to have merit and the Advisory Board was established. The current Advisory Board consists of 22members. Each member is voted in by the FPPTABoard of Directors for a three year term.

The Advisory Board has created speaker guidelinesand performance standards for our associate members.When the Advisory Board was established, the FPPTAhad only eight speakers. Currently the FPPTA benefitsfrom a speaker pool of over 150 qualified individualswho are rotated onto the schedule throughout our educational programs. The Advisory Board handlescomplaints about associate members and basicallygoverns themselves.

The Advisory Board administers the FPPTA Exposi-tion area and its exhibitors at the Annual conference.

Additionally they have created a sponsorship commit-tee and conduct the Associate Golf Charity Classic andthe Annual Family Fishing Tournament. These eventssupport contributions to American Cancer Society Research, the Relay for Life Breast Cancer Walk, ChildrenWith Cancer, Children’s Wishing Well Foundation andthe Florida Veteran’s Association.

Advisory Board members and other associatemembers of FPPTA are very involved in the organiza-tion. Associate members serve on our Education Committee and monitor our educational sessions,grade handout materials, and supply teachers for ourcertification program. They have supported and assisted with the development of a Defined Benefit Initiative and continually provide informative informa-tion and articles for “the Voice.” We thank all of our associate members – they are a vital segment of theFPPTA and we could not remain the quality organiza-tion we are without them. n

Associate Advisory Board23

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PRING 2011

Advisory Board Members

Howard Bos, CPPTBoard ChairpersonRichmond Capital Management

W.O. BellBoard Vice ChairpersonWestwood Distributors

Brad RinsemBoard SecretarySalem Trust Company

Alison BielerCypen and Cypen

Joe BogdahnBogdahn Consulting

Katie Byrne, CPPTDePrince, Race & Zollo

Tom CapobiancoIndependence Investments

Allison CorballyState Street Global Advisors

Janna Hamilton, CPPTGarcia Hamilton & Associates

Bruce FeinerBank of New York

Tom FranzeseLazard Asset Management

Chris GrecoSawgrass Asset Management

Richelle Hayes, CPPTAmerican Realty Advisors

Chad LittleFreiman Little Actuaries

Grant McMurry, CPPTICC Capital Management

Mary McTagueAtlanta Capital Management

Tracy MusserThompson, Siegel & Walmsley, Inc.

Jerry NavaretteThe Boston Group

Bob PodgornyDow Jones Indexes

Michael SmithJP Morgan

Michael Spencer, CPPTRBC Global Asset Management

Joe WhiteSaxena White LLC n

By: Ann Thompson, CPPTEditor, the Voice, FPPTA Director/ Secretary,Vero Beach Police Pension,Trustee

Perhaps you, like I, haveseen the photo collage postersalmost always on display at the

FPPTA Welcome Gatherings. If not, when you next attend a school or conference I encourage to take a fewmoments to look at them. What you will discover is asmall snippet of FPPTA history, recorded in the photo-graphs of those who have attended the various eventsbefore you. You will see your fellow trustees, your advisors and pension plan professionals, and the tireless FPPTA staff smiling back at you. Most likely youwill notice some changes that have occurred over theyears.

What hasn’t changed, however, is the man behindthe camera. The always smiling, ever gracious gentle-man who encourages our attendees to “say cheese” isDarrel Presley, CPPT. Darrel has been serving as theFPPTA’s “official” photographer for more than 15 years.He is not that infamous “wedding photographer”we’ve all come to dread, but rather an unobtrusivecameraman who never misses a shot at schools, con-ferences, committee meetings, golf tournaments andother events.

In 2010, Darrel retired as Deputy Chief from theSanford Police Department after 30 years of service. He sat as a Sanford Police Pension Board Trustee continuously from 1991 until his retirement in 2010, including 6 years as Chairman. Currently Darrel is employed as the Director of Community Improvementfor the City of Sanford.

Darrel is an active member of various organizationsincluding the Florida Association of Code Enforcement,

Central Florida Law Enforcement Association, SeminoleCounty Law Enforcement Association and the FloridaPublic Pension Trustees Association.

Darrel holds a Bachelor of Science degree fromRollins College and a Masters Degree in Criminal Justice Administration from the University of CentralFlorida.

Thank you, Darrel, for your unwavering support of, and service to, the FPPTA for all these years. As welook back on where we have been, your photographybrings the memories back in living color. n

A Photographic History24


4105 SAVANNAHS TRAIL • MERRITT ISLAND, FL, 32953-8607OFFICE (321) 453-6542 • FAX (321) 453-6998 • MOBILE (321) 591-8265

[email protected] • www.flactuaries.com

Chad Little, A.S.A., E.A.PARTNER PARTNER

Paula C. Freiman, A.S.A., E.A.

F R E I M A N L I T T L E A C T U A R I E S , L L C

FLA

Darrel Presley, CPPT – FPPTA’s “official” photographer

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Morgan Institutional Asset Management

Disciplined, Time-tested, Institutional Money Management Strategies For Public Pension Funds

Fixed Income | Timber | Equity

David FalconerSenior Vice PresidentInstitutional Services

1511 N. Westshore Blvd., Suite 850Tampa, FL 33607(813) 639-3417

Steven L. Edelman, CFA Senior Product Specialist &

Director Consultant Relations951 East Byrd Street, Suite 930

Richmond, VA, 23219(804) 225-1173

Trust Services are provided through Regions Morgan Keegan Trust, a trade name for the Trust Division of Regions Bank. Morgan Institutional Asset Management, a division of Morgan Asset Management, investment advisor to Regions Morgan Keegan Trust. Investments in securities and insurance products held in Regions Morgan Keegan Trust accounts are not FDIC insured, not deposits of Regions Bank, not guaranteed by Regions Bank, not insured by any federal government agency, and may go down in value.

25

theVOICE . S

PRING 2011

26

Annual Membership Meeting and ConferenceJune27-30 . Naples Grande Resort . Naples, Florida


27

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28


2010

29

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PRING 2011

6TH Annual Fishing TournamentEven though it was August in Florida, a great time was had by all! We have the most participation to date.

Everyone who attends seems to really like the accommodations at the Tarpon Lodge. It is such a quaint littlelodge with great food. We had folks making reservations for next year before we even announced the dates forthe tournament.

This year we had 17 teams with 51 adults fishing and 14 children under the age of 14. We certainly can’t dothis by ourselves! Helping us to make the event such a success is a terrific committee: Joe Bogdahn (BogdahnAssociates), Steve Stack and Grant McMurry (ICC Capital Management), Pete Prior (FPPTA Board Chairman) , Timand Melissa Olsen (Tim is trustee on the Melbourne Fire plan) and Brian Fenske (Cape Coral General Employees).

Kudos go to Tim and Melissa Olsen, who head up the Children’s Division. They were able to get Strike Zoneto donate four rods and reels and another eight discounted rods and reels for the kids. Tim and Melissa also puttogether a great tackle bag loaded with goodies for every child. Their efforts resulted in ARC Dehooker donat-ing Dehooker’s, Plano discounting the tackle bags, West Marine donating hooks & weights, DOA donating weightsand bait and Bass Assign donating baits. Our thanks to all of them. And, last but not least, the 2010 Winners:

SATURDAY:Largest Trout $300:Team FS – Brian Fenske, George Farrell, Travis Farrell, Steve Stack,Sam StackLargest Snook $300:Team Spilly – Mike Ilczyszyn, Reid Carner, Gregg MannLargest Red $300:Team Spilly – Mike Ilczyszyn, Reid Carner, Gregg MannLargest Fish $100 with a 37” Tarpon:Team Lip Stretchers - Chris Polaszek and Jay Rodriguez

KIDS CATEGORY:1st Prize 8 and under – Miles Bogdahn2nd Prize 8 and Under – Garrison Bogdahn1st Prize 9-14 – Garrett Henderson2nd Prize 9-14 – Zach West

SUNDAY:Largest Fish Any Category $300: Team Palm Beach Gardens PD - Jay Spencer, Eric Spencer, Ron Council, Kevin Council

30


The FPPTA thanks the following Associate Membersfor sponsoring the FPPTA Associate Charity GolfClassic and so generously supporting this annualevent:

Breakfast: American Realty AdvisorsICC Capital Management

Golf Shirt Sponsors:DePrince, Race & Zollo Garcia Hamilton & Associates

Water provided by: Scott & Scott Attorneys at Law

Golf Holes, Closest to the Pin and Longest Drive:3E Tech CorpAmerican Realty AdvisorsAtlanta Capital ManagementBarroway Topaz, Kessler, Meltzer & CheckBuckhead Capital Management Bogdahn GroupDePrince Race & ZolloGarcia Hamilton & AssociatesRichmond Capital ManagementSaxena WhiteCredo Capital ManagementCarl Domino AssociatesDahab AssociatesIntercontinental Real EstateFreiman Little ActuariesICC Capital ManagementJanus Capital GroupJP Morgan ChaseLee Munder Capital Group Milberg, LLPRBC Global Asset ManagementSawgrass Asset ManagementSeizert Capital PartnersThompson, Siegel & WalmsleyWentworth Hauser & Violich

31

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PRING 2011

Associate Charity Golf Classic TournamentBy: Steve Aspinall, CPPT, FPPTA Director/Treasurer, St. Petersburg Police Trustee

Chris and Dan at the Naples Grande Golf course met with the Golf Committee on Saturday morning to discuss tournament logistics regarding on-course games, sponsor recognition, player sign-in, beverageservice and cart placement for Sunday morning. This led to a very smooth check-in including a few late registrations, but we were able to accommodate everyone and all who showed up got to play. The golfcourse was immaculate.

Thanks to Garcia Hamilton and DePrince, Race & Zollo for sponsoring those great golf shirts. Sawgrass AssetManagement provided the goody bags to hold the shirts and the koozies to hold the beverages! The GolfCommittee donated the granola bars for strength. This apparently helped John Brandt in particular withthat spectacular drive. Thank you to all of the sponsors for helping make the tournament a success!

It was early in the morning when the Golf committee and volunteers, Tracy Musser, Tim McCoy and BrianCasey met at the course. Our volunteers made the check-in seem effortless. The course was getting the continental breakfast set-up, the cart coolers were being filled with water bottles and ice provided by Scott& Scott.

Approximately 117 golfers started play at 8:00 am. We moved along at a fairly even flow, for a scramble, andmanaged to finish before the rain came down. One of the committee members even contributed severalballs to the “Gods of Water and Woods” to help stave off the rain, which we felt was very thoughtful.

