Pension Risk News & Analysis : Pension Governance, LLC : Pension Risk & Investment

On April 16, 2008, members of the U.S. House Education and Labor Committee will mark up the proposed bill that, if adopted, will mandate additional disclosures as relates to retirement plan fees (1:00 p.m. in room 2175 Rayburn H.O.B.) As fee-related litigation soars (frequency and size of alleged economic damages) and individuals struggle to ready themselves for a long retirement haul (due to extended life spans), the import of any disclosure regulation is considerable.

To learn more, check out these resources. Note that the bill is renamed the "Fair Disclosure for Retirement Security Act of 2008."

• "Fair Disclosure for Retirement Security Act of 2007" introduced by Representative George Miller (D-California) and dated July 26, 2007 - full text
• "Fair Disclosure for Retirement Security Act of 2007" - summary dated July 2007
• U.S. House Education and Labor Committee hearings (H.R. 3185, the 401(k) Fair Disclosure for Retirement Security Act of 2007 - October 4, 2007)
• U.S. House Education and Labor Committee hearings ("Hidden 401k Fees Undermining Retirement Security?" - March 6, 2007)

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Don't think there are no crocodiles because the water is calm.
...Malayan proverb

This blog's author (Dr. Susan Mangiero) joins internationally recognized leaders as part of the World Bank/IOPS 4th Contractual Saving Conference: Supervisory and Regulatory Issues in Private Pensions and Life Insurance. Nearly 200 regulators and practitioners convene in Washington, DC, hailing from countries such as the United States, Australia, Norway, Denmark, Mexico, Chile, Sweden and New Zealand.

Dr. Mangiero will address hidden risks from an implementation perspective. Other presentations similarly emphasize the message that risk mitigation is the sine qua non of modern asset-liability management. Without a dynamic and comprehensive process, fiduciaries leave themselves wide open to allegations of breach. Click to access the conference agenda.

Note: The International Organisation of Pension Supervisors (IOPS) is an "independent international body representing those involved in the supervision of private pension arrangements. The organisation currently has around 60 members and observers representing approximately 50 countries and territories worldwide."

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The answer is absolutely YES!

This blog will address the impact of regulatory changes (there;'s more on the way) in the next few days. They are impossible to ignore.

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In today's edition, New York Times reporter Robert Pear describes a recent action by the Equal Employment Opportunity Commission ("EEOC") that gives employers free rein to cut back benefits for persons 65 and older. (See "Many Retirees May Lose Benefits From Employers.") The rationale seems to be that, once eligible for Medicare, senior workers should transition fully or partially out of private benefit programs because they are otherwise covered. Quoting EEOC Chair, Naomi C. Earp, the goal is to encourage plan sponsors to continue voluntarily providing and maintaining health benefits. Premiums deemed "too high" and the fact that people are living so much longer than ever before is creating havoc with corporate bottom lines. As a result, "many employers refuse to provide retiree health benefits or even to negotiate the issue." In some cases, if they are unable to contain costs for benefits offered to older workers, companies may decide to cut back altogether. This means that younger workers would be exposed - no employer provided coverage, no Medicare.

According to the December 26,2007 Federal Register, the new policy protects plan sponsors from legal threats of age discrimination in the event that they create a two-class benefits program. The "Appendix to Sec. 1625.32--Questions and Answers Regarding Coordination of Retiree Health Benefits With Medicare and State Health Benefits" provides additional information. The upshot is that employers now enjoy flexibility to (a) provide retiree healthcare benefits “only to those retirees who are not yet eligible for Medicare" (b) modify, reduce or eliminate benefits upon an employee's 65th birthday and (c) decrease or eliminate health benefits for the spouse or children of a retiree of a certain age.  

How many companies rush to the door remains to be seen. As employers struggle to attract and retain good workers, including those with a bit of gray, providing or reinstating diminished benefits may come to pass. Only time will tell.

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Check out the new online "ERISA Fiduciary Advisor." Designed to inform about who is a fiduciary and what duties they are obliged to carry out, the Advisor "was developed by the Employee Benefits Security Administration (EBSA) in its continuing effort to increase awareness and understanding about basic fiduciary responsibilities when operating a retirement plan."

Click here to learn more.

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In a special edition of employee plans news (October 2007), the Internal Revenue Service provides a link to its new web-based tool to help with 401(k) plan compliance. This 43-page document includes a chart that describes eleven "problem areas in retirement plans" as well as suggested ways to identify, correct and avoid such mistakes.

Click here to access the tool.

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Love her or hate her (the woman), many feel that Ayn Rand's literacy legacy is beyond reproach. Author of best-selling books such as The Fountainhead, her main message is one of self-determinism and excellence of work. New York Times reporter describes the business glitterati who embrace her words to this day, including former Federal Reserve Chairman, Alan Greenspan, and a bevy of Fortune 500 CEOs. No wonder then that her books continue to sell. According to "Ayn Rand's Literature of Capitalism," Atlas Shrugged, published nearly fifty years ago, "is still drawing readers; it ranks 388th on Amazon.com’s best-seller list. 'Winning,' by John F. Welch Jr., at a breezy 384 pages, is No. 1,431."

So why does her work capture the hearts and minds of corporate scions and entrepreneurs alike and what could the pension world learn from Ms. Rand's work?

Addressing the first question, consider her many admirers who describe the inspiration they draw from reading this long (1,200+ pages) novel about the philosophical integrity and strength of characters such as Dagny Taggart (slated to be played by Angela Jolie in the Hollywood film version now underway), Hank Reardon and the all-time favorite, John Galt. Withstanding immense scrutiny and criticism from the entrenched bureaucracies, each fictional business persona fought steadfastly to create wealth by building a better mousetrap and to resist, at all costs, the temptation to be mediocre and do "just enough." 

