So he teamed up with the two friends he was renting an apartment with. They took out a joint mortgage in late 2003 to buy a three-bedroom flat in Hackney, a developing area of East London, for 260,000 pounds (now about $500,000).

"I couldn't even have afforded a studio apartment in central London by myself," said Bowley, 26, a media analyst. "But working together as close friends we were able to do much better. If we hadn't known each other so well, such a joint mortgage could be hazardous."

Overheated housing markets in some European countries and some areas of the United States are leaving many first-time buyers in a similar predicament.

Despite generally low interest rates, young professionals often have to borrow money from relatives for down payments, risk interest-only mortgages and 100 percent financing, or think creatively like Bowley did - team up with friends for joint mortgages, which often are adjustable-rate loans.

Some young couples are delaying parenthood so both partners can keep their jobs to afford the mortgage payments, and in France, Spain and Britain the average age of first-time buyers is rising. It rose from 31 to 34 in Britain between 1991 and 2004.

In Dublin, Ireland, where the average price of a residential property is now 336,028 euros (about $451,000), retired bank manager Dennis Raftery said he and his wife, both in their late 50s, are still sharing their home with their two youngest children, 20-somethings.

"They'll never be able to afford their own property in Dublin," Raftery said. "They'll just have to inherit our home once we're in the ground."

In Denmark, the average price of one-family homes has more than doubled over the past 10 years, compared with a 45 percent rise in wages.

"Many first-time buyers enter the market sooner than before, as they are afraid they won't be able to afford a house two years down the road in this rising market," said Jakob Broechner Madsen, an economics professor at the University of Copenhagen. "It's kind of a flock mentality with everybody stampeding into the market and that's keeping house prices going up and up."

In the United States, a study by consulting firm Economy.com found that house prices are so high in nearly 30 metropolitan areas that people with median incomes can't afford a median-priced home there. Most of those cities are on the east or west coast. In many other parts of America affordability isn't much of a problem.

In Britain, though, the government's National Savings and Investments department said that while wages have increased nationwide by an average of 79 percent in the last 10 years, houses prices have gone up by 180 percent. Halifax, Britain's largest mortgage lender, said last month that first-time buyers were finding nine out of 10 towns in the country unaffordable.

One result is that public sector workers, such as nurses and police officers, often can't afford to live anywhere near where they work.

In Britain, a densely populated country with an owner-occupancy rate of 70 percent, the annual number of loans to first-time buyers has fallen nearly 50 percent in the last few years, Halifax said.

Reaching out to Britain's struggling first-time buyers are Web sites such as BuyAssent and Sharetobuy - combining the functions of a bulletin board, dating agency and real estate agent to help strangers meet and become good enough friends to buy a home together on a group mortgage.

And next year the furniture superstore IKEA is expected to begin selling one- and two-bedroom prefabricated homes and apartments in Britain, as it already does in Sweden, Norway, Denmark and Finland. The BoKlok homes, built by a contractor working with IKEA, are designed as affordable housing. In Sweden, a one-bedroom BoKlok apartment in a rural area sells for as little as 200,000 kronor ($29,000).

"We want the single nurse with one child to be able to afford this," said Anders Larsson, chief executive for BoKlok in Sweden.

Another obstacle for first-time buyers is taxes. Britain has a 1 percent to 4 percent stamp duty that buyers must pay on homes that cost more than 60,000 pounds ($114,000. The government tried to help potential buyers by offering recently to double the stamp duty threshold to 120,000 pounds.

But in London, the average house price is 257,195 pounds ($491,000).

The British government is trying other initiatives aimed at helping more people become first-time buyers. Loosening its strict planning rules for constructing new homes, the government is offering surplus public land for inexpensive starter homes, and making it easier for private companies to build thousands of dwellings in areas of southern England where many people live and commute to London.

Bowley said many young professionals he knows in London, the world's most expensive city after Tokyo, remain gloomy.

"Renting is throwing money down the drain," said his roommate, Pete Edwards, 27, "and without one another we wouldn't have been able to buy so easily - if at all."

---

AP writers Shawn Pogatchnik in Dublin, Christian Wienberg in Copenhagen, Eileen Alt Powell in New York, Mar Roman in Madrid and Mikael G. Holter in Paris contributed to this report.

That thesis may sound inherently unlikely, but it explains a lot of what has happened in recent years. Those with capital find that they must pay a lot for investments that are likely to produce only a little income. The relative importance of things other than capital, like commodities and cheap labor, has grown.

Evidence of the capital glut can be seen in interest rates around the world. Market rates are low, and even when central banks set out to raise short-term rates, longer-term rates are slow to move. Investors who buy risky bonds are offered very little extra yield for taking the risk, another indication that there is lots of money chasing a paucity of good investments.

For the same reason, stock prices are high in many countries. There the disappointment will come later as relatively low profits are recorded by the companies. If capital remains in excess, profit disappointments may not cause share prices to plunge, since the capital will have to go somewhere. But the rates of return on the underlying investments are likely to be below what investors have expected. With capital in a weakening position, returns that would once have gone to owners of capital now are redirected. That is one way to explain the surge in management compensation over the past two decades. In the early 1980s, when interest rates were high and stock prices low, the average U.S. chief executive got no stock options in any given year. Now nearly all get large grants, and one study found that chief executive pay rose faster than that of any group save for professional athletes and movie stars. Those who provided the capital had less power to demand the profits from the enterprises they financed.

Another sign of excess capital can be seen in what Argentina did to its creditors and in how they reacted. When Argentina defaulted on its debt, many thought that it would eventually negotiate a deal with creditors that was similar to previous arrangements when countries defaulted. Instead, this year it imposed far harsher terms, and refused to talk about them. The vast majority of the bondholders meekly went along, and bonds of other emerging markets have not suffered. Emboldened, the Argentine government is sounding an uncompromising note regarding foreign-owned utilities and oil companies. It is betting that it can get away with treating the owners of capital badly, and it may be right.

Why is there too much capital? One answer is that central banks reacted to the bursting of the technology bubble by cutting interest rates by too much for too long. The resulting liquidity might in other times have sent inflation soaring, but this is the era when China's emergence has placed offsetting deflationary pressures on prices of consumer goods, and cheap communications make it possible to send service jobs overseas. The excess liquidity is sloshing around world capital markets. At the same time, China is encouraging more investment in industries that do not need it. The car business is the obvious example. Worldwide, it is plagued by far too much capacity. But the lure of China's market and cheap labor has nearly every major company building there. We have seen too much capital before, but perhaps not on a worldwide basis. It flooded into Japan in the 1980s, when money there was cheap and the success of the Japanese economy obvious. Japanese business still suffers from excess capacity. The availability of virtually unlimited amounts of cheap capital for telecommunications in the late 1990s led to the building of fiber optic cable that may never be used.

The excess of capital is bad news for wealthy economies, especially as it is happening when aging populations in Japan, Europe and the United States need good investments to finance retirement. But it should be good news for economies that need capital to develop.

Capital will not remain in excess forever. Money will be spent on consumption rather than investment and new technologies and rising demand will eventually create more uses for a supply of capital that will have been depleted as low returns persuade some that there is no point in saving. But for those with capital, that could be a slow and painful process.

**

Floyd Norris can be reached atfnorris@iht.com

That's true in many cases, but not when it comes to your tax situation. When it comes to paying taxes, it is better not to give the government any more money than you have to. Come tax time, it is better not to receive a refund.

If I was in front of an audience and said this, I know some folks would roll their eyes and look at me as if I had lost my mind. People pray for a tax refund.

"When I get my tax refund, I'm going to pay off some bills," is a comment I hear frequently.

Others can't wait for a refund to buy something they've coveted all year.

To many, a tax refund is an annual windfall. But a windfall means something that is unexpected, unearned. This, on the other hand, is money you earned all year long. If not much changes in your tax situation and year after year you are getting a refund, that's akin to lending your money to the government with no interest. Why would you want to do that?

Look, the financially smarter thing to do is make some changes to your W-4 so that you receive more money in your paycheck during the year.

Do you even remember filling out a W-4 (Employee's Withholding Allowance Certificate)? It's a form you completed when you started your job. It's also the form that should be updated far more than most employees do.

As a wage earner, you pay federal income tax by having it withheld from your pay during the year. You can adjust your withholding by filing a new W-4 with your employer at any time.

Of course, if not enough taxes are withheld from your paycheck or you earn additional money that is not subject to payroll taxation, you might owe taxes at the end of the year. You should strive to have your withholdings match your actual tax obligation.

If too much tax is withheld during the year, you get a refund. At the midpoint of this tax-filing season, the average refund is $2,436 - a record amount and more than $200 higher than last year, according to the IRS.

If you received a large refund this year or expect to, you need to review your federal and state withholding information to make sure it reflects your current tax situation. If your tax situation changes - you get married, have a child, buy a home - you should fill out a new form.

The amount of money withheld from your paycheck is determined by the number of allowances you claim on your W-4. The W-4 has a worksheet to help you figure out how many personal allowances to take, based on what tax deductions or credit you expect to claim on your tax return. You can also use the IRS online withholding calculator at www.irs.gov. In the search box, type "withholding calculator." You will need your most recent pay stub and a copy of last year's tax return.

This is the time of year to check your withholdings. The earlier in the year you change them, the more likely you will have the right amount of tax withheld. Here are some other situations that could affect the number of allowances you take:

You or your spouse start or stop working, or start or stop a second job.

You expect to take a deduction for interest paid on a student loan.

You expect to take a deduction for unreimbursed medical expenses.

You have interest expenses that are deductible, such as interest paid on your mortgage loan.

You have deductible job expenses.

You give to a charity.

If you need help figuring out if you're having too much (or too little) withheld from your paycheck, get IRS Publication 919, "How Do I Adjust My Tax Withholding?"