And the winner is:

1ST PLACE: Tom Capobianco, Ed Javier, Greg McNellie, & Tony Napolitano2ND PLACE: Jim Bovine, Marty Rethwisch, Steve Stack and Jim Dixon3RD PLACE: Brad Heinrich, Drew Ballard , John Bartz and Kurt BaxleyLONGEST DRIVE: John Brandt & Dina BritoCLOSEST TO PIN: Tela Thompson & Dann Smith

Everyone with whom I spoke enjoyed the day. The Associate Members thank you for the huge turn outand making this a great tournament.

By: Kim Ryals, CPPT, FPPTA COO

If you have been to aTrustees School in the last fewyears, you have noticed that weare now scanning our attendees.At the October 2010 TrusteesSchool at PGA, we increased thescanning process to prior to

both the first morning session and again before thefirst afternoon session. All attendees must also scanout following the conclusion of each days sessions.

Let me explain the reasons behind the change. Wehave had trustees complain that they are attendingsessions as required to earn CEU credits while othersdo not attend the sessions and yet receive the sameCEU credits. We completely understand their frustra-tion. We feel it too! We are not trying to be “BigBrother;” we just want to keep it fair. In addition, our new database gives us the ability to scan each attendee and provided they have scanned in eachmorning and each afternoon, we can truthfully supplya letter of attendance for them to pass on to theirboard, their city, or other organization for which theymust receive CEU credits.

We now can also upload the CEU information tothe database. This is a huge time saver for the FPPTAstaff and ensures the information gathered by scan-

ning is correct. Attendees will still have time to net-work with other trustees or associate members duringthe day. We provide tables and quiet spaces for theseactivities, so that attendees do not need to leave theconference area. FPPTA has worked hard to provide anexcellent educational product and we don’t want anyone calling it a “junket” because they see trusteesoutside of the venue during the educational sessions.

Another change in the works is that as of January1, 2011 we will be calculating the CEU credits a little differently. Instead of keeping track for a three yearperiod which, honestly, everyone finds confusing, wewill be tracking the CEU credits annually. The timeframe will be January 1st through December 31st eachyear. CPPT designation holders will need to earn 10CEU credits per year, which is essentially the same requirement we have had for the past 10 years. Wefound that people would push off attending until theywere in danger of losing their CPPT status. As before,you must attend at least one FPPTA function a year. Atthe end of each year, we will mail out a CEU form. Thisform can also be downloaded from our website. Youmust fill this out and return it to us with your $30 recertification fee. We have done away with the $100fee every three years.

We hope the changes to the program will be help-ful to both the FPPTA staff and the attendees. We lookforward to seeing you at the next school. n

A CPPT Update32


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2010 CPPT Awards Ceremony Recipients


Don Adwell, Tampa Fire & PolicePaul Andrews, Pinellas Park PoliceThomas Baitinger, St. Petersburg PoliceScott Bayne, Fort Lauderdale Police & Fire Louis Berman, Sunrise Police Officers Pension Robert Bertrand, Lakeland Retirement SystemDavid Birchim, St. Augustine General Employees Tory Bombard, Lakeland Pension SystemChristine Brown,Melbourne General EmployeesMuriel Bruno, Pinellas Park PoliceAdam Cabeza, Pembroke Pines Fire & PoliceLuis Carvalho, Pinellas Park General Employees Pension FundPatrick Connolly, Eustis Fire PensionTiffany Corry, Tampa Fire & Police Kristin Courcier, Palm Bay Police & Fire Ed Cure, Cape Coral General EmployeesScott Elliott, Indialantic Police & Fire Pension FundHilda Fernandez, Miami Beach General EmployeesAdam Frankel, Delray Beach Police & FireGeorge Garba, Cooper CityRobert Goehrig, Coral Springs FireScott Graham, St. Augustine General EmployeesPatrick Gray, Tampa Fire & PoliceJohn Hauff, Cape Coral FireJean Love, City of TallahasseeBrian Lynch, DCFF Insurance TrustJohn Mandrick, Fernandina BeachRon McDonough, Longboat Key General EmployeesHarry McNally, City of Atlantic BeachMichael Miller, Pompano Beach General EmployeesStephen Mislyan, Longboat Key PoliceJim Naugle, Fort Lauderdale Police & FireTodd Neal, Dania Beach Police & Fire Retirement SystemTim Porter, Dade County Firefighters Pension FundKaren Pottinger, Lauderhill Firefighters Pension FundScott Sanford, Palm Harbor FireSteven Schield, Longboat Key General EmployeesNick Stein, Miami FirefightersScott Stoll, St. Cloud General Employees BoardRita Torres, South Miami Pension PlanJohn Van Gorder, Seizert Capital PartnersJustin Vaske, Tampa General EmployeesJanice Vassell, City of Boca Raton General EmployeesLeann Waters, Ft. Walton Beach Firefighters Pension TrustDavid Wheeler, City of Ocoee General EmployeesCiro David Young, Jacksonville Beach Police Officers FundDoug Zimmerman, Palm Harbor Fire n

CPPT Recipients34

theVOICE . SPRING 2011 These individuals received

their Certified Public

Pensions Trustee (CPPT)

Awards at the June 2010

conference. This is quite an

accomplishment. They have

attended class and passed

their exams and are to be

CONGRATULATED!

35

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Ad Sizes and Rates:All ads must meet FPPTA approval.Ad sizes list the width first, followed by the depth.

Outside Back Cover (7.5 x 10”) . . . . . . . . . $2,250

Inside Front Cover (7.5 x 10”) . . . . . . . . . . $2,000

Inside Back Cover (7.5 x 10”) . . . . . . . . . . . $2,000

Full Page (7.5 x 10”) . . . . . . . . . . . . . . . . . . . $1,550

1/2 Page Horizontal (7.5 x 4.75”) . . . . . . $ 950

1/2 Page Vertical (3.5 x 10”) . . . . . . . . . . . . $ 950

1/4 Page Horizontal (7.5 x 2.125” ) . . . . . $ 525

1/4 Page Vertical (3.5 x 4.75”) . . . . . . . . . . $ 525

Business Card (3.5 x 2”) . . . . . . . . . . . . . . . $ 225

Florida Public Pension Trustees Association

Editor: Ann Thompson, [email protected](561)704-8419

2946 Wellington Circle East, Suite ATallahassee, FL 32309

www.fppta.org

Digital Files:the Voice is a 4-color process (full color) magazine. Please submit your ads in color electronically to:

Ann [email protected].

File types accepted:

- Hi-res PDF files- EPS files- TIFF files

All fonts must be embedded or outlined.

theVOICE will include:

• Facts and photos on the FPPTA• Articles from FPPTA members• Articles from recognized professionalsin the industry• Pre-retirement information• Social security articles• Case studies on DC vs. DB• Personal financial information• FPPTA educational programs

Circulation:

FPPTA . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000FSAE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000FL State Legislator . . . . . . . . . . . . . . . . . 175NPEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200State Retirement Executive . . . . . . . . . 125

Eventually the Voicewill reach local legislators, city and county officials, and other states.

the Voicewill be posted on www.fppta.org

ADVER

TISING RATES an

d GUIDELIN

ES

By: Sue Marden, FPPTA Public Relations Consultant

The Faces of Florida… RealPeople, Real Stories projectcontinues to grow, now withmore than 20 public employeessharing their stories of service

and commitment. This grassroots public relations effort is designed to counter the notion that pubic employees are a vast, nameless, faceless entity whoseexistence is a burden to taxpayers. We know that public employees work just as hard as their private sector counterparts. We know their efforts make anenormous difference in our lives. We know that publicemployees are real people, with real families, and real financial challenges – just like everyone else.

So, this campaign puts the names and faces of realpeople out front – along with their stories. It’s a com-pelling look at the motives of committed public servants, some of whom put their lives on the line inthe day-to-day service of the public, and others whowork quietly but diligently behind the scenes toprocess public records, repair public roads, and providedozens of other services the public sometimes takesfor granted.

In an effort to provide you with materials tostrengthen your presentations when meeting withpublic officials, the FPPTA is making this campaignavailable to members in a variety of formats. We encourage you to share the web link with co-workersand management members. We also would be happyto provide you with a DVD of the Faces of Florida

interviews, and we recently have produced a sixty-second broadcast quality public service announce-ment. We will be sending this public service announcement to media outlets and legislative offices in an effort to encourage a more positive portrayal of public pension issues.

This campaign is growing, but we need togenerate a parade of Florida faces from every sector of public service: fire, police, and generalemployees, and from every corner of the state.There will be a new opportunity for you to jointhe The Faces of Florida… Real People, RealStories projectwhen we meetfor the January30 - February 2Trustee School in St. Augustine, so bringyour story with you! Therewill be a Faces of Florida table located just outside the classroomsat the Trustee School where you canview the materials and sign-up forthe campaign. While everyone hasa story, not everyone wants totell their story, so we’ll be happyto take your portrait and somebasic facts in order to put youinto the line-up.

Go to http://www.fppta.org/FOF/FOF.aspx to view thestories of more Florida public employees. n

Florida has Many Faces… Are You One of Them?36


3330 Cumberland Boulevard

Suite 650

Atlanta, GA 30339

404-720-8800

404-720 8802 Fax

www.buckheadcapital.com

[email protected]

Deneen Bingham

Michael C. Harhai, CFA

Sabrina C. Macdonald

Buckhead Capital Management, LLC offers equity and fixed income

investment solutions for institutional and high net worth investors.

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By: Joe Bogdahn, Principal,The Bogdahn Group

Without question the lastdecade has created a difficult situation for sponsors of publicdefined benefit plans, as theyfind themselves in the perfectstorm of decreased revenues

and increasing pension costs. Municipal revenues,largely dependent on ad-valorum taxes, have fallenwith the popping of the real estate bubble. Equitieshave posted their worst decade since the depression.The supermajority of DB plans has not met their assumed rates of return, resulting in increased contri-bution requirements by plan sponsors. Thus, pensioncosts have become a lightning rod for public concern,fueled by hosts of half-truths and kindergarten mathespoused certain individuals who should know theyare misrepresenting the facts. The result has been a groundswell of City Councils and Commissions discussing terminating or freezing DB plans.

Over the past year I have met with dozens ofelected officials bemoaning the ‘unsustainable’ condi-tion of their DB plans, and am astounded at their lack of understanding of the issue. They read about theproblems in Illinois, Michigan and California, and assume that they are in the same boat. What they donot realize is that Florida municipal plans are in muchbetter shape than many other states. Why? Becausesponsors are MANDATED to make the actuarial required minimum contribution, which ensures theplan remains actuarially sound. This is worth repeating– ALL Florida municipal plans have been and continueto be actuarially sound. What does this mean? It means that they continue on the correct path tomeet all current and future benefits! However, manyhave gotten hung up on the reduction in the fundedratio, an actuarial term that truly is not as significant asit sounds, and in fact can be easily adjusted dependingon amortization and cost method adjustments.

