Lawmakers Seek Inquiry on Pensions
By Mary Williams Walsh
New York Times
Thursday, December 1, 2005
Two members of the House of Representatives asked the
research arm of Congress yesterday to investigate whether
the federal agencies that enforce pension law have failed to
police a crucial part of the pension business: the
consultants and money managers who help decide how money is
The request by Representatives George Miller, a California
Democrat, and Edward J. Markey, Democrat of Massachusetts,
underscores a flaw in the pension law.
The law divides the authority for pension plans among three
federal agencies, which look at such issues as whether
companies are putting enough money into pension funds and
whether they are keeping employees informed about the
plans. But the money managers are regulated by a fourth
agency, the Securities and Exchange Commission, which has no
authority over pension law.
This regulatory problem is as old as the pension law, 31
years. But it has become apparent only recently, as a
series of record-size corporate pension failures has put new
burdens on the federal agency that insures pensions. Even
now, with Congress trying to close loopholes in the pension
law, the focus has been on how to make sure companies put
enough money into their pension funds, not how the money is
invested after that.
In a letter to David M. Walker, the head of the Government
Accountability Office, Congress's investigative arm, the
congressmen pointed to the collapse this year of the
employee pension plans at United Airlines.
They noted that a union that represents some United
employees, the Aircraft Mechanics Fraternal Association, had
specifically asked federal regulators to look into whether
United's pension consultant had been acting solely in the
interests of the plan participants, as the law requires, or
had been steering blocks of pension money to certain money
managers for business reasons.
The union put its request last summer to the Pension Benefit
Guaranty Corporation, which guarantees company pensions, and
to the labor secretary, Elaine L. Chao, who is chairwoman of
the guaranty corporation.
"We understand that the P.B.G.C. has to date declined to
undertake a forensic audit of United's plan to ascertain
whether there were, in fact, conflicts of interest, hidden
financial arrangements and unlawful activities," the
They said this was particularly disturbing because United's
pension failure came at about the same time as the S.E.C.
issued a critical report on the pension consulting business.
The report, based on an 18-month review, found that more
than half the pension consultants in the S.E.C.'s sample
were being paid by money management firms, even as they
claimed to be screening and selecting money managers
objectively on behalf of their pension fund clients.
The S.E.C. referred about a dozen of the consultants to its
enforcement division for further action, but it did not name
The two representatives said the S.E.C. report raised
questions about whether conflicts of interest among United's
consultants and its money managers had contributed to the
failure of its pension fund. That failure caused record
losses of about $10 billion, which will be borne by the
Pension Benefit Guaranty Corporation and the employees of
Not only had the guaranty corporation not made a review of
United's consultants and money managers, they wrote, but "we
are not aware of any plans by the P.B.G.C. to systematically
assess whether pension consultant conflicts of interest or
undisclosed financial relationships existed at any of the
terminated plans now under its control."
The representatives said they had been asking the S.E.C.
whether any of the pension consultants referred to the
commission's enforcement division were used by United's
pension fund, but so far they had not received an answer.
They also asked the Government Accountability Office to
determine whether the pension agency had used any of those
A spokesman for the accountability office confirmed that it
had received the request for an investigation and would work
with the lawmakers on defining the scope and timing of an
The pension guaranty corporation has taken over nearly 4,000
defunct pension plans in the last three years, digging
itself into a $23 billion hole. The guarantor is not at
risk of running out of money anytime soon, but Congress has
been working on legislation that would improve its finances
as well as close the loopholes in the rules that govern how
much money companies set aside for their pension plans. But
progress has been slow.
The pension law requires the officials of company pension
plans to make sure the money is invested with "care, skill,
prudence and diligence." In practice, many plan sponsors
work with outside consultants, who help them devise an
asset-allocation strategy and pick outside money managers to
carry it out.
This division of labor appears to be causing confusion about
which regulatory agency should monitor the investment of