So if you get a big refund for 2004, and for the most part your income and your tax deductions or credits will remain the same for the next tax year, you need to update your W-4.

And don't be intimidated by the calculations you have to do on the W-4. It's worth it to muddle though to get more money in your hands throughout the year. Besides, the IRS calculator is relatively easy to use.

And if the reason you get a big refund every year is that you can't trust yourself to save the money, then it's time to automate. Automatically have a certain amount of money directly deposited from your pay into a savings account. Think about it. Could you handle your money any worse than the federal government, which is running a deficit? (Just joking, don't answer that.)

Michelle Singletary welcomes comments and column ideas, though she cannot offer specific personal financial advice. Her e-mail address is singletarym@ washpost.com. Readers can write to her c/o The Washington Post, 1150 15th St., N.W., Washington, D.C. 20071.

The combined unfunded liability, the shortfall of projected funds available to meet projected obligations, of the two programs is around $75 trillion. For perspective, the Gross National Product is $10 trillion.

We need to recognize that these two massive government programs can only continue in their current form if taxpayers agree to increases in taxes and/or cuts in benefits.

The welfare-state chickens that we hatched in 20th-century America are coming home to roost in the 21st century. If we don't start getting realistic about what we're dealing with, our children and grandchildren will not be living in a country of dreams, but a nation trying to survive.

Recently, Congress passed bankruptcy-reform legislation that will place more direct personal responsibility on every citizen waving around a credit card. We need to get equally tough with our national credit card -- the power of Congress to tax and spend.

Bankruptcy recognizes that in order to fix the problems you have created, you've got to start doing things differently.

One good first step for doing things differently is to acknowledge that Social Security and Medicare are welfare programs. They transfer tax dollars from one set of citizens to another with the objective of achieving some social end. Once we realize that these programs are welfare programs, we'll understand that they have the same inherent flaws that characterize all programs that we explicitly call welfare.

It's a fact that people change their behavior when government takes over aspects of their lives for which they had once been responsible. Most people wouldn't go to work if they felt the government was going to pay their bills.

When Congress passed sweeping welfare reform in 1996, politicians finally recognized that government was making huge expenditures to welfare recipients that encouraged them to perpetuate the very problems that they needed to solve. Welfare had stepped well over the line from being a social safety net to becoming a social engineering program. Lives were destroyed rather than helped.

Our welfare system needs more improvement, but the 1996 reforms have been successful. By scaling back government and helping individuals get realistic about the challenges in their lives, millions have gotten off the dole and gone to work. Confused and disenfranchised former welfare recipients are now building real and productive lives for themselves.

Similarly, through Social Security and Medicare, Americans have turned large aspects of their lives over to government control. If the massive tax transfers that fund these programs remained in the hands of private citizens, the power of individual choice and the creativity of the marketplace would deliver the same quality products that free markets and personal control deliver to all other aspects of our lives.

In the case of Medicare, which, according to the trustees' report, is in worse shape than Social Security, one-size-fits-all government central planning has hurt every participant in the health- care marketplace -- consumers, doctors and hospitals. Just as in the case of inner-city welfare recipients, the government takeover of private lives in health care has displaced reality with political illusions. And illusions are not a good starting point for prudent personal decision-making and planning.

Social Security and Medicare are afloat in red ink because these programs are the products of government central planning. More of the same will not solve the problems. As Bill Clinton once said, we need to "end welfare as we know it."

This is one place where we all can actually learn something from rap culture. The theme of rappers is "keeping it real." The brutal honesty of rap is what shocks and offends so many of us. We may not like what the rappers are saying, but they can't be accused of masking who they are or what they are about. Honesty helps make clear what is wrong with our country, and this provokes action and change.

In this sense, we need a little more rap culture in Washington. Americans don't need word games. They need truth so they can get on with the business of solving their problems.

When I worked to help get welfare reform passed, it wasn't a hard sell to talk about getting inner-city welfare recipients off the dole. We have a tougher political challenge with Social Security and Medicare, because now we're talking about getting Main Street America off the dole.

If we want to fix the problems, we're going to have to start getting real.

Star Parker is president of CURE, Coalition on Urban Renewal and Education.

One of the most important aspects of sponsoring a defined benefit (DB) or defined contribution (DC) pension plan is working with suppliers that are reliable, experienced and able to deliver the service that meets expectations.

When a plan sponsor hires a fund manager to oversee the investment performance of the funds in a plan, plan members assume that these managers have the "seal of approval" and the ability to provide anticipated returns.

Because plan members have varying levels of financial knowledge and expertise, rightly or wrongly, they look to employers to cover some of the traditional "homework" when it comes to choosing a fund manager.

Most plan sponsors recognize this and are conscious of fiduciary responsibilities to select the right fund manager, assess abilities and performance, and act when performance does not meet expectations.

When a plan sponsor starts looking for a new fund manager, the organization is probably not acting alone, but is working with a consultant or other advisor, who can help define the criteria, research potential providers, and assess service submissions. The things to look at include:

*Investment philosophy and process - What philosophy the fund manager espouses as a whole, what investment process is documented and followed, how well the performance history aligns with that philosophy, and how that philosophy aligns with the client organization.

*Key people - Specifically, who is overseeing investments and what is their experience.

*Fees - It is important to review this even though fee structure is likely determined by the kind of manager, the structure of the assets under management and the size of the asset base.

*Basic track record - The years of experience in managing investments, and at least five years of investment performance history.

Of these, perhaps the most difficult to assess is the last, since "good" performance can be subjective, and based on unreasonable expectations. The best way to evaluate performance is to determine objective measurement criteria, such as industry benchmarks that make sense for your plan, and track the performance of potential fund managers relative to these benchmarks.

Benchmarks commonly considered are the TSX index for equities, the ScotiaMcLeod bond index for bonds, the MSCI index for global equities or the S&P index for U.S. equities. It is reasonable to expect fund managers to have set themselves a performance target of at least the index, plus one per cent. While most plan sponsors look for a minimum of five years' history, the more history available, the better.

Another factor to consider when reviewing performance is employee turnover. A fund manager may have a stellar investment history, but are the key members of the team responsible for that success still with the organization?

Finally, consider all of this performance history in the context of the market's history. Market volatility and type of manager affect performance. Great market conditions for growth managers are not typically great market conditions for value managers. This is where working with investment advisors or consultants can really help a sponsor compare apples with apples.

Keeping an eye on your money

Choosing the fund manager is, unfortunately, not the end of the work. Sponsors must continue to evaluate manager performance on an ongoing basis.

All of the measures considered when looking for a fund manager should continue to be used in evaluating them moving forward. Large plan sponsors will likely have quarterly review meetings with the fund managers, but all plan sponsors should have annual review face- to-face meetings at a minimum.

These meetings give the fund manager an opportunity to speak to fund performance in the past year, outline any outside influences or other factors that may have affected that performance, and discuss any changes in their organization, such as personnel turnover or a change of corporate ownership.

These meetings are important because everyone is reminded that the sponsor is actively involved and "keeping an eye on" what they are doing with your pension money.

So how do you know when it's time to move on? Changing a fund manager is not a decision to make lightly because it can be costly for the plan and disconcerting for plan members.

A new search costs money, and it may be necessary to liquidate securities with the old manager and buy new ones with the new manager. New service contracts have to be negotiated. Plan members have to be told about the change and the reasons for it. It will require a lot of time, effort and cost.

But good reasons for changing a fund manager can arise, and these go back to the evaluation criteria used in making the original selection.

*Has the corporate ownership or the investment philosophy of the fund manager changed?

*Have the key people over seeing investment changed?

*Have there been unacceptable fee increases based on the size of assets or the performance history of the manager?

*Have performance history and investment returns not fulfilled expectations?

*Has performance over a number of years met the benchmarks established for the plan? (This does not mean chasing returns and flipping from one manager to another every other year.)

If time is taken to establish these criteria when choosing the manager, and to review them throughout the ongoing relationship with that manager, it should be clear when it is time to move on. It is a difficult decision to change managers, but fiduciary responsibilities can make it a necessary one.

Even after an organization decides to change fund managers, the actual change won't happen overnight. For DB plan sponsors, the transition can typically occur within three to six months. However, for DC plan sponsors, it could take a minimum of nine to 18 months, depending on the complexity of the plan design.

In addition, there's the need to create and distribute member communications required to keep plan members informed about the plan. The bottom line: even though you have service partners to help manage the plan, the ultimate responsibility to oversee the performance of the plan remains with you.

Jacqueline Taggart is a principal in the communications practice of the Toronto office of Morneau Sobeco. She can be contacted at (416) 385-2119 or jtaggart@morneausobeco.com.

Copyright Carswell Publishing Mar 28, 2005

Management of electronic information and records must reflect requirements emanating from the litigation process. This has become as much an area of focus in compliance efforts as accurate financial reporting, avoidance of employee misconduct, and antitrust matters. Anecdotal evidence shows a strong upsurge in self-examination by all types of organizations in order to meet the higher expectations.

Against this backdrop, the Sedona Working Group has published The Sedona Guidelines: Best Practice Guidelines and Commentary for Managing Information and Records in the Electronic Age. The guidelines are designed to promote effective approaches to addressing the key issues of electronic records management. Unlike the recent ANSI/ARMA or ISO standard-setting efforts, The Sedona Guidelines focuses on legal imperatives that are driving the issue. Compliance with these new requirements can best be fostered by adopting the approach underlying the five Sedona guidelines.