Can you afford your house payment?A perfect analogy to the funded ratio is your home

equity. Assume Jim and Tom live next door to eachother in similar homes, each with a current marketvalue of about $300,000. Jim’s house payment is about$1,500 per month, and he owes $100,000 on his mortgage. Tom’s payment is about $1,300 per month,and he owes $200,000 on his mortgage. As you cansee, Jim’s payment is a bit higher than Tom’s, but his‘funded ratio’ is 66% to Tom’s 33%. Let’s say that property values fall throughout their area, and theirnew market value drops to $200,000 on their homes.Now Jim’s funded ratio dropped to 50%, and Tom’sdropped to zero! Is there reason to panic here? Not aslong as each can continue to make their monthly payments! Does their funded ratio really matter? Certainly not to their annual costs – in fact, Tom’s costis less. Obviously, Tom will be making payments longerto pay the mortgage to zero, or will need to increasehis monthly payment amount to pay down the balancesooner. Just as with Tom and Jim, in the DB world whattruly matters is can the sponsor afford to make the payments? If YES, then stop worrying! Markets movein cycles, and this too shall pass. If NO, then what can bedone to ease the burden?

The knee jerk reaction seems to be to terminate or freeze the DB plan and replace it with a Defined Contribution plan. Will this reduce the sponsor’s cost?In 98% of the cases, the answer is ABSOLUTELY NOT!ONLY if your plan is currently overfunded will this create a near-term reduction in cost. Why? Rememberthat the basic premise of successful investing is to buylow and sell high. Right now, your plan is at a low point,most likely the lowest point in its history. Now is theabsolute most expensive time to freeze a plan – youare locking in the highest costs you have ever had, andthey WILL increase!

But wait, we were told that terminating or freezingthe DB and starting a DC will reduce costs! Well…youhave been misled. As Paul Harvey said, let’s tell the restof the story. First, to terminate the plan, you must make

The Unintended Consequences of Freezing a Defined Benefit Plan

38


“Florida municipal plans have been and continue to be actuarially sound.”

the participants whole on the benefits they haverightly earned up to the termination date – and this includes ALL participants, for a plan termination meansthat ALL participants become fully vested. The dollaramount, plus some, of the unfunded liability must bedeposited. Why plus some? Because the participants,not the sponsor, have the option, whether they will takea lump sum or continue to receive monthly payments.If you are terminating the plan, then the sponsor mustsecure commercial annuities to fund the payments,and, not surprisingly, the insurance companies that sellthese annuities want to earn a profit! As such, they usea discount rate for the calculation that is far less thanthe plan’s assumed rate, driving up the annuity costsignificantly. So unless the plan is well overfunded, thelikelihood that the sponsor can make the payment necessary to terminate is slim.

What if you freeze the plan and create a DC planfor participants? This too will result in increased cost,often with no end in sight for decades because: • Even if the plan is frozen, it must be maintained andfunded it to actuarial soundness every year.

• There is additional cost of administration, and anysponsor match, for the DC.

• Frozen plan’s trend toward negative cash flow (reduced contributions and increased distributions)accelerates.

• Lack of strong positive cash flow exacerbates dam-age during downturns.

• Asset allocation must be adjusted to minimize volatil-ity.

• Reduced volatility assumption means reduced earn-ings assumption.

• A reduction in the assumed rate of return from 8% to5% can increase cost as a percentage of payroll by25% or more.What!! Yes, you read that correctly. On top of the

cost of administering the new DC plan you have created, along with any employer match you offer, thecost of the frozen DB plan will be HIGHER than if theplan remained open! Many plans are already receiving

letters from the state’s actuary denying approval of theactuarial valuations due to what they perceive as toooptimistic earnings assumptions. With negative cashflow, a prudent fiduciary will reduce their equity allocation, resulting in additional downward pressureon the earning assumption, driving UP the annual costto keep the plan actuarially sound. Depending on theage of the participants, it could be decades before thecosts are back to where they are currently, even longerbefore a ‘break-even’ cost is achieved!

The ‘Have and Have Not’ Trap Creating a two tiered benefit structure is a recipe

for HR disaster. For example:• Jack starts on August 18, Jill starts October 20. If ‘cut-off’ or ‘freeze’ date of DB participation to DC participation is October 1, Jack is in DB and Jill is in DC. Fast forward 20 years, and Jill is now Jack’s supervisor. Both are approaching 65 and thinking ofretirement. Jack has accrued a nice retirement benefit, while Jill has a balance of only $175,000 inher DC plan. Think she is a happy camper? (Note: According to the Investment Company Institute’s2009 report, the national average 401(k) balance forworkers in their 50’s and 60’s is only $140,000!)

• Panhandle One Fire District freezes their DB and allnew hires go to a DC plan. The surrounding 7 fire districts and municipalities all have DB plans, withdisability benefits pursuant to the state statutes.Which fire district do you think becomes the trainingground? Aspiring firefighters go to work for Panhandle One to get the training and experiencenecessary to obtain a job at one of the surroundingdepartments. Constant turnover and ever increasingtraining cost far outweigh the ‘anticipated’ savingsfrom the DB plan – of course compounded by thefact there are NO savings from creating the DC plan!Are the taxpayers of Panhandle One happy? NO!Their costs have stayed high while their neighborsbegin to see some relief due to market rebounds;they have inferior service due to their inexperienced

39

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firefighters, and their ISO rating increases, further increasing their insurance costs! However, the surrounding Districts are appreciative because theirtraining costs are significantly reduced!

So is there an answer? Unfortunately, there is no silver bullet. Plan spon-

sors were quick to accept the ‘reduction’ in costs due tothe strong equity markets in the late nineties, withmany sponsors making zero contributions to policeand fire funds, as the member contributions and insur-ance premium dollars covered the required minimumcontribution. Prudent sponsors who continued tomake contributions above the minimum have bene-fited greatly, with current increased costs being fundedby the credit balance they built up. Setting a fundingfloor going forward will start to build your credit for thenext market cycle downturn.

It is important that we all remember that marketsmove in cycles, the recession is over, and we are expe-riencing an economic uptick. Markets have improved,and the majority of plans earned their assumed rate ofreturn for the year ending 9/30/10. This will help holdcosts in line, and some plans will begin to see a slightdecrease. Future returns in excess of the assumed annual return will help in reducing future costs.

Now is an excellent time to for your actuary to conduct an experience study, and adjusted assump-tions may create current savings. In addition, work withyour membership to adjust benefits. Small things likeincreasing vesting from 6 to 10 years can help. A one-time stop/restart can give the sponsor some immedi-ate relief, by resetting the frozen state money amount(for Police and Fire plans). Maybe cap a cola, start it atage 65 or only let it be effective for a specific numberof years after retirement. Look at the ‘added’ benefitsfirst, not the core of a solid multiplier. Vesting, subsi-dized early retirement and AFC calculations can be adjusted for savings. Always be cognizant on anychanges that may put you at a competitive disadvan-tage for retention and recruitment. Work with your actuary, consultant and attorney to discuss possible solutions.

Finally, remind your elected officials that the pen-sion is not a political tool. The time horizon of thesebenefits and the cost far exceeds their election cycle,and far too frequently pension costs are used as agrandstanding maneuver. The FPPTA Town Hall seriescan be an effective tool for educating your city officials.Contact [email protected] for more information. n

The Unintended Consequences continued...40


Who is on your side advising your investment programs?

Now more than ever, it is important for Trustees to have an experienced independent fiduciary as their advocate & guide to assist in achieving investment goals and objectives.

The Bogdahn Group is an independent Registered Investment Advisory firm, providing our clients with detailed analysis, portfolio accounting and performance measurement services for a hard-dollar fee.

We do not manage or custody assets. Our sole focus is providing our clients with the most current and unbiased information, tools and advice with which to prudently evaluate their portfolio allocations and performance.

If you think your organization could benefit from a fresh perspective, please contact Mike Welker at 863.293.8289, or email [email protected]. We are pleased to be associated with the FPPTA, and hope you will visit us in our booth at the annual conference.

simplifying your investment and fiduciary decisions

By: Gilbert A. Garcia, CFAManaging PartnerGarcia Hamilton & Associates

I was taking my kids toschool recently when some-thing hit me. I can’t believe thatwinter is upon us! In Houston,we were happy to see summer

end as we longed for relief from the many 100 degreedays. It seems that the only two things hotter than thetemperature here this summer were the debate surrounding a “double dip” recession and US treasuryprices.

The “double dip” theories should not entirely be asurprise. Since March, we’ve seen plenty of news aboutSpain, Ireland, Greece and Portugal. Normally, suchnews involves details of exotic vacations. Not this pastsummer! This summer, the news pondered their economic collapse. When you combine these storieswith graphic pictures of oil spewing into the Gulf ofMexico and magnificent pelicans smothered in oil, it isunderstandable that people fell into a funk the last fewmonths. This funk has led to plunging consumer confidence as measured by the conference boardindex. It appears that confidence could soon test thelows we experienced immediately after the collapse ofLehman Brothers.

Despite weakening economic data, we think theodds of a “double dip” are quite low. One factor that is useful in predicting expansionary periods is the availability of liquidity in the economic system as measured by variables such as money supply growth,the shape of the yield curve, and short term interestrates. If you were to look at liquidity versus manufac-turing, you would find that historically they have had ahigh correlation. This has held true until the collapse ofLehman Brothers in late 2008 when they diverged dramatically. The ISM Manufacturing Index, a proxy forthe economy as a whole, plummeted. At the same timeliquidity soared due to actions taken by the Federal Reserve. The strength of liquidity in the system provedto be a leading indicator that the economy would indeed start to recover, as the ISM Composite quicklyrebounded. Now, while manufacturing has stalledsomewhat, liquidity measures still remain at robust levels. Thus, this information, along with the steep yieldcurve and a committed Federal Reserve, provide somecomfort that a “double dip” will be avoided.

As for treasuries prices, our view is that they are extremely overvalued. In fact, the last time the 10-yeartreasury yield was near the 2.40% level was a fewmonths after the Lehman collapse. At that time, theDow was under 8,000 and our banking system wasnear a total collapse. That is a far cry from today’s Downear 12,000 and the current state of our financial system. It would not surprise us to see a 100 to 150basis point increase in treasury yields as soon as economic statistics surprise on the high side.

Thus, we would advise investors to position for an economic recovery. In fixed income, a portfoliooverweighted in spread product and underweightedin treasuries is a good strategy. In equities, stock portfolios should benefit from being overweighted in names well positioned for improving economic conditions. n

The Heat is On41

theVOICE . S

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Our sole focus is providing our clients with the m

We are pleased

t

simplifying your investment and fiduciary decisions

GGaarrcciiaa HHaammiillttoonn && AAssssoocciiaatteess,, LL..PP..