Part of the book's appeal is its timelessness. As one Atlas Shrugged reviewer recently wrote, this 1957 book could just as easily have been written today. As Rand railed against excessive government regulation (influenced no doubt by her childhood experiences of living in Bolshevist Russia), contemporary critics decry the "excesses" of regulations such as SOX. Rand extolled the virtues (and urgent need) for bold leadership. She cautioned what would happen if the world fell from the shoulders of Atlas and the producers of high-quality products and services (without government help) left the "exploiters" to their own feeble devices. She impugned those who defrauded or otherwise took what did not belong to them. Her words resonate loud and clear in the aftermath of a wave of corporate fraud and scandals. She allowed only for strong property rights and proper commercial incentives (economic profit) to support a better quality of life for all in the form of unfettered markets. (How many innovations occur in the lands of despots and closed markets?) 

Should Atlas Shrugged be a guidebook for pension trustees? Asked in other ways, should benefit plan decision-makers focus on full transparency and accountability? Should fiduciaries bravely step up to the plate and make decisions that are in the interests of beneficiaries first and and always? Should plan sponsors map out a detailed plan (and follow it closely) to avoid conflicts of interest? Will plan sponsors adopt best practices that, in the short-run may cost more in terms of time and money, but in the long-run, create a better outcome for participants and shareholders alike? Should high-integrity fiduciaries be economically rewarded for their insight, commitment and diligence? Conversely, should those who accept sub-par quality of work be penalized?

If the answer to any or all of these questions is affirmative, the following quotes are for you.

"A creative man is motivated by the desire to achieve, not by the desire to beat others."

"Throughout the centuries there were men who took first steps, down new roads, armed with nothing but their own vision."

"The ladder of success is best climbed by stepping on the rungs of opportunity."

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Little noticed inside the pension community is a provision of the Pension Protection Act of 2006 that directly impacts reporting by tax-exempt organizations. What's interesting is that required changes mandate important governance disclosures for churches and foundations and other non-profits. According to Guidestar.org, "Form 990-T was considered a tax return and was not open to public inspection. The Pension Protection Act of 2006, however, mandates that any IRS Form 990-T filed by a 501(c)(3) organization after August 17, 2006, is now a public document. The exception is a Form 990-T filed solely to request a refund of the telephone excise tax."

Too bad the same disclosures are out of reach for anyone interested in understanding the nature of fiduciary risk attached to pension plans. As we pointed out in "Searching for Hidden Treasure" (April 17, 2006), even seemingly "mundane" information such as who makes primary decisions about defined benefit and defined contribution plans is often out of reach. As I wrote then, other than the names of the plan sponsor and plan administrator (found on Form 5500), no one knows much about who is in charge. (Some databases provide this information for a fee and various plan sponsors voluntarily provide this information online or in writing.)

Wouldn't it be grand to know more about who is making critical decisions regarding the $10 trillion pension industry? After all, how can we reward "good players" and hold "bad" or "careless" fiduciaries accountable if they operate in the shadows?

At a time when the SEC is asking for additional information (executive compensation decisions, audit committees, etc) and FASB wants to know more (having just announced plans to promote pension investment risk disclosure) where is the upset about pension fiduciaries - who they are, how they are selected and whether they are qualified for the tasks put upon them?

Editor's Note:

Part III questions of the newly revised form 990 are shown below. The IRS website provides detailed instructions and commentary.

• Enter the number of members of the governing body
• Did the organization make any significant changes to its organizing or governing documents?
• Does the organization have a written conflict of interest policy?
• Does the organization have a written whistleblower policy?
• Does the organization contemporaneously document the meetings of the governing body and related committees through the preparation of minutes or other similar documentation?
• Enter the number of independent members of the governing body
• If “Yes,” how many transactions did the organization review under this policy and related
  procedures during the year?
• Does the organization have a written document retention and destruction policy?
• Does the organization have local chapters, branches or affiliates?
• If yes, does the organization have written policies and procedures governing the activities of such chapters, affiliates and branches to ensure their operations are consistent with the organization’s?
• Does an officer, director, trustee, employee or volunteer prepare the organization’s financial statements?
• Does the organization have an audit committee?
• How do you make the following available to the public?

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Memorial Day fireworks will be extra special for two airlines - American and Continental. In a pre-holiday move, Congress and the White House okayed the use of an 8.25% rate to determine the estimated DB liability, attempting to create parity for solvent airlines. (Higher discount rates lower the projected net unfunded liability for a defined benefit plan.) According to reporter John Crawley ("US Congress weighs new pension relief for airlines," May 24, 2007), this is "still below Northwest and Delta but more generous than the tougher formula required by lawmakers last year." Click here to read the article.

In response, the Allied Pilots Association (APA), "representing the 12,000 pilots of American Airlines (NYSE: AMR)" cautioned management not to use new rules as an an excuse to reduce funding. APA president , Captain Ralph Hunter, reiterated the unions' agreement to annual concessions of more than $600 million, motivated in part by the recognition of being "at risk in bankruptcy court." Click here to read the full text of the May 25, 2007 press release.

This is not the first, nor the last time, that discount rate discussions will take center stage. Questions about appropriate assumptions linger. (According to the H-15 Statistical Release, 20-year U.S. treasury bond yields as of May 21, 2007 were reported as approximately 5.02%.)

In a December 11, 2006 speech to CPAs, SEC Fellow Joseph B. Ucuzoglu cites an important element of the Pension Protection Act of 2006, taken together with the Financial Reporting Release No. 72. Registrants "should provide transparent disclosure in Management's Discussion & Analysis of the Act's anticipated impact on the company's liquidity and capital resources. Although in some circumstances it will be difficult to forecast precise funding requirements due to the annual recomputation required by the Act, it will often be possible to provide disclosure of the magnitude of cash commitments for future annual periods assuming present market conditions remain constant."

What are the implications?

1. New legislation allows additional airline carriers to use an estimated discount rate that is, by some accounts, "too high."

2. If the result is an artificially low estimated liability number, SEC filings could reflect an overly optimistic assessment of a company's liquidity situation and related ability to pay.

3. Plan participants may therefore want to take a tour "behind the numbers." After all, cash is required to pay benefits, irregardless of discount rate assumptions.