The New Expectations

The explosive growth in electronic communications and related e- discovery failures has energized courts to impose their own priorities in the absence of guidance from higher courts or legislatures. These court decisions touch on fundamental aspects of information management previously thought to lie solely in the realm of good business judgment. For example, in Demis v. USN Communications, a court fined a chief executive officer for improperly delegating to others (who were deemed by the court to be unqualified in records management) the responsibility for ensuring that information in hard copy and electronic form was reliably made available for future use. In In re Prudential Ins. Co. of Amer. Sales Practices Litig., a court imposed a records management system after concluding that the "haphazard and uncoordinated" treatment of records in various sales offices threatened the litigation process. Misconduct in regard to information handling has resulted in severe criminal penalties for both entities and individuals under federal law. In a dramatic recent example, Arthur Andersen's conviction for destroying documents in the face of investigation was affirmed despite the fact that participants thought their own conduct was in compliance with existing records retention policies. Another recent example was a prominent Wall Street trader's conviction (now on appeal) for endorsing a records retention approach to cleaning up files under inappropriate circumstances.

It is clear that this new emphasis on strict compliance will not go away. It reflects what the court in Rambus v. Infineon Technologies called "the societal need to assure the integrity of the process by which litigation is conducted." Further, Zubulake V cautioned that those that ignore this new paradigm "act at their own peril." (Editor's note: See the January/February 2005 issue of The Information Management Journal for articles on the Zubulake decisions.) Congress has confirmed the shift's lasting nature by increasing fines and penalties for obstruction of justice as part of The Sarbanes-Oxley Act of 2002.

Necessity for a Culture of Compliance

Effective detection and prevention of law or ethics violations require publicizing the values and imperatives deemed important by an entity's leadership. Most corporations have promulgated codes of conduct and provide training in the entity's significant values. Nonetheless, recent corporate governance lapses led many to conclude that more effort must be devoted to involving all entity levels in such training. The U.S. Federal Sentencing Guidelines now explicitly require promoting an "organizational culture" that "encourages ethical conduct and a commitment to compliance with the law." Most corporations also understand that core values must include an effective information and records management program that meets all legal requirements, including those of the litigation process. Senior executives, chief compliance officers, audit committees, and general counsels should therefore reassess and amend existing codes of conduct, training programs, and corporate policies and procedures to reflect the new emphasis. The Sedona Guidelines offers a practical framework for this reappraisal.

Guideline One: Adopt a Practical and Reasonable Approach

The key to the effort is a "reasonable" approach to managing electronic information. Structured information involved in non- desktop applications, such as databases, Web sites, and the like require active management, although their dynamic nature makes this no easy task. An inventory and assessment of each application's characteristics and uses should be promptly undertaken with an emphasis on identifying the predictable role each plays in business and litigation contexts. However, it is the unstructured or user- managed desktop applications those involved in creation and management of e-mail, documents, shared spaces, and similar data types - that demand special attention. Practical solutions that balance competing considerations can best be achieved by calling on the collective wisdom of ad hoc or standing committees formed with representatives of information technology, business units, records management, and legal, along with tax, audit, finance, human resources, and other functional groups operating within the financial constraints imposed by the entity's nature and mission. The legal department should provide leadership and guidance in this effort with strong management support. One suggestion is for the top executive to issue a specific charge providing specific deadlines and designating authority to undertake necessary steps to all affected units.

Guideline Two: Carefully Assess Retention Requirements

Traditionally, records schedules identified information life cycles without regard to litigation process demands. It was assumed that the only relevant legal obligations were those arising from static recordkeeping requirements imposed by tax codes, environmental laws, or regulations. This is no longer true (if it ever was). While these pronouncements and ongoing business needs are certainly key factors, all such considerations must yield to information's role in litigation processes. Thus, in Stevenson v. Union Pacific, the United States Court of Appeals for the Eighth Circuit questioned the practice of adhering to an established retention approach without considering the impact of future litigation that might arise from the incidents involved. In a parallel development, section 802 of the Sarbanes-Oxley Act imposes criminal sanctions on those who act to destroy information "in contemplation" of any investigation, regardless of records schedule requirements for that item.

This concern can be met by adopting a robust "legal hold" process as discussed in guideline five. New approaches to records scheduling involving assessment of both litigation and business needs may also be helpful. One such approach could be to reduce drastically the number of categories involved in schedules, especially if pre- dassification of electronic information is involved, and to energize the annual or other periodic review process to integrate legal concerns, practical issues, and the existing legal holds process. For example, a functional rather than departmental approach could be used for schedule development with broader categories of similar records series rather than narrower groupings. In addition, careful attention should be paid to clarifying the actual purposes of business continuation or disaster recovery plans so as to avoid giving users or courts the impression that such systems are intended to serve as an ad hoc storage for active data. Without such clarification, it may be necessary to routinely make these collections of information available for production.

Guideline Three: Deal with the Overwhelming Volume of Electronic Communications

Sedona's guideline three states, "An organization need not retain all electronic information ever generated or received," thereby emphasizing that, under appropriate circumstances, it is perfectly acceptable to destroy electronic information. The test should be whether there is any continuing value or need to retain it. Transient electronic information without long-term value should be removed promptly while business-critical information should be retained - all within a framework of compliance with existing litigation imperatives. There are constraints, of course. In Rambus, the court criticized adoption of a records management program intended to prevent information from being available to people the entity planned to sue. However, in Arthur Andersen, the court of appeals noted that information destruction necessarily includes denying its future use in unknown litigation but that there is "nothing improper about following a document retention policy when there is no threat of an official investigation." Excessive storage costs, increased review costs, and possible interference with efforts to locate information that is needed for regulators or the courts could reasonably prompt such an approach.

For example, programs that routinely delete information as part of a management approach are lawful.Due consideration must be given to providing practical alternatives for storing information that does not meet the deletion criteria, such as information that relates to work in progress or is otherwise deemed to have continuing value. Automatic and routine deletion of e-mail may well be accompanied by opportunities to move e-mail to other storage media. A company with a unified message system that converts voice messages into digital formats may mandate retention of only one of the formats. There is no need, absent an express requirement imposed by law, regulation, or a specific court order in pending litigation, to preserve metadata when information is migrated from one form to another. (Whether metadata must be routinely produced in litigation is an open question, although most parties seeking and using e-mail have no need for the literally dozens of metadata fields provided. The proposed amendment to Federal Rule of Civil Procedure 34 would require, as a default, production of electronic information in either an electronically searchable mode or as maintained. This would have implications for the method selected to archive e-mail for long-term record purposes.)

Guideline Four: Make Effective Use of Technology

Just as technology has helped to create the new requirements, it may also assist in their solution. Sedona's guideline four describes procedures that can help address practical issues surrounding identification, retention, retrieval, and disposition of electronic information and records. Currently, most entities appear to rely upon a "print and file" approach requiring users to select electronic communications that should be preserved as records. Compliance with this approach is apparently spotty, at best. For example, in United States v. Philip Morris, a court exhibited frustration that the existing print and file document retention policy - which would have preserved a copy of missing information - had not been followed and levied a fine of $2.7 million for deletion of e-mail by executives despite notice of the need to preserve.

Archiving solutions are now widely available for electronic information, in large part due to regulations by the Securities and Exchange Commission and others that necessitated the development of creative retention methods. These can include fully automated tools or user-managed pre-dassification or "drag and drop" opportunities. Some entities are using a "prioritization" archiving approach whereby a limited percentage of users are entitled (or required) to place their e-mail in a digital archive. Any solution adopted should provide quick, accurate, and effective search and retrieval capabilities. Individuals should still weed out transient, duplicative, personal, and other non-business-critical information and, of course, there must be adequate procedural and technical safeguards to preserve information subject to legal holds. Choosing appropriate e-mail archiving and automated processes will necessarily be at the heart of the interdisciplinary working group or oversight committee charged with assessing policy choices.

Guideline Five: Enhance Your Litigation Hold Process

Most organizations now understand the need to implement an adequate legal hold process. Generally speaking, a legal hold consists of practices and procedures, usually managed by the legal or tax department, which suspend deletion or destruction of electronic and other forms of information. Legal holds also lay the groundwork for identification and collection of such information. Zubulake Vincludes the need for counsel to assess the effectiveness of current legal hold processes. Sedona guideline five provides a detailed outline of considerations, not only for litigation purposes, but in anticipation of such "businessrelated scenarios" as mergers or acquisitions, technology reviews, and bankruptcy where information sources for future use can be crucial.

The need to review existing practices is particularly important with regard to legal holds. Courts have never accepted "willful blindness" in advance of litigation, as evidenced in Wiginton v. C.B. Richard ElHs. Moreover, it is now abundandy clear that some courts and juries are unwilling to accept such blindness no matter why it occurs. The need to extend the culture of compliance to include all individuals, regardless of their level, may require compliance training with increased emphasis on records management and preservation, annual certifications of understanding relating to preservation requirements, and, in some cases, use of automatic preservation options.

The review of existing practices should focus on legal hold process elements. It should start with developing an integrated litigation response plan identifying a subset of functions and personnel responsible for playing roles in implementation. The legal department cannot do it alone.

Any process adopted should include a reasonable assessment of all possible sources of discoverable information and should prescribe a checklist of possible steps to make sure that information is available for future discovery, whether or not it has explicitly been requested. The focus should be on clear communications to the key actors who may control the information. This must include all forms of electronic information. It is unreasonable to require that every conceivable step be taken in every case to preserve all potentially relevant evidence. A more nuanced approach is to tailor the response on a sliding scale that weighs the burden of accessing and preserving the information against the likelihood that its other sources will be captured as part of the legal hold process.

There are clear signs that thought leaders among the judiciary understand this sliding scale approach. For example, in Zubulake IV, in the context of a discussion of backup media, Judge Shira Scheindlin explained her view that preservation of all backup tapes not used as archives was unnecessary unless key actor e-mail captured on the tapes was not otherwise available. Indeed, the Federal Rules Advisory Committee's recent proposals regarding production of inaccessible information, including a limited and highly restrictive "safe harbor" from sanctions under some circumstances, can be seen as an endorsement of such an approach.