AAccttiivvee AAsssseett mmaannaaggeemmeenntt ffoorr iinnssttiittuuttiioonnaall cclliieennttss SSiinnccee 11998888

JJaannnnaa HHaammiillttoonn

5 Houston Center 1401 McKinney Street

Suite 1600 Houston, TX 77010

(713) 853-2309 (561) 212-0530 Cell (713) 853-2300 Fax

www.garciahamiltonassociates.com [email protected]

“... we think the odds of a ‘double dip’

are quite low.”

I N T E R C O N T I N E N T A L R E A L E S T A T E C O R P O R A T I O N

1270 Soldiers Field Road Boston, MA 02135 617.782.2600 intercontinental.net

Florida Public Pension Trustees Association

Intercontinental Real Estate Corporation is an SEC Registered Investment Adviser and real

estate operating company with expertise in real estate investment, development, construction

management, and asset management. The company has acquired, developed, built, and

managed over $6 billion in real property assets across all property types including o�ce,

residential, industrial, retail, hospitality and mixed-use projects.

We are Proud to Support the

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By: Anita B. Kartalopoulos, Ariana J. Tadler and Todd Kammerman

Shareholder derivative andtransactional litigation are pow-erful tools at the disposal of pension funds and other institu-tional investors to protect theirinvestments from future losses.These types of cases enable afund’s board to execute a strong,proactive posture in protectinga fund’s investments and fulfill-ing its fiduciary duties by preventing injury to or rehabili-tating a company’s stock inwhich the fund has invested.Transactional cases includethose brought by shareholdersof a corporation that is being acquired by another corporationfor insufficient consideration. A derivative suit can be the vehicle by which a shareholdercan assert a claim on behalf ofthat corporation against thecompany’s directors for wrongs

they have committed resulting in injury to the corpo-ration.

The process of obtaining a leadership position in atransactional or shareholder derivative action differsgreatly from the process in a federal securities class action. In a transactional or shareholder derivative case,there is no requirement that a lead plaintiff purchasedthe subject company’s stock at a specific time or that ithave the “largest financial interest” in the subject

litigation. A lead plaintiff need only be a holder of thesubject company’s stock, regardless of when it was purchased. It must, however, hold at least one share ofthat stock throughout the time period the litigation ispending. Institutional investors are favored by thecourts to lead in these cases as in securities class actions. When serving as lead plaintiffs in these casesthe fund puts a minimal number of shares in the subject company aside to ensure that they hold company stock throughout the case. Sale of the rest oftheir holdings in that company, if in that institution’sbest interest, can still occur. Leadership structures intransactional or shareholder derivative actions formvery quickly once a case is filed; there is no 60-day waiting period as there is in a securities class action.The fact that some other shareholder may have largerholdings or potential losses is not dispositive in thecourt’s consideration.

Recent results in both transactional and share-holder derivative cases demonstrate how powerfulthey can be in protecting fund investments. For example, in In re Anheuser-Busch Cos., Inc. Sharehold-ers Litigation, C.A. No. 3851-VCP (Del. Ch.), shareholderschallenged a transaction which involved the mergerbetween Anheuser-Busch and InBev. This litigation resulted in a 2009 settlement which called for addi-tional disclosures in the proxy statement concerningthe merger, and ultimately led to an increased transac-tion price, thus providing a benefit to the plaintiff classof shareholders before they had suffered any loss.

In re Comverse Technology Inc. Derivative Litiga-tion, No. 601272/2006 (N.Y. Sup. Ct. N.Y. County, settle-ment approved June 23, 2010) was a derivative actionstemming from alleged stock option backdating practices by former company directors and officers, including Comverse’s former CEO. The settlement resulted in a $62 million recovery to the Company. It

Derivative and Transactional Litigation: The Power of a Single Share

“Recent results in both transactional and shareholder

derivative cases demonstrate how powerful

they can be in protecting fund investments.”


By: Christopher D. Boehm, Director of Research and Analysis, Intercontinental Real EstateCorporation

Institutional quality privatereal estate serves as an attrac-tive investment for plans by providing:

• Attractive risk adjusted returns relative to other investment types – many bond like risk characteris-tics and total returns that fall between those of bondsand equities.• Inflation protection due to escalation clauses builtinto leases and appreciation in values over the longrun.• Diversification benefits through low correlation withother asset classes.

In addition to these key benefits, real estate currently provides plans with the opportunity to investat attractive pricing as a result of the low point in thecycle for both property values and fundamentals.While most asset classes have regained much of thevalue losses suffered during the financial crisis and recession, real estate remains near a trough in value, offering investors the opportunity to capture futurevalue gains which will result from both improved operating fundamentals (rising income) and increasesin capital asset values. In addition, moderate leveragewill amplify returns positively in the coming quartersand years, reversing the trend seen during the down-turn of the last few years.

Values Turning the CornerDuring the recession capitalization rates (the ratio

of property income to values, which is a sort of reverseprice to earnings ratio) rose by as much as 300 basispoints or 3%. As a result, valuations fell by about onethird during 2008 and 2009 after having risen by a similar amount over the previous three years. Recentlythough, the average cap rate for the NCREIF-NPI Property Index reversed course and now shows a decline of about 50 basis points or .5% from the caprate peak (slight improvement from the value trough).

Although values are currently still well below pre-recessionary highs and may not rise on a steadybasis going forward, many of the elements which ledto lower cap rates pre-recession are to a large extent

back in place. Demand for investments is on the rise –commercial real estate transaction volume was up by athird in Q3 2010 vs. Q2 2010 and year to date volumefor 2010 is double that of last year at the same point.Debt markets have improved and interest rates will remain low for the foreseeable future due to govern-ment efforts to stimulate the economy. And lastly, as always during an economic recovery, income per-formance has improved for apartments and hotels, signaling that income across the other property typeswill improve as the economic recovery gains steam.

Fundamentals StabilizingCommercial real estate fundamentals across all

property types and markets were of course negativelyimpacted by the recession. National average vacancyrates met or exceeded all time highs and rental ratesdeclined in most markets. Recently though, vacancyrates have reduced somewhat. Hotels and apartmentshave led the way with several quarters of improving vacancy and are approaching their equilibrium rates(the rate at which neither landlords nor tenants holdmore negotiating power). Apartment vacancy has declined from a high of 7.5% in 2009 to 6.2% as of thethird quarter 2010 and rental rates have stabilized.

National Average Vacancy Rates (CBRE-EA)

For office, retail, and industrial, the improvementshave been more recent and less noticeable. Last quar-

How Real Estate Can Assist Defined BenefitPlans in Meeting Obligations

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And lastly, as always during

a

National average

v Recently though, vacancy rates have reduced somewhat.

H

Apartment v

d

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a

g

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c

a

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Last quarter the vacancy rates for office and industrial

r Still, these were the first reductions in vacancy for office and industrial

s W

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At the same time, current property income

y The benchmark NCREIF-NFI ODCE index aptly

d

ter the vacancy rates for office and industrial reducedby 10 basis points or 0.1% while the retail vacancy rateremained flat. Still, these were the first reductions invacancy for office and industrial since the onset of therecession, and the first quarter of no change for retail.We anticipate continued weak fundamentals for thesethree property types in the short term, but it appearsthat the markets have found a bottom and more noticeable improvements will accumulate during thelatter half of 2011 and beyond.

Leverage Leverage amplifies investment returns, whether

positive or negative. When capital returns turned neg-ative during the recession, leverage had a predictablynegative effect on returns. Now as the recovery fromthe recession has begun, expected future appreciationin commercial real estate values (due to the factorsmentioned above) will again amplify returns, this timein the positive direction. At the same time, currentproperty income yields exceed the cost of debt, servingto amplify income yields, resulting in “positive lever-age.” The benchmark NCREIF-NFI ODCE index aptlydemonstrates the impact of leverage on appreciationand total returns.

In summary, recent performance has shown thatboth operating fundamentals and valuations are stabilizing and even improving in many respects, andcontinued economic recovery will bring strong income,appreciation, and total returns. Leverage, formerly ahindrance to returns, will once again be a positivewhen used judiciously. For defined benefit plans, theopportune time to invest in real estate is now. �

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Leverage, formerly a hindrance to returns,

For defined benefit

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t

.

also resulted in significant corporate governance reforms, including, among other things, the removaland replacement of the offending directors and officers with new independent directors and officers;the amendment of the company’s bylaws to permitcertain long-term substantial shareholders to propose, in the Company’s own proxy materials, nominees for election as directors (proxy access); and the requirement that all equity grants be approved by both the Compensation Committee anda majority of the non-employee members of theBoard. Aside from the monetary recovery, the corpo-rate reforms mandated in the settlement will protectthe company’s shareholders going forward.

Carbon Cnty. Emp. Ret. Sys. v. Kelly, No. 08-08692(Dist. Ct. Dallas Cnty., Tex. settlement approved Dec. 9,2009) was a shareholder derivative matter againstcertain Southwest Airlines Co. Board of Directors andexecutive officers, arising from alleged safety viola-tions at Southwest, including a March 2007 incidentinvolving a required inspection mandated by the Federal Aviation Administration (“FAA”) on a numberof airplanes that had allegedly only been partiallycompleted by the required date. This incident resulted in a record $10.2 million fine (ultimately reduced to $7.5 million) being assessed against theCompany in 2008. On December 9, 2009, a DallasCounty Texas District Court Judge granted final approval of a settlement of this matter which provided for significant reforms to Southwest’s corporate governance and safety and maintenancepractices and procedures, strengthening the company and benefiting its shareholders.

Plainly, these two types of litigation, which requireno more than single share ownership and vigilanttrustees, are a must for any plan’s board to keep in itsarsenal to fulfill its fiduciary duty to protect its plan’sinvestments. �

The Power of a Single Share continued...

Ms. Kartalopoulos, Ms.Tadler and Mr. Kammerman are all Milberg LLP partners. All three are attorneys who specialize in complex litigation, including shareholder litigation.

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Sunrise Fire

By: Chris Greco, Partner, Sawgrass Asset Management

Discussions about DefinedBenefit and 401(k) plans havebeen on the front pages ofnewspapers across the countryfor many years now. We need to

realize that both plans have the same goal – creatinga benefit stream for retirement income. A DB plandefines the benefit upon retirement and a 401(k) planonly defines the contributions into the individual account. When comparing the two approaches to retirement planning, we need to examine which oneprovides the most professional support and lowestcost to help achieve the retirement income goal.