4. Don't stop with airlines. Compare reported discount rate assumptions with economic reality for a given plan. Does the number comport with current capital market conditions? Is it sustainable? If not, what is the likely TRUE impact on benefit plan payouts and the funding needs of the plan sponsor and isn't that important information to have?

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In a May 23 meeting, open to the public as a byproduct of the Government in the Sunshine Act, the SEC will address a host of issues, not the least of which is a possible relaxation of the Sarbanes Oxley Act. Long awaited relief could help companies with what many cite as "burdensome" and costly compliance requirements. Financial Times reporter Jeremy Grant writes that "Wednesday’s likely approval of a set of guidelines originally proposed in December will provide executives with a clearer idea of how the SEC intends corporate America – and foreign companies listed in the US - to implement Section 404 of Sarbox." (See "SEC set to approve guidance on Sarbox," Financial Times, May 23, 2007.)

Ironically, at a time when regulatory muscle may be giving way to paunch, questions abound regarding transparency. In "Side Deals in a Gray Area," New York Times reporter Jenny Anderson describes a practice known as “big-boy letters” as "typically used when an investor has confidential information about a stock or bond and wants to sell those securities. By signing the letter, the buyer effectively recognizes that the seller has better information but promises not to sue the seller, much like a homebuyer who agrees to buy a house in 'as is' condition."

In "Big Boy Letters: Playing It Safe After O’Hagan," attorneys Wendell H. Adair Jr. and Brett Lawrence write that "big boy letters are designed to limit an insider’s liability under both securities laws and common law" and that a "trader in a company’s debt typically does not assume any fiduciary duty to the company or other security holders, assuming the person is not a member of an official committee or the board of directors and does not hold a similar insider position" unless he or she has signed a non-disclosure agreement.. Click here to read their analysis of U.S. v. O’Hagan, a "seminal case" that implied that a trader in possession of material, nonpublic information could avoid liability under misappropriation theory by disclosing his intention to trade to the information provider without actually disclosing to the trading counterparty the nonpublic information."

While attorneys seem to disagree on the legal exposure attached to big boy letters, the issue may soon be resolved in court. In the aforementioned New York Times article, Anderson describes "a lawsuit set to go to trial next month" in which "a Texas hedge fund contends that it was on the losing end of such a letter in 2001, when Salomon Smith Barney, now Smith Barney, sold more than $20 million worth of World Access bonds to the Jefferies Group, the investment bank, using a big-boy letter."

Not being an attorney (and so relying on the legal expertise of others), institutional investors like pension funds may want to add big-boy letters to the laundry list of "must know" items when evaluating trading practice risk as part of their selection of outside professionals. It is no stretch to see that challenges to statutory requirements all around (SOX, 13F, FASB, to name a few) could impede the flow of information to investors. (A discussion of regulation and information economics is outside the scope of this post.) This in turn could make it more difficult for pension fiduciaries to carry out their duties as informed decision-makers. Of course, mandatory rules can be replaced with industry self-regulation (something most free market economists advocate, including myself). Money managers who volunteer details about their trading practices to existing and prospective pension fund clients should win brownie points for candor.

Until then, one wonders - Are we opening the window to let in more sunshine or introducing darkness?

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Hedge fund Amaranth Advisors, LLC has settled an SEC complaint regarding violation of Rule 105 of Regulation M  which makes it "unlawful for any person to cover a short sale with offered securities purchased from an underwriter or broker or dealer participating in an offering, if such short sale occurred during the . . . period beginning five business days before the pricing of the offered securities and ending with such pricing.” Click here to read the SEC-Amaranth document.

Zurich Capital Markets Inc. has settled with the SEC on an issue relating to hedge fund trading. According to the order, "ZCM, an entity that provided financing, aided and abetted four hedge funds that were carrying out schemes to defraud mutual funds that prohibited market timing. Specifically, ZCM provided financing to four market-timing hedge funds that employed various deceptive tactics to invest in mutual funds. ZCM and these hedge funds knew that many mutual funds in which they invested imposed restrictions on market timing activity. In order to buy, exchange and redeem shares in these mutual funds, these hedge funds employed deceptive techniques designed to avoid detection by these mutual funds. ZCM came to learn that the hedge funds were utilizing deceptive practices to market time mutual funds, and nonetheless ZCM provided financing to them and took administrative steps that substantially assisted them. By providing assistance to the hedge funds, ZCM aided and abetted the hedge funds’ violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder." Click here to read the SEC-ZCM document.

One takeaway for pension fund investors is that a review of the manager absolutely must include a thorough assessment of trading practices.  Some of the many questions in search of answers include the following:

• What trading controls, by category, exist?
• Who oversees compliance?
• How are violations detected?
  
• What is the penalty for internal policy breach?

A second takeaway is to ask serious questions about the entire chain of command related to trade processing, reporting and who gets paid to do what.

Look for news next week about our hedge fund webinar series for pension fiduciaries. The Hedge Fund Toolbox^SM will cover many important topics such as valuation, risk management, fee structure, disclosure and ERISA considerations.

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Throughout my career, I've been fortunate to work on multi-disciplinary projects, many of which combined accounting with finance. It is my personal view that the two areas are integral to good business decision-making. Whether I've taught eager MBAs or corporate executives or managed analysts, I've cautioned people to look beyond the numbers, try to ascertain what information is missing and identify whether there are gaps between the accounting representation and potential economic profitability. Citing Columbo and the need to "be a good financial detective," I've suggested that (dare we say it?) accounting numbers can be illusory and therefore require a proper vetting. (By the way, my mention of the venerable television sleuth drew blank stares from the students so I had to switch to CSI characters instead.)

What does this mean for institutional investors?

Anyone committing funds to fixed income, equity or hybrids must have a solid understanding of what financial statements convey, and by extension, what they do not reflect. Assessing the quality of earnings (balance sheet) is often difficult. Rules are complex. Companies can have tremendous latitude in their reporting choices. This puts the onus on the investor to do a good job of comparing reported numbers against industry/company factors as they relate to predicting future expected cash flow or some other measure of economic profitability.