The Proposed Federal Rule Amendments

Many issues that form the underlying basis for the current requirements are under review. Since 1999, the Federal Rules Advisory Committee, the body that the Supreme Court's Judicial Conference charges with rule-making oversight, has monitored electronic discovery in the federal courts with an eye toward assessing the need for distinctive amendments on the topic. After a series of national hearings and consideration of practitioners' comments, the Standing Committee of the Judicial Conference published for comment a report making 10 specific proposals. The proposals cover a wide variety of issues involved in discovery of electronic information and are based on the assumptions that viable information and records retention policies, including robust legal holds, have been or will be widely adopted. Hearings were held in January and February of 2005 at locations across the United States, and written comments were accepted through February 15.

One key proposal with implications for records retention acknowledges that inaccessible electronic information is burdensome to preserve and produce and would require a prior showing of "good cause" before production could be required. The committee cites as examples backup media not actually used for archival purposes, deleted information whose remnants may still exist on hard drives, legacy data not easily accessible due to storage or hardware issues, and the like. This distinction would help simplify planning for compliance because, by and large, inaccessible information would not be required to be preserved without a court order or special circumstances.

A related committee proposal would limit a court's power to issue sanctions for failure to preserve or produce information lost due to routine operation of business systems. As originally proposed, the safe harbor was intended to provide a "bright line" test based on the business systems' nature and satisfaction of a good faith requirement. However, even in its more limited current form as proposed, it would provide significant assistance by signaling the types of considerations involved in assessing compliance with preservation obligations. On balance, the proposals could help bring stability to the process of incorporating litigation concerns into information and records management.

At the Core

This article I

* identifies the newparadigm emphasizing litigation integrity over information management judgment

* suggests that creating a culture of compliance at all levels is essential

* outlines five steps from The Sedona Guidelines to help create that culture

* explains the proposed amendments to the Federal Rules of Civil Procedure

Effective detection and prevention of law or ethics violations require publicizing the values and imperatives deemed important by an entity's leadership.

There is no need, absent an express requirement imposed by law, regulation, or a specific court order in pending litigation, to preserve metadata when information is migrated from one form to another.

One key proposal with implications for records retention acknowledges that inaccessible electronic information is burdensome to preserve and produce and would require a prior showing of "good cause"...

References

Allman, Thomas Y. Ruling Offers Lesson for Counsel on Electronic Discovery Abuse. Washington Legal Foundation (October 15,2004). Available at www.wlf.org/upbad/ 101504LBAllman.pdf (accessed 6 January 2005).

_____. The Case for a Preservation Safe Harbor in Requests for E- Discovery, 70 Def. Conns. J. 417(2003).

Blair, Barclay. "An Enterprise Content Management Primer." TheInformation Management Journal 38, No. 5 (September/October 2004).

Demis v. USN Communicate, No. 98 C 7482, 2000 WL 1694325 (N.D. 111. Oct. 23,2000).

Federal Sentencing Guidelines, U.S.S.G. 8B2.1 (Revised as of Nov. 1,2004).

In re Prudential Ins. Co. of Amer. Sales Practices Litig., 962 F.Supp. 450,497 (D. N.J. 1997).

Rambus Inc v. Infineon Technologies, 220 F.R.D. 264,282 (E.D. Va. 2004).

Sarbanes-Oxley Act, Pub. L. 107-2004,116 Stat. 745 (2002).

Sedona Conference. Sedona Guidelines, The: Best Practice Guidelines & Commentary for Managing Information a- Records in the Electronic Age. Sedona, AZ: The Sedona Conference, 2004. Available at www.thesedonaconference.org (accessed 6 January 2005).

Stevenson v. Union Pacific, 354 F.3d 739 (8th Cir. 2004).

U.S. v. Arthur Andersen, LLP, 374 F.3d 281 (5th Cir. 2004).

United States v. Philip Morris, 327 F.Supp.2d 21,25 (D. D.C. 2004).

United States v. Quattrone, Case No. 03 CR 00582 (S.D. N.Y. May 3,2004) (Jury verdict as to Frank Quattrone).

Wiginton v. C.B. RichardEllis, No. 02 C 6832,2003 WL 22439865, *7 (N.D. Ill. Oct. 27,2003).

Zubulake v. UBS Warburg, LLC, 220 F.R.D. 212,217 (S.D. N.Y. 2003) ("Zubulake IV").

Zubulake v. UBS Warburg, LLC, No. 02 Civ. 1243 (SAS), 2004 WL 1620866, *12 (S.D. N.Y. July 20,2004) ("Zubulake V).

Read More About It

Information and Documentation - Records Management Processes - Metadata for Records Part I: Principles ISO/TS 23081-1 - 2004. Available from mw.ansi.org.

Report of the Civil Rules Advisory Committee. Available at www.uscourts.gov/ruks/ comment2005/CVAug04.pdf (accessed 6 January 2005).

Requirements for Managing Electronic Messages as Records (ANSI/ ARMA 9-2004). Lenexa, KS: ARMA International, 2004.

The U.S. Federal Sentencing Guidelines. Available at www.ussc.gov/ GUIDELIN.THTM (accessed 6 January 2005)

Thomas Y. Allman is the former Senior Vice President (Law) and Chief Compliance Officer of BASF Corp. and a member of the steering committee of the Sedona Conference Working Group on Best Practices for Electronic Document Retention and Production. He is currently at Mayer, Brown Rowe 6- Maw LLP, Chicago. He may be contacted at tyallman@mayerbrownrowe.com.

Copyright Association of Records Managers and Administrators Mar/ Apr 2005

The new study entitled "The Cycle Turns," authored by Dr. Christopher L. Cagan, director of research and analytics at First American Real Estate Solutions, identifies predictable forces and trends that occur in residential real estate markets and suggests strategies for prospective home buyers to get the most out of their real estate investment.

Cagan, who has developed proprietary methods and indices for profiling real estate markets using data from First American's Real Estate Trends application, classifies 116 residential real estate markets across the nation according to geography and econometric type and uses a variety of visual and mathematical techniques to analyze historical and present price behavior. Cagan's study also makes projections for the year 2005.

A key finding of the study is that there are two basic market types -- cyclical and linear -- and both are highly predictable. Most real estate markets have a long-term price growth rate of five percent or more. Cyclical markets follow a business cycle pattern of wave-like motion that causes prices to fluctuate by large percentages above and below long-term growth rates, whereas linear markets tend to deviate only slightly from a steady growth pattern. Of the 116 markets studied, 30 are cyclical, with most of the cyclical markets located in California, Florida and the Northeast. Mathematical analysis of data from 1988 through 2004 indicates that cyclical real estate markets such as Southern California, Florida, and the Northeast may be returning to normalized growth levels.

"The turning of the business cycle is as inevitable as the turning of the seasons," says Cagan. "We do not anticipate a crash coming, but we don't think that it is realistic to continue to expect 20, 25 or 30-percent per-month appreciation rates."

"First American's advanced analytics have made possible the development of deeper understanding and new insights in economic analysis," said George Livermore, president of First American Real Estate Solutions.

Over the past decade, First American has created the nation's largest database of real estate information. Today, the company utilizes its database in conjunction with proprietary processes to improve operational efficiency and to provide new analytical products and services to its clients.

For an electronic copy of the study, "The Cycle Turns," please contact Carrie Gaska at (714) 701-3265. For more information on Real Estate Trends, call (800) 345-7334.

First American RES, a member of The First American Family of Companies, is the nation's largest provider of advanced property and ownership information, analytics and services. RES' database covers more than 2,300 counties representing 97 percent of the nation's real estate transactions. With more than 600,000 users nationwide, RES products are used by companies to improve customer acquisition and retention, detect and prevent fraud, improve mortgage transaction cycle time and cost efficiency, measure the value of residential and commercial properties, identify real estate trends and neighborhood characteristics, track market performance, and increase market share. More information about First American RES can be found on the Internet at http://www.firstamres.com/.

The First American Corporation is a Fortune 500 company that traces its history to 1889. As the nation's largest data provider, the company supplies businesses and consumers with information resources in connection with the major economic events of people's lives, such as getting a job; renting an apartment; buying a car, house, boat or airplane; securing a mortgage; opening or buying a business; and planning for retirement. The First American Family of Companies, many of which command leading market share positions in their respective industries, operate within six primary business segments, including: Title Insurance and Services, Specialty Insurance, Mortgage Information, Property Information, Credit Information and Screening Information. With revenues of $6.72 billion in 2004, First American has 30,000 employees in approximately 1,800 offices throughout the United States and abroad. More information about the company and an archive of its press releases can be found at http://www.firstam.com/.

Contact:

Carrie Gaska

Marketing Communications Manager

Public Relations

First American Real Estate Solutions

cgaska@firstam.com

(714) 701-3265

First American Real Estate Solutions

CONTACT: Carrie Gaska, Marketing Communications Manager, PublicRelations of First American Real Estate Solutions, +1-714-701-3265,cgaska@firstam.com

Web site: http://www.firstam.com/

Web site: http://www.firstamres.com/

And kudos to Milton Friedman, the University of Chicago free marketeer, for all that great thinking about how buyers and sellers get together.

Theirs and others' thoughts filtered down to the business world in a big way last year, with deals to buy and sell businesses breaking out of doldrums that began in late 2000 and lasted through 2003.

So many people lately are sprinkling conversations with what sounds like a three-syllable word: "Emmanay." What they're saying is "M&A," shorthand for mergers and acquisitions - the transactions that became almost daily news nationally during 2004.

Northern Colorado was not left out of the limelight.

I can see a major up-tick in my business," said Denver lawyer Ned Minor, one of the city's best-known dealmakers who engineered several Northern Colorado acquisitions in 2004.

"People are beginning to see some light," he said. "The light that's shining now might be a pinprick, but it's better than the total darkness they've been in for three years.

Minor and other business brokers aren't back to where they were in the roaring '90s, when M&A activity set records.