Remember this equation for later: Contributions + Investment Returns = Retirement Benefit

The players on each team: A DB plan has a board of trustees that have fiduci-

ary responsibility for the management of the fund.They utilize the following players to achieve long terminvestment goals: investment consultants, actuaries, a long term Investment Policy and professional institutional money managers.

A 401(k) plan allows an individual to manage theiraccount on their own, and all buy and sell decisions aremade by the individual. 401(k) plan providers offerweb based tools and telephone support however the401(k) provider does not have full discretion over theinvestment decisions for the individual. In the end theperformance of the account depends on the individu-als “investment skill”.

Both plan types must deal with investment risk,market timing decisions, asset allocation, marketfear/greed and information overload. The DB plan provides a specialized team comprised of professionalsthat are dedicated to managing pension assets withlong term investment horizons. 401(k) plans give individuals limited support and the investment resultsvary depending on the “investment skill” of the individual. How many of your friends and neighborsclaim to posses “investment skill?”

It does not sound like a fair game will be played between these two teams since the DB plan has bettersupport and structure for long term success than a401(k) plan. A DB plan provides municipalities and

their employees with the best support system to helpindividuals achieve their long term goal of retirementincome utilizing a professional investment team.

The equation listed above has two main compo-nents: contributions and investment returns. Both components are under the greatest strain in decadesright now, and, unfortunately, short term decisionsare being discussed that will have dramatic long termramifications on the retirement income for employ-ees across the country. It is important to keep in mindthat the equity markets have seen the worst 10 year returns since the 1930’s and many municipalities are

under pressure to make bigger contributions as well.These two short term events still favor the DB plan because it provides the structure for planned contributions and a higher probability for long term investment success. DB plans require continuous contribution streams in good times and bad to help accomplish victory at the end of the retirement planning game.

Investing and saving for retirement requires longterm focus, discipline and professional consultation –all of which are provided by a DB plan. There are timeswhen the structure seems onerous; however, it is necessary for long term success and the players on theteam will help to achieve the long term goal. A 401(k)plan does not provide the individual with the propersupporting cast of teammates to achieve success anda losing season has dramatic affects on a person’s retirement income. This is a game that individuals can-not afford to lose. The DB plan continues to providethe best solution to get through these adverse shortterm events and assures that the best team will win inthe long run. n

Retirement Savings: Who’s on Your Team?47

theVOICE . S

PRING 2011

“Investing and saving for retirement requires long term

focus, discipline and professional consultation...”

By: Curtiss M. Scott, CFA; William P. O’Connor, RPA, GBA; Todd Veredus Asset Management LLC

In a past article, we highlighted the primary bene-fits of international investing which include reducingportfolio volatility and improving diversification. International investing can be achieved through manyoptions you are already familiar with, like separate accounts and mutual funds.

International markets are divided into two cate-gories; Developed Markets and Emerging Markets.While there is no clear definition, there are several characteristics that distinguish between these groups.One industry standard recognized by investors forgauging a country’s level of development is the MSCI (Morgan Stanley Capital International) MarketClassification.

Generally, the framework used to evaluate coun-tries is based on economic development, as well as financial market size, liquidity and accessibility. Normally developed countries have larger, more mature economies and financial markets. Investorsgenerally consider the primary developed markets tobe: United States, Europe, United Kingdom, Japan,Hong Kong, Singapore, Australia, New Zealand andCanada. For the purposes of this article, we will focuson the developed countries outside of the UnitedStates.

Referring to the following table, we have put in perspective the size and importance of these marketsversus the United States.

As you can see, the developed markets have overtwice the population and almost twice the GDP of theUS. Their combined stock markets are larger than theUS and offer good investment opportunities in companies that you probably know and recognize, likeSony, Nestle, Diageo (produces Johnny Walker), and Vodaphone (which owns about half of VerizonWireless).

Many premier companies are located outside theUS in the developed world. These companies are well established and can offer income and growth opportunities that investors would not otherwise have.Developed markets outperformed the US during therecent downturn. Combining US and developed

International Investing Opportunity48


I

While there is no clear definition, there are several c One industry standard r

N Investors generally consider the primary developed markets

t United States, Europe, United Kingdom, Japan, Hong Kong, Singapore, A For the purposes of this article, we will f

United

States Developed

Markets Emerging Markets

Population 310 Million 708 Million 5,792 Million Gross Domestic Product (GDP)

$14.6 Trillion $26.6 Trillion $20.8 Trillion

Per Capita GDP $47,100 $35,400 $6,000 Market Capitalization

$15.8 Trillion $21.7 Trillion $14.5 Trillion

Last 10 Year Market Return

-0.5% per year

3.4% per year 13.8% per year

Estimated Economic Growth – 3 year

2.5% 1.5 – 2.0% 5-7%

Data as of 9/30/2010 – Source: IMF,World Fed.of Exchanges, MSCI and RIMES

Their combined stock markets are larger than

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markets over a long time frame resulted in a more predictable, less volatile return.

While there have been concerns about the debt crisis in developed markets, governments are workingto solve those problems. Meanwhile, many companiesand countries in this region are positioned to continueexporting equipment, technology, agricultural prod-ucts and raw materials that will be required to indus-trialize the emerging markets. Many developedmarkets in Europe are benefitting from cheaper currencies, helping demand for their industrial exports.

Other countries that benefit from exports would include Canada and Australia as they are based moreon agricultural products and raw materials, both ofwhich are in higher demand as emerging markets recover.

Emerging markets are countries that are in theprocess of restructuring their economies along market-

oriented lines and offer a wealth of opportunities intrade, technology transfers, as well as foreign direct investment. The International Monetary Fund identi-fies the five largest emerging markets as China, Brazil,Russia, India and Mexico.

Another glance at the table above presents Emerging Markets with the following comparison tothe develop world: five times the population, theireconomy is half the size, they have one sixth the percapita income, and significantly higher estimated economic growth rates. Their stock market returnshave outpaced developed markets, and many astuteinvestors look at emerging markets performance asleading indicators of how developed markets may perform.

Emerging markets have generally outgrown thedeveloped economies for a couple of reasons. First,they have low cost labor, which has lead to the move-ment of production to these countries and provided astable base for their economies. More recently, thesecountries have had trade surpluses and low debt levels.Consequently they were able to spur their domesticeconomies through infrastructure spending and con-sumer stimulus plans. These factors are likely to allowcontinued growth as developed economies move intoeconomic expansion, and the populations of emergingmarkets become more consumer oriented.

Emerging countries will be an important factor inthe future growth of world trade and global financialstability. As with the developed world, exposure canbe obtained through various large, high quality companies in addition to mutual and exchange tradedfunds. These countries have a huge untapped poten-tial that will take decades to realize. If they can maintain political stability while continuing structuralreforms, their future is promising and investors shouldbenefit. n

49

theVOICE . S

PRING 2011

“Many premier companies are located outside the US in the developed world. These companies are well established and can offer

income and growth opportunities...”

By: Bradley K. Rinsem, CEO, Salem Trust Company

Largely as a response to thePonzi schemes orchestrated byBernard Madoff and others thatcame to light in 2008 and 2009,the Securities and ExchangeCommission amended the Cus-

tody Rule contained in the Investment Advisers Act of1940 (the “Act”). Among other features, these amend-ments, which become effective in 2010, are intendedto provide additional safeguards for client funds or securities that are deemed to be in the custody of aRegistered Investment Adviser (an “Adviser”).

The Act requires all Advisers to protect client fundsand securities that are in their custody. The term “intheir custody” includes being in possession of clientfunds or securities, having the authority to withdrawfunds or securities from a client’s account, and havingthe ability to act in any capacity that gives the Adviserlegal ownership of, or access to, the client funds or securities.

The Act goes on to require Advisers who have custody of client funds and securities to maintain suchclient assets with Qualified Custodians who must holdthe client funds or securities in an account either underthe client’s name or under the Adviser’s name as agentor trustee for its clients. Qualified Custodians includethe types of financial institutions that clients and Advisers customarily turn to for custodial services, including trust companies, banks, savings associations,registered broker-dealers and registered futures commission merchants.

Prior to these amendments to the Custody Rule,Advisers generally were required to maintain clientfunds or securities with a Qualified Custodian whomthe Adviser reasonably believed sent account state-ments to the clients of the Adviser at least quarterly.The Adviser had the option of sending statements directly to clients if the Adviser agreed to undergo asurprise examination by an independent public accountant on at least an annual basis. Now, under theamended Custody Rule, Advisers with custody of clientfunds or securities must undergo an annual surpriseexamination of client assets by an independent publicaccountant. Further, clients must now receive, no lessfrequently than quarterly, account statements directlyfrom the Qualified Custodian rather than from the Adviser. It is believed that requiring delivery of account

statements directly to the client by Qualified Custodi-ans will provide greater assurance of the integrity ofthe account statements.

In addition, Advisers now have an obligation toperform some level of investigation into the statementprocesses of the Qualified Custodian when the Adviserrelies on the Qualified Custodian to deliver accountstatements. Receipt of duplicate statements by the Adviser is one example of how to satisfy this obligation.There are specific exceptions to the statement deliveryrequirement under the Custody Rule related to pooledinvestment vehicles.

Trustees of a municipal retirement plan must ensure the safety of the plan’s assets. The FPPTA educational curriculum teaches that a system of checksand balances based on a separation of duties and responsibilities coupled with independent reporting isthe best structure to ensure the safety and soundnessof a plan’s assets. Trustees should understand how theassets of their plan are maintained and controlled. Asking questions such as those that follow would behelpful in the effort to achieve that understanding: Arethe plan’s assets controlled in one location? Are therestrict separations of duties and accurate reporting onat least a quarterly basis? Who is responsible for reviewing and comparing statements? To whom andhow often are the results of the review and compari-son of statements reported? Trustees who understandthe answers to these questions will be prepared to ensure the safety of their plan’s assets. n

The Safety & Soundness of Investor Assets:Using Qualified Custodians

50


FPPTA

Contacts:

Ray Edmondson, CPPTChief Executive Officer800-842-4064 ext. [email protected]

Kim Ryals, CPPTChief Operating OfficerCPPT Coordinator800-842-4064 ext. [email protected]

Lois EdmondsonSenior Executive Assistant Membership and Event Registration Specialist800-842-4064 ext. [email protected]

Peter Hapgood, CPPTEducation [email protected]

Lea HerrellBookkeeper800-842-4064 ext. [email protected]

Brittany CommiskeyAssistant to Chief Operating Officer800-842-4064 ext. [email protected]

FPPTA2946 Wellington Circle EastSuite ATallahassee, Florida 32309800-842-4064www.fppta.org n

Performance as of 9/30/2010 is 2.62% (1 year), 4.04% (5 years) and 3.53% since inception (7/6/2004). Performance since inception through11/30/2010 is 3.42%. Performance data quoted represents past performance and is no guarantee of future results. The investment returnand principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their originalcost, and current performance may be lower or higher than the performance quoted. Annualized total return assumes reinvestment of dividendsand capital gain distributions. Performance data quoted for periods prior to December 14, 2009 is that of the Predecessor Fund whichcommenced operations on July 6, 2004. The expenses of the predecessor fund were lower than the expenses of the Fund; had theexpenses of the Fund been reflected, performance would have been lower. The total expense ratio is 0.75%. The since inception returnsare reflective of the predecessor fund.