Always challenging, it may become more so now that the SEC has opened the door to foreign companies (and perhaps U.S. firms by extension) being able to choose which standards make sense for them. In his April 25 article, ("SEC to Mull Letting U.S. Companies Use International Accounting Rules"), Wall Street Journal reporter David Reilly writes: "The commission said it will begin soliciting comments this summer on a possible change allowing foreign companies registered with it to file financial results using international financial reporting standards, or IFRS. Currently, foreign companies that file with the SEC must reconcile their results to U.S. GAAP, a costly and time-consuming process that many companies, especially in Europe, want to do away with."

Whatever the choice, financial statement users have a tough job. First of all, analyzing industry peers could require even more attention being paid to HOW numbers are put together. Company X uses U.S. GAAP (Generally Accepted Accounting Principles) and Company Y uses an altogether different approach. You have two sets of numbers. Which one is right in terms of assessing economic potential?

Still a classic (but pay attention to new rules) is Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports, 2nd edition by Dr. Howard Shilit.  Also check out Michelle Leder's blog, Footnoted.org. Author of Financial Fine Print: Uncovering a Company's True Value," Leder drills down deep into the footnotes that many ignore.

On the pension accounting front, European firms are still reeling from rigorous rules. The adoption of new financial strategies and plan redesign (or perhaps termination) are not uncommon in some countries such as the UK. Stateside, FAS 158 is getting lots of attention with much more to come.

If people ignored accounting numbers and chose instead to focus on economic forecasts alone (i.e. take a fundamental approach to investing that emphasizes competitive structure, operating environment, etc), that would be one thing. However,  there is extensive research that suggests that companies DO behave a certain way in response to accounting rules.

Therefore, as companies get to choose accounting rules by which they will abide, investors must:

1. Understand what the different standards mean in terms of an accounting - economics "gap"

2. Identify whether a reporting entity is perversely changing its behavior to game a particular rule and buoy its numbers

3. Roll up those shirt sleeves and sleuth away. What you see may not be what you get!

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San Diego is hopping with over three hundred financial professionals attending the FI360 Annual Conference. Topics on the agenda include fiduciary requirements in the aftermath of the Pension Protection Act of 2006 (PPA), trends in fiduciary liability insurance claims, prudent investment fiduciary practices and 401(k) plan economics.

One item in particular - the PPA-required audit of  "eligible investment advice arrangements" (EIAA) - is taking center stage. By definition, an EIAA is "an arrangement that, among other things, provides that any fees (including any commission or other compensation) received by the fiduciary adviser for investment advice or with respect to the sale, holding, or acquisition of any security or other property for purposes of investment of plan assets do not vary depending on the basis of any investment option selected." Click here to read Field Assistance Bulletin No. 2007-01 (U.S. Department of Labor - February 2, 2007).

In response, the Centre for Fiduciary Excellence just announced an audit and certification program to ‘fiduciary advisers’ as defined by the PPA, "who intend to serve in EIAA’s. The fiduciary adviser certification program is supplemental to the existing CEFEX Investment Advisor Certification based on the fiduciary practices published by Fiduciary360 of Sewickley, PA. These practices are defined in the Fiduciary 360 publication "Prudent Practices for Investment Advisors" which was reviewed by Reish, Luftman Reicher & Cohen of Los Angeles, CA, and edited by the American Institute of Certified Public Accountants (AICPA)."

Read more by opening the press release file.

PG Editor's Note: The Centre for Fiduciary Excellence and the Foundation for Fiduciary Studies (and its affiliate, FI360) are partners with Pension Governance, LLC (owner of this blog). We all agree on a similar mission - to empower plan sponsors and their vendors and agents by providing educational information about fiduciary investment issues and promoting transparency about investment fiduciary practices. Click here to learn more about all of our partners.

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In case you haven't heard, most people think any pension problems are a walk in the park compared to a looming health care crisis. Some think the answer is national health care. Others persist - "Let the market do its thing." This blogger tends to be in the second camp but I am pretty sure we'll end up with socialized medicine at some point . Some say we are already there. After all, who REALLY knows the true cost of a particular service or pharmaceutical? There is seldom a supply-demand dynamic at work.

In a recent Wall Street Journal article, journalist Chad Terhune describes the Tennessee response in the form of a mini-medical plan called CoverTN. Made available to businesses that meet certain criteria, it allows employers to offer health care coverage at a cost far below that of catastrophic insurance. The bad news is an annual per capita limit of $25,000. One hospital stay could wipe this out in short order. Nevertheless, even a few corporate biggies are looking at mini-medical as a way to contain costs.

To read more, go to www.wsj.com and search for "Guarded Health: Covering the Uninsured, But Only Up to $25,000 - Tennessee Experiment Goes Against the Grain As States Remake Care", April 18, 2007.

Pension Risk Matters Editor's Note: Hear what guest blogger, Dr. Michael Kraten, CPA, has to say about health care. His recommendation for more transparency in benefits administration is one we soundly support. Founder and President of Enterprise Management Corporation, a management consultancy based in Connecticut, Kraten is doing interesting research in the area of virtual reality negotiations, health savings accounts and non-profit governance. He is also an accounting professor at Suffolk University in Boston, Massachusetts. To learn more, visit his website at www.enterpriseman.net.

Text from Dr. Kraten:

What is the Aflac duck selling?

If you answered “general health insurance” ... surprise! You are not correct. The Aflac web site offers dental, hospital confinement indemnity, hospital confinement sickness indemnity, hospital intensive care, and specified health event policies ... but not general health insurance.

What's the difference? Well, general policies are designed to cover most medically necessary services, with perhaps a few carve-outs and a relatively high lifetime maximum coverage limit tossed in for good measure. Aflac's policies, though, are only designed to cover a few narrowly defined services, and often include a relatively low annual coverage limit as well.

In other words, these are not general insurance policies at all. They're really prepaid service plans, where the plan manager (i.e. Aflac) keeps the premium if the services are not used by the end of the coverage period. And because the services frequently reflect relatively rare catastrophic events, the premium often goes unused ... and are thus typically converted to profits.