But, with a dozen transactions on his current agenda, Minor says the industry is headed northward again in the northern Front Range, just as it is all over the capitalized world.

Good gets better

Two major national trackers of M&A transactions - Santa Monica, Calif.-based Factset Mergerstat LLC and New York Citybased Thompson Corp. - issued reports last month that not only highlighted a banner year, but predicted an even better one ahead.

Their findings:

* The number of mergers and acquisitions in the United State rose almost 15 percent during 2004, to 9,954, according to Mergerstat.

* Spending on the deals soared almost 44 percent, mostly on the strength of a few blockbuster mergers, to $777 billion.

Not all, nor even most, of the transactions were Darwinian, where the fittest of the fit gobble up struggling competitors.

Take the highest-profile case in the region - the purchase of Fort Collins' Atrix Laboratories Inc. by Vancouver, Canada-based QLT Inc. - that brought one of Canada's largest pharmaceutical companies to town as the new owner of Northern Colorado's most promising drug- development company.

Or consider one of the smaller deals, wherein an Oklahoma-based oiland-gas production company bought Eagle Span Steel Structures Inc. of Loveland.

Eagle soars

Eagle Span was hardly a fledgling, having grown strongly and steadily during its seven years to reap $10 million in 2004 revenue. So why did Eagle Span president and CEO Jerry Curtis put his company on the market?

"Eagle Span just grew so fast I couldn't keep up with it," Curtis said. "It's a capitalintensive business, and the cash flow was getting to the point where we just couldn't support all we wanted to do. I could have pared the company back, but that wouldn't have been in our best interest."

After two years' shopping his company and talking with dealmakers, including Minor, late 2004 brought a sudden and baffling flurry of interest from suitors.

"We had a ton of inquiries," Curtis said. "It was just huge."

Among them was Superior Oil & Gas Co. of Yukon, Okla. At first glance, the prospect didn't seem like a heaven-made merger. But practical considerations Superior's oil and gas fields need steel buildings - and personal ones held sway.

The two announced their $6 million deal in December - but only after a bidding war, one that Curtis said he didn't encourage or orchestrate.

"I sure didn't play games with anyone;' he said. "We had a very interested party in St. Louis, and another in California. But I'm a realist. I pretty much knew what my business was worth."

The deal carries the promise of great news for Curtis and his 60 employees. First, an infusion of $3 million on closing day, expected this quarter, will allow the company to gear up for a huge hangar project at Dulles International Airport in Washington.

And Superior's president said he expects Eagle Span revenue of $16.4 million in 2005 - a jump of 64 percent from last year and profits of $2 million.

Buyers flock

Curtis' experience is hardly unique, said Bill Eastwood, president of Greeley dealmaking firm Doering and Eastwood Ltd.

Owners of stable, profitable businesses of any size are lining up buyers in a way not seen since the last century. Pent-up demand from investors who have sat out three recession years is beginning to spread into the market, Eastwood said.

"We're seeing more big buyers, private equity groups, and I think some of that is spillover from the 1990s," he said. "They're looking for low- to mid-market businesses again."

Each year from 1993 through 2000, buyers and sellers nationwide set new records both for numbers of deals done and total value of the transactions.

But the doors slammed shut at the end of 2000. The dot-com bust, a sagging stock market and a tight commercial lending scene put the brakes on deals then in the works, and prevented others from getting underway.

But the thaw during 2004 brought sellers and buyers together again.

Atrix Laboratories, after years of languishing in the red while new pharmaceutical products worked through its pipeline, banked its first profit early last year. That was a trigger for larger, richer QLT Inc. to make its $885 million cash-and-stock purchase offer, bringing on Northern Colorado's biggest M&A deal of the year.

Specific industry sectors were busier than others during the year, with banks and medical and specialty manufacturers drawing buyers with stock prices and profits.

'Piggy banks'

"Stock prices for medium-sized banks have gone up substantially, and we're seeing a lot of interest and activity in that sector," Eastwood said.

Examples abound: John Eggemeyer, a California investor, stepped up in March with a $155 million offer for Centennial Bank Holding Co., parent of branch-happy Centennial Bank of the West, the region's fastest growing bank chain.

Eggemeyer - who Forbes magazine dubbed "Piggy Banker" in a headline over a story detailing his history of buying, then flipping, bank companies - didn't stand pat.

In August, just a month after the closing of the Centennial deal, he used the justpurchased leverage to acquire Denver-based Guaranty Corp. for $365 million. The result: Colorado's second-largest independent bank, after 1stBank, with assets of $2.4 billion.

Buyers looking for niche holdings in other sectors found plenty of choices in Northern Colorado as well.

One target was Peak Industries Inc. of Frederick, a rare case of profitability in the contract manufacturing an industry that had been buffeted hard by the technology downturn.

Delphi Medical Systems, a division of auto-products giant Delphi Corp. of Troy, Mich., needed a specialty manufacturer to fulfill a $50 million contract it had won to make medical monitoring equipment.

Peak filled the bill, and drew a $44 million purchase offer from out of the blue.

"It's not something we were out looking for," said Peak founder Mark Hopkins, a former Hewlett-Packard Co. engineer who had deftly moved the company toward the medical products sector and away from the volatile electronics industry.

"Once it was presented to us as an opportunity, it took six to eight months to evaluate it!

Rich pipeline

Lots of clocks have started ticking on deals that will take months even to announce, and as long as a year to close, Denver lawyer Minor said. That means the pages of the Business Report and other newspapers will fill with M&A stories during 2005.

Minor and his staff of 17 lawyers and paralegals are handling "between 10 and 12 transactions" that have emerged during the latter part of 2004, he said.

"Right now we have $275 million in deals in our pipeline that we hope will close in the next eight to 12 months.

Both Minor and Eastwood said a demographic factor that is the elephant in everyone's room would drive even more M&A activity, especially among small- to midsized companies, in the coming decade.

"Age dynamics," Eastwood said. "A lot of privately held businesses have owners in their 50s, and many of them have no plans for succession to family members.

Aging baby-boomers, having spent three decades building private businesses, are ready to cash out and will more likely turn to outside buyers than insiders when they do, Minor said.

Wealth transfer

"There are 9.5 million of these kinds of private companies, and more than half of them have at least one owner who is 50 or older," Minor said. "Over the next 10 to 15 years, we'll see the greatest transfer of wealth in the history of this country. We're talking trillions not billions."

Minor cited a survey conducted by insurance giant Mass Mutual that found 80 percent of business owners polled thought they would sell to family members or trusted employees.

"In reality, that only happens in 20 percent of cases, because they turn out not to be qualified buyers," he said. "When a seller realizes he or she can line up several qualified, outside buyers who are interested, it goes to the highest bidder."

The deal:

QLT Inc. (Nasdaq: QLTI), Canada's largest biotech company, had a profitable flagship product with its market-leading drug Visudyne. But the company wanted to diversify its drug portfolio. Fort Collins- based Atrix was a perfect match. Atrix was making a \name for itself with the prostate-cancer drug Eligard. But more importantly, Atrix possessed a wide variety of pharmaceuticals under development, including treatments for acne.

The date:

Announced June 14, 2004

The dollars:

$855 million in cash and stock. Atrix shareholders received one common share of QLT stock, plus $14.61 in cash for each Atrix share, For Atrix shareholders, the price amounted to $35.63 per share, a 27 percent premium on Atrix's stock at the time.

The buyer:

QLT Inc., based in Vancouver, British Columbia, traces its roots to researchers at Vancouver's University of British Columbia. That research led to Visudyne, which treats macular degeneration. Prior to the merger with Atrix, QLT employed about 350 people and was very profitable. The company reported $44.8 million in net earnings in 2003 from $146.8 million in sales.

The deal:

Superior Oil & Gas Co. (BB: SIOR) acquires Loveland-based EagleSpan Steel Structures Inc., a builder of preengineered metal buildings used for commercial and industrial applications such as barns and aircraft hangars. EagleSpan had 2004 sales of $10 million. The companies agree that EagleSpan will continue to operate under current management

The date:

Announced Dec. 22, 2004

The dollars:

$6 million, payable with $3 million in cash and stock at closing plus an additional $3 million paid 60 days after closing for new plant equipment.

The buyer:

Yukon, Okla.-based Superior, formerly an oil and gas exploration and development company, had no assets at the beginning of 2004 other than Its shareholder base. The company spent the last year in acquisition mode, picking up several oil and gas interests. The deal, in effect gives EagleSpan status as a publicly held company.

The deal:

California-based Castle Creek Capital LLC buys Centennial Bank of the West Northern Colorado's fastest-growing independent bank, with 12 branches in Weld and Larimer Counties. John Eggemeyer, principal of Castle Creek, retains Bill Farr as president and continues operations under the slogan "business as usual, but better."

The date:

Announced March 4, closed July 17, 2004

The dollars:

$155 million cash, plus S-30 million reserved for bank expansion.

The buyer:

Eggemeyer, within a month after the closing of the Centennial deal, was buying again, this time scooping up Guaranty Corp. of Denver, parent of Guaranty Bank & Trust Co, for $365 million. Spending more than a half billion for the two banks, he creates Colorado's secondlargest independent bank with assets topping $2.4 billion.

The deal:

London, England-based bunzI PLC buys TSN Inc., a southern Weld County company founded in 1990 by Izzy Salazar and Ted Nelson. TSN distributes cleaning and janitorial supplies to gas stations and convenience stores throughout the nation from warehouses in Frederick and in Richmond, Ind. TSN's 2004 sales are estimated between $170 million to $200 million. The company employs 230 between its two distribution centers. Salazar has left the company, while Nelson will remain.

The date:

Announced Sept. 1, 2004

The dollars:

The sale price was not disclosed, but sources close to the transaction report the sale to be between $50 million and $100 million.

The buyer:

Bunzl supplies and distributes food packaging, disposable supplies and cleaning and safety products for a market ranging from supermarkets to hotels. It is also among the world's largest manufacturers of cigarette filters.