To determine if this Fund is an appropriate investment for you, carefully consider the Fund’s investment objectives, risk factors, charges andexpenses before investing. This and other information can be found in the Fund’s prospectus, which may be obtained by calling 877-299-USFSor by visiting www.pennantmanagement.com. Please read the prospectus carefully before investing.

Investing involves risk, including possible loss of principal. There is no guarantee the Fund will achieve its stated objective.

The USFS Funds are distributed by SEI Investments Distribution Co., which is not affiliated with Pennant Management, Inc.or Salem Trust Company.

THE POWER OF imagination

As of November 30, 2010 1 mo. 2 mos. YTD 1 yr. 3 yrs. annualized

5 yrs. annualized

USFS Limited Duration Government Fund -0.19% -0.06% 2.55% 1.84% 3.15% 3.95% BofA Merrill Lynch U.S. Treasury 0-1 Yr. Index 0.00% 0.04% 0.37% 0.32% 1.47% 2.92% BofA Merrill Lynch U.S. Treasury 1-3 Yr. Index -0.18% 0.04% 2.54% 1.73% 3.37% 4.29%

A leap of imagination can land you anywhere:in a safe shelter, an unexpected new world,

or a thrilling place wherethe competition just can’t follow.

Daily liquidity, without penalty for redemption

Put the power of Salem Trust Company to work for you by investing in theUSFS Funds Limited Duration Government Fund.

Designed to provide high level of current income Fund is managed by our affiliate, Pennant Management, Inc More than 5 years of proven history Ticker: USLDX

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51

theVOICE . S

PRING 2011

By: John McCann, CIMA, Thistle Asset Consulting

The first tree months of theyear could not have gotten offto a better start. The marketcontinued to rebound from thelows of March 2009 and postedstrong gains for both equity and

fixed income investments. The S&P 500 was up about5.39% while the Barclays Capital Government/CreditBond (BCGC) Index was up 1.55%. Your basic balancedportfolio of 60% S&P 500 and 40% BCGC provided a return of 3.85% for the three month period, an excel-lent return for defined benefit plans that expect between 7-9% for the full year

Everything turned south during the quarter end-ing June 30, 2010. All of the major equity indexes wereseverely negative, and most were down over 10%. TheS&P 500 declined 11.43%. Fixed income was about theonly ray of sunshine during the period; the BarclaysCapital Government Credit bond index was up 3.88%for the quarter.

July and August provided little traction as the market bounced up and down, but not really nettingmuch in terms of positive results. Then the month ofSeptember 2010 proved to be one of the best singlemonths going back to the Great Depression. The S&P500 returned 8.92% for the month, bringing its quarterly total to 11.29%. Fixed income also performedwell during the quarter, posting a 3.28% return for theBCGC.

The investment euphoria from September carriedover to the equity markets in the final quarter of theyear. The S&P 500 returned 10.76% for the threemonths, while the BCGC lost 2.17%. For the 2010 yearend, a 60% S&P 500 / 40% BCGC balanced portfolio returned 11.67% which is quite a good result consid-ering the large swings we experienced throughout theyear.

Other equity asset classes faired even better thanthe S&P 500. Among the domestic equities mid capsand small caps proved to be the best performers forthe year with the S&P 400 returning 26.64%. Small capswere also strong with the Russell 2000 returning26.85%. The largest outlier was international equity;the MSCI EAFE index returned just 7.75% for the trailingyear. A more diversified balanced portfolio consistingof 30% S&P 500, 10% S&P 400, 10% Russell 2000, 10%MSCI EAFE, and 40% BCGC returned 13.29% for thetrailing 12 months. That result would have been significantly better if not for the relatively poor per-formance of the MSCI EAFE index.

It is amazing to think back about the ride we havebeen on over the last year. 2010 started off great witha strong first quarter, only to reverse itself in the second quarter and putting us in negative territory forthe year. Then the year ended with two strong quar-ters as the market continued to improve from the lowsof March 2009.

I guess this is just another example of why we stayinvested and don’t try to time the markets. You justnever know when we are going to get the results weneed. n

The 2010 Investment Return Roller Coaster53

theVOICE . S

PRING 2011

“It is amazing to think back about the ride we have been on over the last year.”

Reprinted from Cypen & Cypen August 19, 2010 Newsletter

State and local governments have often been onthe forefront of efforts to contain health care costs andencourage employees to make positive changes thatlead to healthier lifestyles. As both costs and the number of retirees increase, governments are closelyexamining their approach to post-employment bene-fits other than pensions (OPEB). Although a number of governments have made promising starts in wellness/disease management programs, creatinghealth care pools that provide uniform benefit levelsfor active workers/retirees and making health care accessible for routine/preventive medicine, the fact remains that there are hard decisions to be madeabout who is eligible for retiree health care coverageand when. In July 2009 the Center for State and LocalGovernment Excellence released a survey of what allstates and over 2,000 local governments were doing tocontain and reduce costs, and approaches they are taking to fund retiree health care liabilities. The origi-nal survey data, collected in 2007, reported on localgovernments’ adoption of various OPEB strategies, including pre-funding mechanisms (for example, OPEBtrust funds), and changes to retiree health care (RHC)plan design. In addition to jurisdictions that reported having already adopted such strategies, many more indicated that they were very likely to follow suit in succeeding years. Those “most likely adopters” andtheir recent experience with OPEB strategy adoptionare the focus of an August 2010 issue brief, which reports a follow-up survey of local government mostlikely adopters of various OPEB strategies, which included:

• establishing a Section 115 trust (governmental); medical sub-account (401 (h)); or Voluntary EmployeeBeneficiary Association (VEBA) trust (501 (c) (9)); • issuing OPEB bonds;• increasing years of service for vesting for RHC; • increasing age at which RHC is available;• terminating RHC for all new hires.

Two important caveatsmust be noted. First, OPEBstrategies considered in the brief are not the only options available to governments (raising premi-ums/co-pays are examples of other cost-shifting strate-gies), but rather are among the most potentially-effective ones for addressing OPEB liability. Second, although the local governments sampled can rightly

be called most likely adopters, no doubt many otherlocal governments have adopted OPEB reforms since2007. The list of most likely adopters culled from the2007 survey included 206 jurisdictions, some of whichindicated a strong likelihood of adopting multipleOPEB strategies (e.g., establishing a dedicated trust andincreasing years of service to qualify for retiree healthcare). The surveys asked jurisdictions the status of thespecific OPEB strategy or strategies they previously indicated a high likelihood of adopting. Thirty-six percent have increased or plan to increase years ofservice required to vest; eleven percent have increasedthe retirement age; and thirty-nine percent have eliminated or plan to eliminate retiree health care benefits for new hires. The brief also reports factorsperceived to impede OPEB strategy adoption in thosejurisdictions that – despite having previously indicateda strong likelihood of doing so – failed to adopt one ormore OPEB strategies. n

How the Local Governments Address RetireeHealth Care Funding

54


“...there are hard decisions to be made about who is

eligible for retiree health carecoverage and when.”

55

theVOICE . S

PRING 2011

Reprinted from Cypen & Cypen June 24, 2010 Newsletter

Saving for retirement is hard enough. It turns out,though, that spending intelligently during retirement isdifficult as well. The soon-to-be-retired person has tomake a range of decisions about spending that willhave real consequences for as long as he lives. Sadly,however, “the 4% rule,” which is the most commonlyoffered spending advice proffered by investment professionals and the popular press, can ultimately beharmful to interests of people who heed it, accordingto recent research by Nobel Laureate William Sharpe,Professor of Finance, Emeritus, at Stanford GraduateSchool of Business.

Simply put, the rule suggests that the retiree spendan inflation-adjusted 4% of his retirement assets eachyear, while keeping the balance of those assets in aportfolio that typically includes both stocks and bonds.That strategy might be reasonable in a world wherestocks are not risky. But they are, of course. In addition,there is more wrong with the rule than simply that itdiscounts the downside of investing in instrumentsthat have an element of risk. If a retiree adopts a 4%rule, he will waste money by purchasing surpluses, willoverpay for his spending distribution and may be sad-dled with an inferior spending plan. What is reallywrong with the 4% plan is its insistence on fixed spend-ing coupled with investing in a portfolio with variablereturns.

In the most obvious case, when a retiree’s portfoliounderperforms, stubbornly pulling out money at thesame rate means he will run out of money at somepoint. Clearly, most advisors would see that coming,and caution the retiree to spend less.

Less obvious, though, is the consequence of better-than-expected returns. First of all, rememberthat investments have a price. Then, remember that therule assumes a constant rate of spending and posits a retirement lasting 30 years. Ruling out what econo-mists call “the bequest motive,” we can assume thatthe retiree wants to spend it all within the retirementperiod. But generating a surplus means that there ismoney left over at the end, which is wasted. Not onlyis the surplus wasted, but also there is additional wasteon the front end because the retiree paid for invest-ment surpluses he did not need. Planners who believein the 4% rule often modify it, changing the amount towithdraw, length of the plan, portfolio mix, rebalancingfrequency or level of confidence that money will last.

However, all these variations have a commontheme – they attempt to finance a constant, nonvolatilespending plan using a risky, volatile investment strategy. Sharpe says investment professionals need tofind ways to help clients make a realistic assessment oftheir own risk tolerance. And that means discardingthe traditional quiz and finding a better approach. n

Spending Intelligently in Retirement: William Sharpe and the 4% Rule

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56


Just for Fun...

HERRING

FUNNY FUNNY

WORDS WORDS

WORDS WORDS

SYMPHON

TICKLED

THODEEPUGHT

NV

GIFIREN

ANSWERS

UNFINISHED SYMPHONY

TOO FUNNY FOR WORDS

RED HERRING

TICKLED PINK

DEEP IN THOUGHT

GREEN WITH ENVY

FIRE ENGINE

A paraprosdokian... is a figure of speech in which the latter part of a sentence or phrase is surprising or unexpected in a way that causes the reader or listener to reframe or reinterpret the first part.

To steal words from one person is plagiarism. To steal frommany is research.

The early bird might get the worm, but the second mousegets the cheese.