This type of plan is certainly not new to the commercial markets. Delta Dental, for instance, has been offering narrowly defined service contracts with low annual reimbursement ceilings for many years. But now many states are considering the implementation of such programs as well. Tennessee, for instance, recently launched a government subsidized small business plan called Cover TN. Its Program Summary states that it simply covers “basic health needs” only, with an annual maximum coverage limit of $25,000 per year ... not nearly enough to cover many complicated hospital stays.

Other states, such as California and Massachusetts, have opted to pursue a different path, proposing universal coverage programs that would cover most medically necessary services. But the costs of such plans are far more significant, and critics complain that their resultant taxation financing mechanisms are both onerous and self-defeating.

Time will tell whether the universal coverage programs will prove to be cost-effective, or whether the prepaid service programs can provide more than “band aid” protection for bleeding state program budgets. The American public might benefit, though, by receiving honest and transparent explanations from their health plan funding organizations regarding what they can expect ... and what they cannot expect ... for their premium dollars.

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Hot off the press, the U.S. House of Representatives says okay to amending the Securities Exchange Act of 1934 to provide stockholders more power in approving executive pay. Click here to read the Shareholder Vote on Executive Compensation Act. Arguably the rationale is to empower shareholders to veto executive pay packages deemed "excessive." One can argue about the efficacy of the legislation (and likely will). However, it begs an interesting question for citizens of pension land.

What type of say do they get about the operation of a defined contribution and/or defined benefit plan? How can they corral perceived conflicts of interest, alleged misdeeds and/or questionable decisions? On the flip side, how can they say "bravo" to effective investment stewards, perhaps voting for better financial rewards and job title recognition for good do bees (honest players)?

The answer - Not much!

This topic arose in 2005 when I was asked to appear on CNN Financial to talk about United Airlines. The anchor asked me to cite steps that defined benefit plan participants could take when they know a company is encountering financial difficulties and want to exit the plan or change their share of the investment mix. When I explained to the producer that employees are extremely limited in being able to exert influence over the management of the trust (other than through litigation, and only after losses have occurred), we all agreed that a gloomy message may not make for great ratings.

Sob - my fifteen seconds of fame, evaporated in a moment of candor.

So now that Congress is taking steps to empower shareholders, why not tackle the same for plan participants? Yes, post-Enron, reforms were made. No, to this day, plan participants still have little influence on whether a plan is well run or not.

Part of the problem arises because information is scattered, often obtuse when available and sometimes contradictory (depending on the source). And for those on the outside looking in, access to documents such as the Summary Plan Description (SPD) is nil.

Just an aside - This issue of limited beneficiary control extends to defined contribution plans as well.

Hence, plan participants MUST depend on the integrity, knowledge, experience and solid intentions of the persons in charge.

So to all of those plan beneficiaries everywhere - ask yourself this. How much do you know about the people in charge? Would you like to know more?

To plan stewards - If you aren't providing transparency about everyone with authority to make decisions about plan design and investment governance, wouldn't it be a good idea to do so? Besides creating a sense of "I don't want to hide anything," you open the door to suggestions for improvement and possibly close a door to litigation or otherwise unwanted scrutiny.

Why wait?

Continue Reading...

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I am the author of a book entitled Risk Management for Pensions, Endowments and Foundations (John Wiley & Sons, 2005). A primer about risk management (no math by design), the feedback has been gratifying. I'm particularly proud of the comments citing ease of use. (The book is replete with examples, checklists and references).

However, it's no Da Vinci Code in terms of sales. While I'd like to write a sequel at some point, few are competing for the honor and no one is knocking down my door to buy the movie rights. (You can visit our online bookstore at www.pensiongovernance.com - Products, Books for what we think constitutes a good readling list.) True, it's non-fiction and written for a limited audience. Yet one wonders why, in today's benefits climate, more people aren't fast and furiously laying pen to paper to describe how to tackle what is arguably one of the most important topics in pension land - risk management. If there is a single message I can impart to those who will listen, it is this.

ANYONE involved in pension investing is a de facto risk manager. Believe it. You are.

Whether focused on the asset or liability side (or both), risk is an integral part of financial management. Those who deny this truism expose themselves to possible trouble down the road. Personal and professional liability aside, plan sponsors who passively manage risk (whether defined benefit or defined contribution) through ignorance or benign neglect invite unwelcome scrutiny. Unless they are lucky, litigation, economic loss and/or damaging headlines are high probability events.

Besides, plan sponsors who give risk management short shrift lose a precious opportunity to improve things. An effective process forces a plan sponsor to identify, measure and control risk on an ongoing basis. Taking inventory (in terms of uncovering sources of risk) enables plan sponsors to make meaningful changes. Lower costs or enhanced diversification are two of many possible benefits associated with the activity of collecting and analyzing data as part of the identification of risk drivers.

So a natural question arises.

Why don't more plan sponsors pay attention to risk management, whether for themselves or as part of hiring, reviewing and perhaps firing money managers and consultants? Asked another way, what is the tipping point beyond which risk management becomes front and center at meetings of board members, trustees, investment committees and so on?

Here are a few thoughts.

1. Based on the preliminary results of the pension risk management survey now underway, and co-sponsored by Pension Governance, LLC and the Society of Actuaries, there seems to be a HUGE gap between belief and reality. Many respondents say they actively pay attention to risk management. At the same time, they cite limited or no use of risk metrics other than standard deviation and/or correlation. (We'll talk about limitations of basic risk metrics elsewhere.) How can you improve on something you think you are already doing well?

2. Many plan sponsors are tasked with benefits-related work as an add-on to their regular job. Often, there is little organizational incentive for them to excel. In a way, it's a lose-lose proposition. They assume significant fiduciary liability with little or no recognition in the form of additional money, better title or other types of perquisites. At the same time, if they do a bad job, there is no escape. It's all downside. Sadly, there is so much perceived ambiguity about what constitutes a "good" job that it's often difficult to hold someone accountable. (Note the term "perceived" versus "real.")

3. Not all attorneys (litigators and transactional) feel comfortable with finance concepts, let alone financial risk management. That knowledge void arguably makes it easier to let risk control gaps slide unless, or until, an egregious act occurs.