The deal:

Telvent (NASDAQ: TLVT) acquired a 70 percent interest in Fort Collins-based Miner and Miner Consulting Engineers Inc. Miner and Miner develops GIS software for applications in the utilities industry. Telvent retains an option to purchase the remaining 30 percent of Miner and Miner, depending on the company's performance between the closing of the deal and Dec. 31, 2005. Miner and Miner President Jeff Meyers will retain an equity stake for the time being. He said he would remain involved with the company even if Telvent acquires all of the interest.

The date:

Announced Dec. 10, 2004

The dollars:

$7.9 million, consisting of an upfront payment of $3.8 million and a deferred payment of $41 million, set to occur on April 5, 2005.

The buyer:

Telvent is a diversified information technology company that specializes in tech products for the energy, traffic, transport and environmental industries. The Madrid, Spain-based company is a subsidiary of Seville, Spain-based Abengoa, an industrial and technology company.

The deal:

United Defense Industries Inc. (NYSE: UDI) acquired Berthoud- based Engineered Plastic Designs Inc. EPI) designs and develops specialty containers for military munitions. It had revenues of $10 million for fiscal year 2004 ending on Sept. 30. EPD's management will not change, but practices relating to safety standards and environmental consciousness might be tweaked to fit United Defense's model.

The date:

Announced Dec. 20, 2004; closed Jan. 18, 2005

The dollars:

$8 million

The buyer:

United Defense Industries designs, develops and produces combat vehicles, artillery, naval guns, missile launchers and precision munitions for the U.S. Department of Defense and its allies. Outside of the defense industry, the company also provides ship repair services for the U.S. Coast Guard and cruise lines.

The deal:

BancWest Corp. in March agreed to acquire Community First Bankshares Inc. Nearly 97 percent of Community First shareholder votes cast on June 30 favored the transaction. The company's Community First National Bank subsidiary operated 156 branches in 12 states in the Southwest, Rocky Mountains, Great Plains and east to the Great Lakes - five of those branches were in Larimer and Weld counties. Community First National Bank took on the name of Bank of the West, BancWest's San Francisco-based operation.

The date:

Announced March 16, 2004; completed Nov. 1, 2004

The dollars:

$12 billion, $32.25 in cash for each share of Community First common stock

The buyer:

Bank of the West has $38 billion in assets, 480 banking locations and 8,000 employees.

BancWest Corp. is a wholly owned subsidiary of BNP Paribas, a European banking and financial services company with a significant and growing presence in the United Sates and leading positions in Asia.

The deal:

In November 2004, Delphi Medical Systems, a subsidiary of automobile parts giant Delphi Corp. (NYSE: DPH), won a $50 million contract to make vital signs monitoring devices for Zoe Medical. Still, Delphi Medical didn't have its own manufacturing facility. So it found one. Frederick-based contract manufacturer Peak Industries Inc. was registered as a medical device manufacture with the U.S. food and Drug Administration. When Delphi made an unsolicited offer to buy Peak for $44 million, the deal was done.

The date:

Dec. 7, 2004

The dollars:

$44 million

The buyer:

Founded in 2002, Delphi Medical Systems is based in Troy, Mich, near Detroit. Parent Delphi Corp. launched the new business unit as a means to diversify its holdings. Before acquiring Peak Industries, Delphi Medical conducted As manufacturing in space provided by Delphi Corp. Delphi Medical designs and medical devices for respiratory care, power mobility and dialysis. Its customers include Zoe Medical, SRI International and Swiss company Debiotech S.A.

Copyright Northern Colorado Business Review Feb 04, 2005

Those tapes, including some collected by a Washington state utility, may have "only scratched the surface" of potentially illegal activity by Enron during the West Coast energy crunch of 2000-2001, the FERC staffer said in testimony released Tuesday.

The comment came as the regulatory agency released on its Web site transcripts of thousands of hours of taped conversations involving Enron energy traders.

The tapes contain enough information that there is "sufficient public benefit to be garnered from further review" of the transcripts, which could take thousands of man-hours to complete, said Patrick Crowley, an economist in FERC's office of administrative litigation.

Crowley's comment - and the release of the new transcripts - represent a victory for the Snohomish County, Wash., Public Utility District, which has pressed FERC to transcribe thousands of hours of phone conversations involving Enron traders. The utility district, based in Everett, Wash., about 30 miles north of Seattle, has spent about $200,000 to transcribe and review some of the tapes in recent months.

The utility hopes to prove that an exorbitant contract it agreed to with Enron in January 2001 should be considered fraudulent because of Enron's manipulation, and that the utility shouldn't have to pay the $122 million that Enron claims it owes.

Enron founder Kenneth Lay, former CEO Jeffrey Skilling and chief accounting officer Richard Causey are scheduled to be tried early next year on fraud and conspiracy charges.

Houston-based Enron filed for bankruptcy protection after an accounting scandal came to light in December 2001.

An Associated Press call, placed after business hours Tuesday, reached a guard at company headquarters who said no one was available to comment on the new disclosures until Wednesday.

In the newly released testimony, part of an ongoing FERC civil investigation of utilities' complaints about Enron, FERC staff cited new evidence in which Enron's own lawyers recognized the incriminating nature of the audio tapes as early as October 2001, writing in a memorandum that, "We have already heard several conversations that should not be produced" in response to power market litigation.

Sen. Maria Cantwell, D-Wash., called FERC's decision to review the transcripts an about-face, saying FERC staff initially tried to exclude the tapes from evidence.

"The fact this evidence almost fell through the cracks is not acceptable," Cantwell said. "Federal regulators shouldn't have to be embarrassed into doing their jobs. They're supposed to be the cops on the beat, standing between consumers and the mass public mugging that took place at the hands of Enron."

FERC spokesman Bryan Lee disputed Cantwell's comments, saying the commission "will continue to be guided by the facts and not politics."

A spokesman for the Snohomish Co. PUD also welcomed the release of the transcripts.

"Certainly it's an encouraging sign in that federal regulators are taking a much closer look at some of this evidence that we've long held is key to our case and the plight of Western consumers as a whole," said Snohomish spokesman Neil Neroutsos.

Crowley's comments about scratching the surface "pertain to volume (of information contained on the tapes), rather than value," Lee said.

"The jury is still out as to the extent these conversations provide new evidence of Enron's activities on the Western market beyond what the commission has known about for years now," Lee said.

Still, Lee said the newly released tapes "do put a voice to these activities. It's a callous voice of Enron traders with a locker-room mentality in which they are gloating over the chaos which they perpetuated."

On one of the tapes released Tuesday, an Enron trader is heard talking with an official from the city of Redding, Calif., about a procedure being put in place for congestion - in which some utilities are accused of intentionally overscheduling loads to drive up the price of energy.

The city official, identified only as "Paul," tells Enron trader John Forney that he wants to "double check that we have something on the table for if and when congestion hits."

John: "OK, what do you want to call this project - we have to have a catchy name for that?

Paul: "Project - ah - I was going to say project loop - but I don't want that to go out in the world."

John: "How about something friendly like Death Star?"

Paul (Laughter): "How about reduce the debt - debt star - because we are trying to reduce our debt here. Wherever we make money it reduces our debt."

John: "Great - debt reduction."

Death Star was one of several colorful names for infamous tactics used by Enron traders that helped contribute to rolling blackouts and soaring power prices in the West.

Bob Greenstein, founder and executive director of the Center on Budget and Policy Priorities, told the President's Advisory Panel on Federal Tax Reform not to add consumption tax features, such as large tax-free savings accounts, to the income tax.

"That approach, I think, is the worst of all worlds," he said. "It's sort of a `what not to do.'"

William Beach, director of the data analysis center at The Heritage Foundation, agreed. "The motto is, tax all income once and at its source," he said.

The panel, formed by the president to recommend ways to make taxes simpler and fairer, reports its findings this summer. It has been studying changes to the income tax and the possibility of adding a consumption tax, such as a national sales tax or a European-style value-added tax.

Federal Reserve Chairman Alan Greenspan has told the panel that some form of consumption tax could spur greater economic growth, but he cautioned that the government would face significant problems making the transition to such a system.

The panel's vice chairman, former Louisiana Sen. John Breaux, has said a hybrid between taxes on income and taxes on spending has merit and should be studied carefully.

Greenstein warned that one of the biggest advantages of a consumption tax - its potential to spur economic growth - would be lost in a poorly redesigned income tax. Such a change would be costly for the government.

Adding significant incentives for tax-free savings would also put more pressure on families that earn income through work and earn little from investments, and "you end up with a wage tax," he said.

Louisiana Treasurer John Kennedy said the panel should keep in mind that his state, and many others, already rely on sales taxes for a portion of their tax revenue.

"Adding a sales tax at the federal level on top of this will impact both business and consumers. That's just a fact," he said.

The tax experts were summoned to offer their thoughts on fairness in tax laws and how that concept should be measured.

Breaux said the tax system has long assumed that taxes should be levied according to a person's ability to pay, and that taxes should apply consistently to people of similar means.

"There is no consensus among tax experts, politicians or taxpayers on how to define fairness," Breaux said. "In fact, much of the complexity in the tax code is a result of numerous attempts to distribute tax benefits among taxpayers based on imprecise notions of fairness."

One feature added to the tax code to promote fairness is the earned income tax credit, known as EITC, which aims to pull low-income workers out of poverty. However, the credit is so complicated that 72 percent of its recipients pay a tax professional to prepare their returns, the panel was told.

Tax laws also include myriad incentives for education, health care, charitable giving and retirement savings.

David Marzahl, executive director at the Center for Economic Progress, said the tax code won't be entirely simple as long as lawmakers include items to promote fairness.

"It may beget complexity, but we feel that is not a bad thing," he said.