A bus station is where a bus stops. A train station is wherea train stops. On our desks we have a work stations.

Light travels faster than sound. This is why some peopleappear bright until you hear them speak.

How is it one careless match can start a forest fire, but ittakes a whole box to start a campfire?

I thought I wanted a career, turns out I just wanted paychecks.

A bank is a place that will lend you money, if you can provethat you don’t need it.

Why does someone believe you when you say there arefour billion stars, but check when you say the paint is wet?

Why do Americans choose from just two people to run forpresident and 50 for Miss America ?

You do not need a parachute to skydive. You only need aparachute to skydive more than once.

When tempted to fight fire with fire, remember that theFire Department usually uses water. n

57

theVOICE . S

PRING 2011

By: Stephen H. Cypen, Esq. Cypen & Cypen

More than fifteen yearshave passed since the 1994bankruptcy filing by OrangeCounty, California, so municipal-ity bankruptcy has not been atthe fore. However, with the

recent bankruptcy of Vallejo, the issue has reemerged.Besides, in contract negotiations, many municipalitiesare playing the “B” card, either expressly or by implica-tion. Chapter 9 of the Bankruptcy Code provides forreorganization of municipalities (which include citiesand towns, as well as villages, counties, taxing districts,municipal utilities and school districts). The followingsummary comes from uscourts.gov.

The first municipal bankruptcy legislation was enacted in 1934 during the Great Depression. Although Congress took care to draft the legislation soas not to interfere with the sovereign powers of thestates guaranteed by the Tenth Amendment to theConstitution, the Supreme Court held the 1934 Act unconstitutional as an improper interference with thesovereignty of the states. Congress enacted a revised

Municipal Bankruptcy Act in 1937, which was upheldby the Supreme Court. The law has been amended several times since 1937. In the more than 70 yearssince Congress established a federal mechanism for theresolution of municipal debts, there have been about500 municipal bankruptcy petitions filed.

Purpose of Municipal BankruptcyThe purpose of chapter 9 is to provide a financially-

distressed municipality protection from its creditors

while it develops and negotiates a plan for adjustingits debts. Reorganization of the debts of a municipal-ity is typically accomplished either by extending debt maturities, reducing the amount of principal or inter-est, or refinancing the debt by obtaining a new loan.

Although similar to other chapters in some respects, chapter 9 is significantly different in that thereis no provision in the law for liquidation of the assets ofthe municipality and distribution of the proceeds tocreditors. Such a liquidation or dissolution would undoubtedly violate the Tenth Amendment to theConstitution and the reservation to the states of sovereignty over their internal affairs. Indeed, due tothe severe limitations placed upon the power of thebankruptcy court in chapter 9 cases (required by theTenth Amendment and the Supreme Court’s decisionsin cases upholding municipal bankruptcy legislation),the bankruptcy court generally is not as active in managing a municipal bankruptcy case as it is in corporate reorganizations under chapter 11. The func-tions of the bankruptcy court in chapter 9 cases aregenerally limited to approving the petition (if thedebtor is eligible), confirming a plan of debt adjust-ment and ensuring implementation of the plan. As apractical matter, however, a municipality may consentto have the court exercise jurisdiction in many of thetraditional areas of court oversight in bankruptcy, inorder to obtain the protection of court orders and elim-inate the need for multiple forums to decide issues.

EligibilityOnly a “municipality” may file for relief under

chapter 9. The term “municipality” is defined in theBankruptcy Code as a “political subdivision or publicagency or instrumentality of a State.” The definition isbroad enough to include cities, counties, townships,school districts, and public improvement districts. It also includes revenue-producing bodies that provideservices that are paid for by users rather than by general taxes, such as bridge authorities, highway authorities and gas authorities.

The Bankruptcy Code sets forth four additional eligibility requirements for chapter 9:• the municipality must be specifically authorized tobe a debtor by state law or by a governmental officeror organization empowered by State law to authorizethe municipality to be a debtor;

• the municipality must be insolvent, as defined (that is,unable to pay or not paying its debts as they becomedue);


“The first municipal bankruptcy legislation

was enacted in 1934 during the Great Depression.”


Municipality Bankruptcy continued...58


• the municipality must desire to effect a plan to adjust its debts; and

• the municipality must: • obtain the agreement of creditors holding at least amajority in amount of the claims of each class thatthe debtor intends to impair under a plan in a caseunder chapter 9; or,

• negotiate in good faith with creditors and fail to obtain the agreement of creditors holding at least amajority in amount of the claims of each class thatthe debtor intends to impair under a plan; or,

• be unable to negotiate with creditors because suchnegotiation is impracticable; or

• reasonably believe that a creditor may attempt to obtain a preference. With reference to requirement number 1 above,

back in the 1930s, Florida enacted legislation entitled“Authority to Accept Benefits of Bankruptcy,” whichnow appears as Section 218.01, Florida Statutes. Thatsection provides that for the purpose of rendering effective the privilege and benefits of any amendmentsto the bankruptcy laws of the United States that maybe enacted for relief of municipalities, taxing districtsand political subdivisions, the Florida Legislature givesits assent to, and accepts provisions of, any such bank-ruptcy laws that may be enacted by the Congress ofthe United States for benefit and relief of municipali-ties, taxing districts and political subdivisions, at discretion of the governing authorities thereof, may institute, conduct and carry out, by any appropriatebankruptcy procedure that may be enacted into thelaws of the United States for purpose of conferringupon municipalities, taxing districts and political subdivisions, relief by proceedings in bankruptcy in thefederal courts. We understand that nearly one-half ofthe states have enacted conditional or unconditionalauthorization for such use of the federal BankruptcyCode.

Commencement of the CaseMunicipalities must voluntarily seek protection

under the Bankruptcy Code. They may file a petitiononly under chapter 9. A case under chapter 9 con-cerning an unincorporated tax or special assessment district that does not have its own officials is commenced by the filing of a voluntary petition bysuch district’s governing authority or the board orbody having authority to levy taxes or assessments tomeet the obligations of such district.

A municipal debtor must file a list of creditors.

Normally, the debtor files the list of creditors with thepetition. However, the bankruptcy court has discretionto fix a different time if the debtor is unable to preparethe list of creditors in the form and with the detail required by the Bankruptcy Rules at the time of filing.

Assignment of Case to a Bankruptcy JudgeOne significant difference between chapter 9 cases

and cases filed under other chapters is that the clerk ofcourt does not automatically assign the case to a particular judge. The chief judge of the court of ap-peals for the circuit embracing the district in which thecase is commenced designates the bankruptcy judgeto conduct the case. This provision was designed to remove politics from the issue of which judge will preside over the chapter 9 case of a major municipality,and to ensure that a municipal case will be handled bya judge who has the time and capability of doing so.

Notice of Case/ Objections/ Order for ReliefThe Bankruptcy Code requires that notice be given

of the commencement of the case and the order for relief. The Bankruptcy Rules provide that the clerk, orsuch other person as the court may direct, is to give notice. The notice must also be published at least oncea week for three successive weeks in at least one news-paper of general circulation published within the district in which the case is commenced and in suchother newspaper having a general circulation amongbond dealers and bondholders as the court desig-nates. The court typically enters an order designatingwho is to give and receive notice by mail, and identify-ing the newspapers in which the additional notice is tobe published.

The Bankruptcy Code permits objections to the petition. Typically, objections concern issues like

“Municipalities must voluntarily seek protection

under the Bankruptcy Code.”

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whether negotiations have been conducted in goodfaith, whether the state has authorized the municipal-ity to file and whether the petition was filed in goodfaith. If an objection to the petition is filed, the courtmust hold a hearing on the objection. The court maydismiss a petition if it determines that the debtor didnot file the petition in good faith or that the petitiondoes not meet the requirements of law.

If the petition is not dismissed upon an objection,the Bankruptcy Code requires the court to order relief,allowing the case to proceed under chapter 9.

Automatic StayThe automatic stay of the Bankruptcy Code is

applicable in chapter 9 cases. The stay operates to stopall collection actions against the debtor and its property upon the filing of the petition. Additional automatic stay provisions are applicable in chapter 9that prohibit actions against officers and inhabitantsof the debtor if the action seeks to enforce a claimagainst the debtor. Thus, the stay prohibits a creditorfrom bringing a mandamus action against an officer ofa municipality on account of a prepetition debt. It alsoprohibits a creditor from bringing an action against aninhabitant of the debtor to enforce a lien on or arisingout of taxes or assessments owed to the debtor.

However, a chapter 9 petition does not operate to stay application of pledged special revenues to payment of indebtedness secured by such revenues.Thus, an indenture trustee or other paying agent mayapply pledged funds to payments coming due or distribute the pledged funds to bondholders withoutviolating the automatic stay.

Proofs of ClaimIn a chapter 9 case, the court fixes the time within

which proofs of claim or interest may be filed. Manycreditors may not be required to file a proof of claim ina chapter 9 case. For example, a proof of claim isdeemed filed if it appears on the list of creditors filed by the debtor, unless the debt is listed as disputed, contingent, or unliquidated. So, a creditor must file aproof of claim if the creditor’s claim appears on the listof creditors as disputed, contingent or unliquidated.

Court’s Limited PowerThe Bankruptcy Code is designed to recognize the

court’s limited power over operations of the debtor.The Bankruptcy Code limits the power of the bank-

ruptcy court to interfere with (1) any of the political or

governmental powers of the debtor; (2) any of theproperty or revenues of the debtor; or (3) the debtor’suse or enjoyment of any income-producing propertyunless the debtor consents or the plan so provides. The law makes it clear that the debtor’s day-to-day activities are not subject to court approval and that thedebtor may borrow money without court authority. In addition, the court cannot appoint a trustee (exceptfor limited purposes) and cannot convert the case to aliquidation proceeding.

The court also cannot interfere with the operationsof the debtor or with the debtor’s use of its propertyand revenues. This is due, at least in part, to the fact thatin a chapter 9 case there is no property of the estateand thus no estate to administer. Moreover, a chapter9 debtor may employ professionals without court approval, and the only court review of fees is in the context of plan confirmation, when the court deter-mines the reasonableness of the fees.

The restrictions imposed are necessary to ensurethe constitutionality of chapter 9 and to avoid the possibility that the court might substitute its controlover the political or governmental affairs or propertyof the debtor for that of the state and the elected officials of the municipality.

Similarly, chapter 9 does not limit or impair thepower of a State to control, by legislation or otherwise,a municipality in the exercise of the political or governmental powers of the municipality, including expenditures for such exercise, with two exceptions – a state law prescribing a method of composition of municipal debt does not bind any non-consentingcreditor and any judgment entered under such statelaw does not bind a nonconsenting creditor.