4. Establishing a financial risk management process is seldom fun (or at least sort of enjoyable) for most people. It is often a complex activity that requires copious amounts of money, time, concentration and energy, especially if a plan's investment mix (DB or DC) extends to multiple asset classes. Moreover, benchmarking the process, and making appropriate changes thereafter, likewise consumes large chunks of time and money. Is it any wonder then that its ranking on one's "to do" list plummets in the absence of a strong risk culture?

5. When market conditions are "good" and benefit costs decline as a result, people tend to get lulled into false security. Instead of focusing on structural issues, it's easier to breath a sigh of relief and say "problem solved." Alas, markets change all the time and putting off the inevitable is hardly a smart move.

So what's the tipping point that has everyone wearing "I'm a risk manager" button? Certainly lower interest rates and/or an anemic equity sector are factors, as is regulation. A few recent surveys cite mandates as a central force in encouraging, sometimes forcing, plan sponsors to radically revise their asset allocation strategies and focus on plan risk.

Most folks think we're moving closer to the pension risk management tipping point. I agree but counter that movement is relative. Until (and hopefully not "unless") plan sponsors recognize the URGENT need for financial risk management, investment stewards remain vulnerable on many counts and that is not a good thing for anyone!

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A few months ago, California Governor Schwarzenegger created the Public Employee Post-Employment Benefits Commission. Tasked with identifying the nature of their $49 billion unfunded liability for state retirement programs, this group must submit a report to the Governor and state legislators by January 1, 2008 that (a) quantifies unfunded post-employment health care and dental benefits for which the state is obliged to pay (b) assesses and compares possible solutions to address unfunded liabilities and (c) recommends which course of action makes sense. Click here to read the official press release about the Commission. Click here to access the names, titles and affiliations of the original appointees.

A few weeks ago, San Francisco Chronicle reporter Greg Lucas wrote that two of the dozen members, including the head of the commission, have business ties with California pension funds. Not surprisingly, eyebrows raised. In response, "Schwarzenegger administration officials and CalPERS -- the nation's largest institutional investor -- say there is no conflict between the two commission members' private business ties and their role on the commission, but some independent observers say the connection could harm the credibility of the panel's recommendations." Click here to read "Pension reform panelists' ties to firms questioned" (San Francisco Chronicle - March 8, 2007).

Call me crazy but doesn't it make sense to remove any doubt about the ability for commission members to render an impartial analysis? The persons in question may be the most honest of men. I don't know them personally. What I do know is that this type of news is likely to be yet another nail in the coffin of uncomplicated pension reform. I've spoken to countless taxpayers across this great country who are starting to wake up and smell the cappuccino. They are not happy about the prospect of soaring taxes to fund these benefits and even less satisfied with the way change is proceeding.

Kudos to Governor Schwarzenegger for creating the Commission in the first place. However, for a task so important -- huge dollars at stake and millions of plan participants  -- why keep dreaming that no one will mind a few conflicts of interest, perceived or actual?

Continue Reading...

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In case you missed it, Citizens Against Government Waste (CAGW) released their 2007 Pig Book on March 7. Reminding us all that insane spending of tax dollars DOES occur, a companion report rightly points out that waste likewise diminishes the competitiveness of the U.S. marketplace. Given the work of the Paulson Committee and other advocates of deregulation, excessive outlays should make news beyond CSPAN.

CAGW president Tom Schatz applauded some restraint but urged lawmakers to keep tightening their belts before spending other people's money. Here are a few of the goodies he cites as part of the "2,658 pork projects at a cost of $13.2 billion" included in the Defense and Homeland Security Appropriations Acts for fiscal 2007.

1. $1,190,000,000 for full funding of 20 F-22A fighter jets, which the Government Accountability Office criticized as unnecessary and out of date;

2. $5,500,000 for the Gallo Center to study the effects of alcohol and drug abuse on the brain;

3. $1,650,000 to improve the shelf life of vegetables;

4. $1,350,000 for the Obesity in the Military Research Program; and

5. $1,000,000 for a telescope searching for extra-terrestrial intelligence. >>

Click here to download the 2007 Pig Book in its entirety. As you read, don't forget the words of British historian Lord Acton - "Power tends to corrupt; absolute power corrupts absolutely."

At a time when programs like Social Security and Medicare represent behemoth unfunded liabilities to taxpayers (not to mention more than a few state and municipal pension and health care programs), do we really need a space alien telescope or vegetable research? Decide for yourself next election cycle.

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On February 22, 2007, the President's Working Group on Financial Markets (PWG) released a set of principles and guidelines concerning "private pools of capital, including hedge funds." In concert with various U.S. agencies, the PWG report urges investors, creditors, counterparties, pool managers and supervisors to identify and understand fund-specific risks or walk away.

For fiduciaries, the guidelines (some of which are excerpted below) are clear. Individuals who are unable to demonstrate that a rigorous investigation of risk has taken place, BEFORE investing, put themselves in the line of fire with respect to personal and professional liability.

<< 1. Fiduciaries should consider the suitability of an investment in a private pool within the context of the overall portfolio and in light of the investment objectives and risk tolerances.

2. Fiduciary evaluation should include the investment objectives, strategies, risks, fees, liquidity, performance history, and other relevant characteristics of a private pool.

3. Fiduciaries should evaluate the pool’s manager and personnel, including background, experience, and disciplinary history. Fiduciaries also should assess the pool’s service providers and evaluate their independence from the pool’s managers.

4. Fiduciaries should consider the private pool’s manager’s conflicts-of-interest and whether the manager has appropriate controls in place to manage those conflicts.

5. Fiduciaries should conduct the appropriate due diligence regarding valuation methodology and performance calculation processes and business and operational risk management systems employed by a private pool, including the extent of independent audit evaluation of such processes and systems. >>

It will be interesting to watch what happens. Will some pension decision-makers forego investing in alternatives because the risks are considered too difficult to understand, let alone accept? Who will embrace the challenge and recognize the reality that risk management is an integral part of investment management? You simply cannot select funds without understanding how managers address financial and operational risk. When a fund invests in less liquid and/or complex instruments, the plot thickens.