Breaux gave witnesses a glimpse of where the panel might be headed on questions of fairness, asking witnesses for more information about how the tax laws might help people buy health insurance and how to streamline the retirement savings incentives to help people use them.

Panel member Elizabeth Garrett - a public interest law, legal ethics and political science professor at the University of Southern California - said it's a question that can't be measured in the data but "ultimately it is a question of justice."

---

On the Net:

President's Advisory Panel on Tax Reform: http://www.taxreformpanel.gov

Center on Budget and Policy Priorities: http://www.cbpp.org

The Heritage Foundation: http://www.heritage.org

Center for Economic Progress: http://www.centerforprogress.org

TOPIC: A poll conducted by The Associated Press and Ipsos found that approximately 50 percent of Americans are not doing an adequate job of preparing financially for retirement, according to an article by The Associated Press. The results showed that two-thirds of the participants who felt they were doing an excellent job preparing for retirement were in favor of President Bush's plan to create personal accounts. However, two-thirds of the people who felt they were doing a poor job preparing for retirement do not support Bush's plan.

EXPERTS: ExpertSource can offer several highly qualified experts to comment on this story:

Patricia Barrett, CFP, CDFA has 20 years of experience in the field of financial planning. She received training in the intricacies of personal financial planning from a noted Houston trust company. Through the formation of Lifetime Planning LLC, she now specializes in divorce financial analysis, providing seminars and booklets on the subject for education of individuals and attorneys. During her years as a financial planner, Patricia has extensive experience with retirement planning and long-term cash flow analysis.

Michael Francis' perspective on the practical implications of private Social Security accounts draws from his expertise in the area of 401(k)s and qualified retirement plans. Francis is an attorney specializing in retirement law and an investment consultant who works solely with qualified retirement plans. His firm, Francis Investment Counsel LLC is a registered investment advisor dedicated to providing independent investment consulting services to the qualified plan marketplace. The company delivers conflict-free investment advisory services to plan sponsors and also offers extensive education and individualized advice services to plan participants.

Derek Myron, CFP, of Centara Capital Management Group, is an expert in investment management, asset preservation, and estate planning for investors age 55 and older. Through his monthly seminars, Derek has spoken with thousands of seniors on these subjects. As well, he has authored a number of handbooks on the financial issues that concern his clients. Derek holds a degree in Finance from the University of Washington Balmer School of Business and is a certified financial planner and certified elder planning specialist.

ExpertSource cannot guarantee the immediate availability of these experts or their familiarity with this specific issue.

Journalists seeking to interview any of these experts can obtain contact information by visiting http://www.businesswire.com/.

ExpertSource provides academic and industry experts to the media at no charge. Journalists are encouraged to submit queries to ExpertSource when seeking experts on specific subjects. An online registration form is available at the above web address.

And yet, when it comes to your savings and investments, a few easy tax-planning measures can dramatically cut the amount of tax you pay, giving a healthy boost to the returns you and your family get.

Each year we waste an average pounds 132 per taxpayer in unnecessary payments and missed opportunities. So if we're prepared to squander this much through our own lack of planning - and higher- rate taxpayers will waste much more - why do we get so wound up about paying our TV licence, car tax and other levies?

The answer is we can see these taxes going out, but it's often much harder to identify the areas where we're wasting money.

The taxman can also expect to receive pounds 88m in fines from forms returned past the January 31 deadline.

This includes an initial pounds 100 late payment charge but does not take into account the potential pounds 60 a day additional fine introduced by the Inland Revenue for the first time last year.

To avoid penalties and wastage:

If you save, use up your annual ISA allowance - pounds 108m in tax could be avoided by sheltering investments in ISAs or moving savings from an ordinary deposit or savings account to an ISA. Also consider a friendly society savings account or products from National Savings & Investments as additional tax-free savings options.

If you fill in a tax return sort out your self-assessment - pounds 412m could be wiped out by all forms arriving promptly and correct by the January 31 deadline. In 2002 the 860,000 people whose self- assessment forms were received after the deadline incurred a penalty of pounds 100.

All taxpayers can maximise their personal tax allowances - pounds 443m goes begging each year, pounds 315m through non-taxpayers failing to claim tax back on banks and building society savings accounts, and a further pounds 128m by taxpayers not transferring savings accounts to non-taxpaying spouses, if appropriate, so that the tax liability on the savings is lower, or none.

If you have assets over pounds 263,000 plan your inheritance - an extra pounds 1,213m could go to chosen heirs by planning properly to avoid inheritance tax liabilities. This is lost through not writing life assurance policies in trust, not thinking about inheritance tax allowances and, worst of all, by not making a will at all.

If you save, top up your pension pot - pounds 683m could be spared by optimising contributions to personal or company pension schemes, or making additional voluntary contributions.

If your employer offers an employee share plan take advan- tage of it - pounds 158m is up for grabs for the 0.75m staff currently in profit-related pay schemes.

If you have capital gains use your allowance efficiently, perhaps by transferring assets between spouses to make the most of the lower- rate taxpayer - pounds 230m could be saved in this way.

If you give to charity find an efficient way to give. Good causes could get pounds 359m through tax- efficient means of charitable giving such as using a deed of covenant, Gift Aid or payroll giving.

Who will be there to help them develop a plan to manage these challenges? A growing number of companies see this as a tremendous opportunity to gather assets and/or a challenge to retain the assets of those with whom they have existing relationships. These companies and others that don't want to be left at a competitive disadvantage in this market are beginning to develop strategies for this opportunity, seeking to crack the code.

However, not all companies have a strategy - yet. Many of those without one have begun to recognize that they need to do something. These companies are either developing a strategy now or have plans to begin that process soon. Still there are many companies that have no plans to develop a strategy or believe the opportunity is years away. (See my column "Join the Parade" in the Summer 2003 issue of LIMRA's Marketfacts, which sheds light on this issue.)

Is a strategy necessary? Many companies will choose not to develop a separate strategy for the retirement market, continuing to manufacture products for distributors - who may have their own strategies - to sell. Others will decide or have already decided that they want to offer more than a product or products through their distribution outlets. The challenge they face is that the retirement market is just that - a market. Few companies are organized by market segment, instead of being organized by product or function. So, companies will need to break down their silos and get the various product line departments to work toward a common goal. Will they reorganize around this market, develop a new department with a retirement market focus, or try to get the various departments to work together?

CONTINUATION OF CURRENT STRATEGY LIMRA recently interviewed 28 financial services firms - insurance companies, banks, wirehouses, planning firms, broker-dealers - to see how they are addressing the retirement market. Of those that have developed a strategy or are in the process of doing so, we found a variety of approaches to the market, beyond the education-only approach many had adopted earlier.

* Senior-market-focused companies There are a few companies that have had to do relatively little to develop a retirement market strategy because their target market is the senior market. Since their focus, as an organization, is on this market, they do not need to make any organizational changes to support any new strategy.

* Pure manufacturer model With the expansion of independent distribution channels, proportionately more and more revenue is generated by noncaptive distribution. Distribution controls the product solutions that are recommended to clients. In this distribution model, companies realize that their influence on how these channels do business is limited and locus their strategy on providing the best product. This is a strategy that has served a large number of deferred annuity manufacturers well. It may be a very effective strategy for companies with strong product silos. Each silo produces product and the advisor is the one who integrates the solutions for the clients. Unfortunately, if the advisor is looking to the product manufacturer to help package product options, the company may not offer that value to him or her.

* Extension of financial planning For firms that currently provide financial planning services to their clients, retirement planning is a part of, and an extension of, financial planning. It is not known whether or not these firms have developed distinct retirement market strategies or whether retirement planning fits their existing planning process with little or no modification. The advantage these firms hold over other distributors is that they already take a consultative planning approach to working with clients. Most other channels have become accustomed to a more transactional approach to sales. All else equal, retirees will desire a consultative approach based heavily on advice and guidance to help them deal with the myriad issues they must consider in planning for the rest of their- lives. On the other hand, many traditional financial planners believe their value is derived from the plans they create and manage for their clients and, for this reason, have been reluctant to incorporate risk management products (such as income annuities) into their clients' financial plans.

NEW UNITS Often one person or one department in a company demonstrates strong leadership and believes the company should develop a strategy for capitalizing on the opportunity. In many cases, this single person must fight through the siloed organizational structure to get other parts of the company that have a stake in the opportunity to work together. Unfortunately, this is not a part-time job for one person. Without the commitment of additional resources and support from the most senior leaders, these efforts may not yield results. Companies that want to break down silos and create a more collaborative environment will also need to identify creative approaches to reward leaders for the risks they take and for the results they generate.

All of the strategies discussed thus far have involved no organizational changes. However, more companies are realizing that they must commit more than part of one person to the development of a retirement market strategy. What results varies from task forces - made up of several individuals devoting part of their time to the effort - to the creation of new units committed exclusively to the retirement market. Companies that have made announcements regarding their efforts in the retirement market are more likely than not to have created a separate area.

What do these units do? Some have created them to develop the strategy itself. So, the unit precedes the strategy. The charge of the unit is not only strategy development, but how they (or the strategy they develop) will integrate with the various silos across the organization.

Similarly, some companies are developing centralized areas that will develop product ideas and approaches for one or more departments. The activities and strategy will not necessarily pervade the entire organization. The differences between this and the prior model are subtle. As with the prior, the goal is more to orchestrate what the rest of the organization does.

Finally, there are companies that have created a separate unit to serve as a think tank, develop the strategy and philosophy regarding retirement phase planning, and get the entire organization - all product lines and channels - to embrace it.

Among other stnitegics:

* Retirement income focus "Retirement income" has ostensibly become synonymous with "retirement planning." More companies are developing a retirement income strategy than another type of retirement strategy. As with the senior-market-focused companies, companies taking the retirement income approach do not usually need to make any organizational changes to implement the strategy, since retirement income products are in one or two departments - retail annuity and institutional retirement. Companies adopting retirement income strategies may offer other retirement stage products like long-term care insurance, Medicare supplement insurance, life insurance, mutual funds and other investment products, etc. Yet, the retirement income approach does little to incorporate or recognize these other offerings, other than informing customers of the risks - beyond longevity risk - people will face in retirement.