“...the debtor’s day-to-day activities are not subject to court approval and the

debtor may borrow money without court authority.”


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theVOICE . SPRING 2011 Role of the U.S. trustee/bankruptcy administrator

In a chapter 9 case, the role of the U.S. trustee (orthe bankruptcy administrator in North Carolina and Alabama) is typically more limited than in chapter 11cases. Although the U.S. trustee appoints a creditors’committee, the U.S. trustee does not examine thedebtor at a meeting of creditors (there is no meetingof creditors), does not have the authority to move forappointment of a trustee or examiner or for conversionof the case, and does not supervise the administrationof the case. Further, the U.S. trustee does not monitorthe financial operations of the debtor or review thefees of professionals retained in the case.

Role of CreditorsThe role of creditors is more limited in chapter 9

than in other cases. There is no first meeting of credi-tors, and creditors may not propose competing plans.If certain requirements are met, the debtor’s plan isbinding on dissenting creditors. The chapter 9 debtorhas more freedom to operate without court-imposedrestrictions.

In each chapter 9 case, however, there is a creditors’committee that has powers and duties that are verysimilar to those of a committee in a chapter 11 case.These powers and duties include selecting and authorizing the employment of one or more attorneys,accountants or other agents to represent the commit-tee; consulting with the debtor concerning adminis-tration of the case; investigating the acts, conduct,assets, liabilities and financial condition of the debtor;participating in the formulation of a plan; and per-forming such other services as are in the interest ofthose represented.

Intervention/Right of Others to be HeardWhen cities or counties file for relief under chapter 9,there may be a great deal of interest in the case fromentities wanting to appear and be heard. The Bank-ruptcy Rules provide that the Secretary of the Treasuryof the United States may, or if requested by the courtshall, intervene in a chapter 9 case. Further, represen-tatives of the state in which the debtor is located mayintervene in a chapter 9 case. In addition, the Bankruptcy Code permits the Securities and ExchangeCommission to appear and be heard on any issue andgives parties-in-interest the right to appear and beheard on any issue in a case. Parties-in-interest includemunicipal employees, local residents, non-residentowners of real property, special tax payers, securitiesfirms and local banks.

Powers of the DebtorDue to statutory limitations placed upon the

power of the court in a municipal debt adjustment proceeding, the court is far less involved in the conductof a municipal bankruptcy case (and in the operation ofthe municipal entity) while the debtor’s financial affairsare undergoing reorganization. The municipal debtorhas broad powers to use its property, raise taxes andmake expenditures as it sees fit. It is also permitted toadjust burdensome non-debt contractual relationshipsunder the power to reject executory contracts and unexpired leases, subject to court approval, and it hasthe same avoiding powers as other debtors. Munici-palities may also reject collective bargaining agree-ments and retiree benefit plans without going throughthe usual procedures required in chapter 11 cases.

A municipality has authority to borrow money during a chapter 9 case as an administrative expense.This ability is important to the survival of a municipal-ity that has exhausted all other resources. A chapter 9municipality has the same power to obtain credit as itdoes outside of bankruptcy. The court does not havesupervisory authority over the amount of debt the municipality incurs in its operation. The municipalitymay employ professionals, without court approval, andthe professional fees incurred are reviewed only withinthe context of plan confirmation.

DismissalAs previously noted, the court may dismiss a chap-

ter 9 petition, after notice and a hearing, if it concludesthe debtor did not file the petition in good faith or if the petition does not meet the requirements of chap-ter 9. The court may also dismiss the petition for cause,such as for lack of prosecution, unreasonable delay bythe debtor that is prejudicial to creditors, failure to pro-pose or confirm a plan within the time fixed by thecourt, material default by the debtor under a confirmedplan or termination of a confirmed plan by reason ofthe occurrence of a condition specified in the plan.

Treatment of Bondholders and Other LendersDifferent types of bonds receive different treat-

ment in municipal bankruptcy cases. General obliga-tion bonds are treated as general debt in the chapter 9case. The municipality is not required to make pay-ments of either principal or interest on account of suchbonds during the case. The obligations created by general obligation bonds are subject to negotiationand possible restructuring under the plan of adjust-ment.

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Special revenue bonds, by contrast, will continueto be secured and serviced during the pendency of thechapter 9 case through continuing application andpayment of ongoing special revenues. Holders of special revenue bonds can expect to receive paymenton such bonds during the chapter 9 case, if special revenues are available. The application of pledged special revenues to indebtedness secured by such revenues is not stayed as long as the pledge ensures

that a lien of special revenues is subordinate to the operating expenses of the project or system fromwhich the revenues are derived.

Bondholders generally do not have to worry aboutthe threat of preference liability with respect to anyprepetition payments on account of bonds or notes,whether special revenue or general obligations. Anytransfer of the municipal debtor’s property to a note-holder or bondholder on account of a note or bondcannot be avoided as a preference (an unauthorizedpayment to a creditor made while the debtor was insolvent).

Plan for Adjustment of DebtsThe Bankruptcy Code provides that the debtor

must file a plan. The plan must be filed with the peti-tion or at such later time as the court fixes. There is noprovision in chapter 9 allowing creditors or other parties in interest to file a plan. This limitation is required by the Supreme Court’s pronouncements,which interpreted the Tenth Amendment as requiringthat a municipality be left in control of its governmen-tal affairs during a chapter 9 case. Neither creditors northe court may control the affairs of a municipality

indirectly through the mechanism of proposing a planof adjustment of the municipality’s debts that wouldin effect determine the municipality’s future tax andspending decisions.

Confirmation StandardsThe standards for plan confirmation in chapter 9

cases are a combination of statutory requirements. Thecourt must confirm a plan if the following seven general conditions are met:• the plan complies with the applicable provisions oftitle 11;

• the plan complies with the provisions of chapter 9; • all amounts to be paid by the debtor or by any person for services or expenses in the case or incident to the plan have been fully disclosed and arereasonable;

• the debtor is not prohibited by law from taking anyaction necessary to carry out the plan;

• except to the extent that the holder of a particularclaim has agreed to a different treatment of suchclaim, the plan provides that on the effective date ofthe plan, each holder of a claim of a kind specifiedwill receive on account of such claim cash equal tothe allowed amount of such claim;

• any regulatory or electoral approval necessary underapplicable nonbankruptcy law in order to carry outany provision of the plan has been obtained, or suchprovision is expressly conditioned on such approval;and

• the plan is in the best interests of creditors, and is feasible. Section 943(b)(1) requires as a condition for

confirmation that the plan comply with the provisionsof the Bankruptcy Code made applicable by sections103(e) and 901(a) of the Bankruptcy Code. The most important of these for purposes of confirming a planare those provisions of 11 U.S.C. § 1129 (i.e., § 1129(a)(2), (a)(3), (a)(6), (a)(8), (a)(10)) that are made applicable by 11 U.S.C. § 901(a). Section 1129(a)(8) requires, as a condition to confirmation, that the planhas been accepted by each class of claims or interestsimpaired under the plan. Therefore, if the plan proposestreatment for a class of creditors such that the class isimpaired (i.e., the creditor’s legal, equitable, or contrac-tual rights are altered), then that class’s acceptance isrequired. If the class is not impaired, then acceptanceby that class is not required as a condition to confir-mation. Under 11 U.S.C. § 1129(a)(10), the court mayconfirm the plan only if, should any class of claims be

“Holders of special revenuebonds can expect to receive

payment on such bonds duringthe chapter 9 case, if special revenues are available.”


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impaired under the plan, at least one impaired class hasaccepted the plan. If only one impaired class of credi-tors consents to the plan, plan confirmation is still possible under the “cram down” provisions of 11 U.S.C.§ 1129(b). Under “cram down,” if all other requirementsare met except the § 1129(a)(8) requirement that allclasses either be unimpaired or have accepted the plan,then the plan is confirmable if it does not discriminateunfairly, and is fair and equitable.

The requirement that the plan be in the “best interests of creditors” means something differentunder chapter 9 than under chapter 11. Under chapter11, a plan is said to be in the “best interest of creditors”if creditors would receive as much under the plan asthey would if the debtor were liquidated. Obviously, adifferent interpretation is needed in chapter 9 cases because a municipality’s assets cannot be liquidatedto pay creditors. In the chapter 9 context, the “best interests of creditors” test has generally been inter-preted to mean that the plan must be better than otheralternatives available to the creditors. Generally speak-ing, the alternative to chapter 9 is dismissal of the case,permitting every creditor to fend for itself. An inter-pretation of the “ best interests of creditors” test to re-quire that the municipality devote all resourcesavailable to the repayment of creditors would appearto exceed the standard. The courts generally apply the

test to require a reasonable effort by the municipaldebtor that is a better alternative for its creditors thandismissal of the case.

Parties-in-interest may object to confirmation, including creditors whose claims are affected by the

plan, an organization of employees of the debtor andother taxpayers, as well as the Securities and ExchangeCommission.

DischargeA municipal debtor receives a discharge in a chap-

ter 9 case after (1) confirmation of the plan; (2) depositby the debtor of any consideration to be distributedunder the plan with the disbursing agent appointed bythe court; and (3) a determination by the court that securities deposited with the disbursing agent will constitute valid legal obligations of the debtor and thatany provision made to pay or secure payment of suchobligations is valid. Thus, the discharge is conditionednot only upon confirmation, but also upon deposit ofthe consideration to be distributed under the plan anda court determination of the validity of securities to beissued.

There are two exceptions to the discharge in chap-ter 9 cases. The first is for any debt excepted from discharge by the plan or order confirming the plan. Thesecond is for a debt owed to an entity that, before confirmation of the plan, had neither notice nor actualknowledge of the case.

At any time within 180 days after entry of the confirmation order, the court may, after notice and ahearing, revoke the order of confirmation if the orderwas procured by fraud.

Florida State ProvisionsThe State of Florida has enacted Chapter 218, Part

V, Florida Statutes, known as the “Local GovernmentalEntity, Charter School, Charter Technical Career Center,and District School Board Financial Emergencies Act.”The law is designed to promote fiscal responsibility oflocal governmental entities; assist local governmentalentities in providing essential services without inter-ruption and in meeting their financial obligations; andassist local governments to improve local financialmanagement procedures. If the Governor determinesthat a local entity needs state assistance to resolve orprevent a “financial emergency,” among other things,the Governor may establish a financial emergencyboard to oversee activities of the local governmentalentity. If a financial emergency board is established fora local governmental entity, the Governor shall appointboard members and select a chair. And, most relevantto this article, a local governmental entity may not seekbankruptcy protection without the prior approval ofthe Governor. n

“The requirement that the plan be in the ‘best interests ofcreditors’ means something

different under chapter 9 thanunder chapter 11.”

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