Click here to read Agreement Among PWG and U.S. Agency Principals on Principles and Guidelines Regarding Private Pools of Capital.

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According to reporter and financial professional Julie Fishman-Lapin, Connecticut could soon become less hedge-fund friendly if state legislators have their way.
In " State readies for a debate on regulation..." (Greenwich Times, February 9, 2007), Fishman-Lapin describes an initiative by Fairfield County Republican John E. Stripp that, if passed, would "require Connecticut-based hedge funds that receive more than $10 million from a pension fund to report the investment to the state banking commissioner within 30 days. The disclosure would include the name of the pension fund, the beneficiary organization and the address of the fund manager." Click here to read Proposed H.B. No. 5102, Session Year 2007 - An Act Concerning Hedge Fund Activity With Respect To Pension Funds.

Democratic state senator Bob Duff cites hedge fund disclosure requirements as part of his overall intent to focus on consumer protection. He will soon introduce a bill that likewise emphasizes disclosure. Click here to read his January 25, 2007 press release.

On December 5, 2006, addressing the U.S. Senate Committee on the Judiciary, CT Attorney General Richard Blumenthal urged federal regulators to increase penalties for fraud, raise the amount of money to qualify investors and adopt federal standards before states take matters into their own hands. Click here to read his remarks. Blumenthal is walking the walk, having formed the Hedge Fund Task Force last fall. The goal? To improve things and hopefully avoid an expensive Amaranth-type meltdown. (See "Hedge hunting season in Connecticut - In the wake of the Amaranth disaster, Connecticut Attorney General Richard Blumenthal seeks to reform the hedge fund industry" by Ellen Florian Kratz, Fortune, October 4, 2006.)

There is so much to write about the hedge fund - pension fund nexus. We will continue to focus on this important topic area. Until then, and in case you missed them, here are a few links to prior blog posts about hedge funds, along with links to some articles about hedge fund risk management and valuation.

Hedge Fund Notables for Pension Investors (December 29, 2006)

Hedge Fund Disclosure - Round Three (November 12, 2006)

Will Private Equity Stay Private? U.S. Dept. of Justice Makes Inquiries (November 5, 2006)

Pensions, Hedge Funds and Disclosure (October 27, 2006)

Legislative Matchmaker: Hedge Funds and ERISA (August 1, 2006)

Survey Shows That Institutional Investors Are Worried (July 28, 2006)

Will Hedge Funds Displace Pension Plans in Court? (July 9, 2006)

Hedge Fund Valuation: What Pension Fiduciaries Need to Know (Journal of Compensation and Benefits - July/August 2006)

Do You Know the True Cost of Your Retirement Plan? (May 14, 2006)

Hedge Fund Basics: Risk, Return and Reality (Family Foundation Advisor - January/February 2005)

Hedge Fund Imperatives (Hedge Fund Manager - December 2004)

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In his July 12, 2006 speech, SEC Chairman Christopher Cox describes soft dollars as "inflated brokerage commissions" and urges reform to ensure their use for research only. "Commission Guidance Regarding Client Commission Practices Under Section 28(e) of the Securities Exchange Act of 1934," issued a week later, sought to clarify the extent to which money managers could properly purchase research without breaching their fiduciary duties to "seek the best execution for client trades, and limit money managers from using client assets for their own benefit." (Click here to access the 63-page file.)

Attempting to promote better transparency in trading costs, the SEC emphasizes "the statutory requirement that money managers must make a good faith determination that commissions paid are reasonable in relation to the value of the products and services provided by broker-dealers in connection with the managers' responsibilities to the advisory accounts for which the managers exercise investment discretion." Another stated goal is to help money managers with pension fund clients avoid ERISA non-compliance as relates to soft dollars.

At a time when Congress is joining the fray about pension fees, little has been said about the SEC's dictate that "Market participants may continue to rely on the Commission's prior interpretations for six months following the publication of this Release in the Federal Register, that is, until January 24, 2007."

January 24, 2007 has come and gone. Where's the fanfare? A topic as important as this merits discussion.

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According to Financial Times reporter David Wighton ("Regulation a threat to New York, report says", January 22, 2007), New York City stands to lose nearly 60,000 jobs over the next five years in the absence of significant regulatory reform. A McKinsey & Company report, commissioned by Mayor Michael Bloomberg and Senator Chuck Schumer, extols the virtues of London and other venues that are considered more user-friendly for derivatives trading and other financial service activities.

Mr. Kevin LaCroix, creator of the informative blog, The D&O Diary, provides a link to the report and some interesting comparisons with the Paulson report that likewise pleads for liberalization of U.S. capital markets.

While free marketeers applaud initiatives that permit capitalism to do its magic of bringing together diverse buyers and sellers, consider some recent statistics from the Conference Board.

1. In 2005, U.S. institutions such as pension funds, insurance companies, banks and foundations controlled $24.1 trillion in assets.

2. In 2005, these institutional giants owned 67.9% of the equity of the largest 1000 corporations versus 61.4% in 2000.

3. In 2005, four companies revealed institutional investor ownership in excess of 70%. In 2004, the number was two and one or none before then.

4. Public pension plans continue to prevail in important corporate matters. Co-author of the 2007 Institutional Investment Report (Report #1400, The Conference Board), Dr. Carolyn Kay Brancato, Senior Fellow and Director Emeritus of The Conference Board Governance Center describes their critical role. "Ten years ago, these funds weren't likely to join in lawsuits or exert pressure in out of court settlements, but now, having been severely burned by the Enron and WorldCom situations, these funds are asserting themselves as never before. In addition, as the election of directors becomes more heated, and as many companies adopt bylaws saying their directors will resign if they don't get a majority of shareholder votes, the voting clout of these activist investors becomes more meaningful."

What does this mean?

As stewards of trillions of dollars of retirement monies, pension fiduciaries must serve as the first line of defense with respect to sniffing out corporate misdeeds or identifying boards that are "oversight challenged." Already tasked with a daunting job, deregulation compels these watchdogs to do an even more rigorous search for red flag issues BEFORE they turn into financial calamities.