In addition Lo helping customers build reliable income streams, some companies are developing programs to manage customers' income streams by creating a repository of all income sources and paying the customer in one monthly sum. Such companies hope their income management programs will cement their relationship with the customer and encourage customers to consolidate all their assets with them.

* Manufacturer supporting distributor strategy Some of the large independent distribution firms - banks, wirehouses, major broker- dealers, and planning firms recognize the retirement market potential and are developing their own strategies to target this market. A few manufacturers have also identified this opportunity and are working with these firms to provide product solutions that mesh with and support the distributor's strategy.

THERE IS NO BAD STRATEGY Now is the time for experimentation to see what approaches resonate best with customers and distributors. Companies that try new approaches and ideas may be ahead of those who take a wait-and-see approach. The experimental companies will have the opportunity to better understand the market and their own capacity. As they execute strategy, they are co\ntinuously learning and gathering data to build effective strategy. Since few boomers have retired, we can only speculate on how they will redefine retirement.

The strategies discussed above range from those with narrow focuses (e.g., retirement income) to broader approaches. Companies that have limited product offerings are somewhat forced into a narrower focus. Others may select a narrow focus to get their feet wet and expand on it later. Figuring out how to create a company- wide, all-inclusive, comprehensive strategy can be a daunting task, so starting out small is one way to fight the inertia that some companies may face in trying to bite off too much initially.

The essence of good strategy is the integration with all areas of a company. Companies should be cautious in attempting to copy what they interpret as a successful practice adopted by another company, because what may work for one company may not for another.

ROADBLOCKS

* Environmental challenges Getting there won't be easy; companies face many challenges in the successful implementation of their chosen strategies. The most often cited challenge is the transactional mind-set of the advisors with whom they work - such companies recognize that getting advisors to shift to a more consultative approach will be an uphill battle.

* Accumulation pays the bills Several companies mentioned that accumulation is still their biggest business and that the same is true for their distributors. While the number of people in retirement is significant and poised to grow, the number of people of traditional working ages is much larger. Although there are 78.2 million baby boomers (spanning the ages of 41 to 59 this year), there are more than 77 million in each of the two 19-year age groups that follow them. Companies wishing to be successful in helping people make a successful transition into retirement cannot afford to turn their back on the accumulation business. Rather, they will need to adopt a sort of double vision, with separate - though related - focuses on both accumulation and distribution. (See my column "Shifting Gears from Accumulation to Distribution" in the Summer 2004 issue of LIMRA's Marketfacts for more on this topic.)

* Education and awareness Consumers need to be educated regarding the risks they face as they enter retirement and on the benefits of products that can help them manage these risks. This may also help to increase their receptiveness to the products and services that companies offer.

There are also other issues relating to the education of advisors. Many have only been trained to sell accumulation products. These advisors will need additional training and education to offer retirement distribution planning to effectively help clients create their own paychecks that can last a lifetime. Many advisors believe they are addressing retirement risks through asset allocation. While asset allocation is an important tool, it is not the complete answer to helping clients manage their risks.

* Internal support Vying for resources and internal support is seen as a challenge for some companies. This challenge comes in many flavors. One is coordinating efforts across all product areas or - for companies with a new unit devoted to the retirement market - getting all product lines to work with the new unit. Companies without a new unit often cite a lack of management commitment, so the project continues to be someone's part-time job. Ideally, companies want this to go from part-time job to task force to new unit to making the new strategy part of the way the company does business and not just another project.

* More advisor issues Related to advisors' accumulation mindset is the need to train them on retirement issues and approaches. Companies will also seek to influence advisor perceptions on a variety of issues. Many advisors believe the money is gone if they help their customers spend it or annuitize it. Some also feel that they lose control of annuitized assets, which directly impacts their compensation. Compensation will obviously become a critical issue in the retirement market. If sales reps are to take on a more consultative approach, when and how do they get paid? Immediate annuities are usually not included in their book of business nor docs their business typically include any trailed compensation.

THINGS TO CONSIDER As you build out your company's retirement market strategy, here are seven issues to consider.

1. More than income planning Retirement planning is more than income planning, or is it? Retirement income, for life, can serve as a foundation for addressing other client needs and risks. Think about all of a retiree's needs, and not just the financial needs. How will recognizing those needs impact your strategy? Are there other services you can provide them?

2. It's a market, not a product This is the core of the real challenge. Most companies are organized functionally or by product. Very few companies are organized around the markets they serve. A question many companies ask themselves is: What is the best way to organize around this opportunity? How do you harness all that your company can offer retirees into one seamless service offering?

3. It's not a product, it's multiple products Again, is retirement planning income planning or is it more than that? Earlier I mentioned several products. These include income annuities, long- term care insurance, Medicare supplement insurance, life insurance, investment products, etc. All of these should have a valid place in many people's retirement plans.

4. Education, education, education Customers and sales reps need more information on retirement planning. We - as an industry - still have a lot to learn. And, remember, no one yet has cracked the code.

5. When is the opportunity If you haven't developed a strategy yet, when is the right time to do so? I've suggested that now is the time. Regardless, many companies have decided to wait a few more years.

6. When to begin working with clients? Our research shows that people want to work with someone with whom they already have a relationship. This suggests starting early with other insurance and investment products (c.g., helping job changers with rollover decisions, etc.) would be beneficial.

7. How well is your company positioned? Think about how well your distribution channels are positioned in this market. Do they have access to people nearing retirement? Are they able to incorporate a consultative approach to working with clients? Does your company offer the "right" mix of products and services? Is senior management committed to your efforts in this market?

Baby boomers have changed society and will continue to redefine retirement. It's up to you to define how your company successfully cracks the code to this market.

Companies wishing to be successful in helping people make a successful transition into retirement cannot afford to turn their back on the accumulation business.

By Eric T. Sondergeld, ASA, CFA, MAAA

Corporate Vice President and Director, Retirement Research, LIMRA International

Copyright LIMRA International Winter 2005

The decision eases the legal threshold for about 75 million middle-aged and older people to contend in court that a policy has a disproportionately hurtful effect on them.

On the other hand, the ruling makes clear employers still will prevail if they can cite a reasonable explanation for their policies, such as cost-cutting.

The decision was applauded by advocates for older workers. Business and municipal groups expressed disappointment, saying it could create costly additional litigation.

The case was brought by older police officers in Jackson, Miss., who contended a city policy favored younger colleagues. The court unanimously rejected their appeal but in a 5-3 vote ruled they were entitled to pursue the lawsuit.

Chief Justice William H. Rehnquist did not participate in the decision, which was heard in November when he was being treated for thyroid cancer.

Justice John Paul Stevens, writing for the majority, cited the 1967 Age Discrimination in Employment Act. He said it was meant to allow the same type of legal challenges for older workers that minorities and women can make under the 1964 Civil Rights Act.

But he also said the same law stipulates employers are within their rights to sometimes treat older workers differently.

"Age ... not uncommonly has relevance to an individual's capacity to engage in certain types of employment," wrote Stevens, who at 84 is the court's oldest member.

He was joined by other members of the court's liberal wing - David H. Souter, Ruth Bader Ginsburg and Stephen G. Breyer.

Justice Antonin Scalia filed a separate opinion, saying "disparate impact" claims alleging a hurtful effect are acceptable based on the Equal Employment Opportunity Commission's interpretation of the congressional statute, not the majority opinion's "independent determination" of the law.

Justice Sandra Day O'Connor and two others disagreed, saying the age discrimination act bars the impact claims. She said Congress never intended such lawsuits because employers should have flexibility to make business decisions that might unintentionally harm older workers.

"There often is a correlation between an individual's age and her ability to perform her job," O'Connor wrote. "That is to be expected, for physical ability generally declines with age, and in some cases, so does mental capacity."

She was joined by Anthony Kennedy and Clarence Thomas.

"This is a major boost for the fight to eliminate age discrimination in the workplace. Evidence that an employer is intentionally out to get older workers is very hard to come by," said Laurie McCann, senior attorney for AARP, the advocacy group for people 50 and over.

"It is a significant win for older workers who lack smoking gun evidence of age discrimination," said Thomas Goldstein, a Washington lawyer who represented the police officers. "It also reminds employers to be conscious of the effects of their policies."

But David Parkhurst, attorney for the National League of Cities, called the ruling a disappointment for cash-strapped governments as they seek ways to legitimately cut costs.

Potential budget savings could be lost, he said, "if cities have to extend more time and money for litigation costs."

In the Mississippi case, 30 Jackson officers and dispatchers sued over a pay performance plan they said gave substantially larger pay raises to employees with five or fewer years of tenure - a plan they said would as a result have an unfavorable impact on employees 40 and over.

Lower courts threw out the lawsuit, reasoning that impact claims were barred.

In its ruling, the Supreme Court said that while police officers can get into court to prove unfavorable impact, they failed to do so here. The city's explanation that it was trying to make salaries for junior officers more competitive with similar positions was reasonable, the court said.

Employers defending themselves from lawsuits charging sex or race discrimination under Title VII of the 1964 Civil Rights Acts have a tougher standard of showing "business necessity" rather than "reasonableness" to prevail at trial.

"The city's decision to grant a larger raise to lower echelon employees for the purpose of bringing salaries in line with that of surrounding police forces was a decision based on a 'reasonable factor other than age' that responded to the city's legitimate goal of retaining police officers," Stevens wrote.

The case is Smith v. City of Jackson, 03-1160.

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On the Net:

The opinion in Smith v. City of Jackson is available at:

http://wid.ap.org/documents/scotus/050330smith.pdf