This goes back to a recurring theme of this pension blog. Do pension fiduciaries have what it takes? On what basis are they selected? How are they trained? Is there a pension fiduciary who can serve as a Sarbanes-Oxley type "financial expert," someone who understands how to go beyond financial statements to detect possible trouble? Are the right mechanisms in place for pension fiduciaries to gather adequate information about corporate policies, procedures and internal controls AND then evaluate the data in a meaningful way? Are fiduciaries compensated in such a way that encourages their active participation, before the fact? How has the role of lead plaintiff changed in the aftermath of the Private Securities Litigation Reform Act of 1995 and can litigation replace regulation?

I'm not saying that statutory regulation is a panacea. In fact, there is great comfort in being part of a system that permits a vigorous debate about the numerous merits of industry self-review.

As patriot Thomas Paine declared: "Those who expect to reap the blessings of freedom, must, like men, undergo the fatigue of supporting it."

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Some things never change. On November 27, 1994, I wrote an op-ed piece for a local newspaper entitled "A prescription for Social Security" in which I warned of the entitlement mentality and the crushing debt load soon to be foisted upon young people everywhere. According to the editor, my suggestions for funding reform were not well-received, as evidenced by a flood of letters with the same message. "Keep your hands off my federal piggybank" and let someone else pay the price. (Like many others, I am an advocate of phased-in privatization for those who prefer to save on their own.)

Recognition of big problems ahead is certainly not unique to me. In his 1993 book, Generational Accounting: Knowing Who Pays, and When, for What We Spend, Dr. Laurence J. Kotlikoff warns of the great divide between the young and old. In their 2005 book, The Coming Generational Storm: What You Need to Know about America's Economic Future, Kotlikoff and co-author Scott Burns tell a grim tale of what has been chronicled many times before. A disproportionate number of persons are retiring from the work force, leaving those who remain to bear the staggering burden of a "pay as you go" system in the form of Social Security and Medicare.

Published last May, the 2006 Social Security Trustees Report states: "Over the 75-year period, the Trust Funds require additional revenue equivalent to $4.6 trillion in today's dollars to pay all scheduled benefits. This unfunded obligation is $600 billion higher than the amount estimated last year."

New York Times reporter Steven R. Weisman writes that Federal Reserve chairman Ben S. Bernanke is worried too, asserting that "Recent positive trends on the budget were a 'calm before the storm,' to be undone by huge deficits in federal entitlement programs. In "Fed Chief Warns That Entitlement Growth Could Harm Economy" (January 19, 2007), Weisman describes Senate testimony that sounds downright gloomy. "The longer we wait, the more severe, the more draconian, the more difficult the adjustment is going to be."

Unfortunately, as we know too well, attempts at entitlement reform are political folly and so the problem festers with little hope of short-term remedy

There are plausible solutions (hard ones but they do exist) IF only people would give up the ghost of an actual retirement piggybank in Washington, emblazoned with their names. In this case, Virginia - there is no Santa Claus.

Sorry kiddo!

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I live in a lovely town of about 18,000 people. Thankfully, there is little crime other than an occasional act of mailbox vandalism or the theft of holiday inflatables. Credit good-hearted people and a vigilant police force, especially it seems, when it comes to driving. I know this firsthand because I was pulled over the other day for DUIM (driving under the influence of a muffin, blueberry in this case). Apparently, I was swerving slightly to the right even as I drove a cautious twenty-five miles per hour. When I rolled down my window to say hello, the police officer saw the muffin, gave me a warning not to eat while driving and said he was on the lookout for DUI's (driving under the influence). After I thanked him, a bit shaken for the experience, I got to thinking.

Can rules be too rigid and what happens when you cross the line ever so slightly?

These thoughts are not unique to me. The topic du jour in financial policy circles is whether regulation is too heavy-handed and thereby impedes capital market innovation. Just last week, wonk wizard and New York Times columnist Ben Stein queried the wisdom of the so-called Paulson Committee in seeking to redress the "onerous" audit standards attached to Sarbanes-Oxley. (See "So Many Millions, So Little Body Armor", January 7, 2007)

Citing a plethora of option problems on Corporate Boulevard, he asks: "Isn't backdating precisely an example of a failure of internal controls? Haven't we just found out that internal controls are far too lax, not too strict?"

The same question, applied to benefit plan governance, is apt. At a whopping 908 pages, the Pension Protection Act of 2006 has spawned a new industry to decipher the nooks and crannies of this far from simple regulation. Too soon to assess the fallout, one ponders. Could it be too much? If so, what can take its place?

I'm a big believer in industry self-regulation but that begs yet another question. Who represents the "pension industry" and do the players speak with one voice? Arguably, HR has a different perspective than Audit or Treasury. Without a unified world view about what pension governance means, it's hard to imagine a system without mandatory regulation.

Free marketeers will say this is troublesome. The regulatory burden is far from trivial. Real dollars are redirected to activities that may not reap rewards. Perverse incentives arise and the law of unintended consequences results. Look what happened in the UK. In the aftermath of FRS 17, a large number of companies terminated defined benefit plans as quickly as possible.

Then there is the issue of compliance. Many suggest that pension regulatory changes are outpacing the industry's ability to keep up. Does this put a fiduciary in harm's way (the equivalent of swerving slightly while eating a muffin)? You think you're doing the right thing but get "pulled over" nonetheless. How can a decision-maker protect herself (himself) from mounting personal and professional liability?

Here's to pension governance solutions - the sooner the better!

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Similar to many of my peers, I spent the last few days in the same shape as this fella. Anxious now to avoid suspicious coughs or sneezes, I've been pondering what contagion might look like in the pension world. The upshot? Not a pretty picture.

Broadly defined, the spread of bad financial news, like a transmitted disease, moves quickly, has the potential to wreak havoc and is hard to contain once unleashed. This is why policy-makers worry about anything that can accelerate diminished investor confidence and panic market participants into selling off positions they would otherwise choose to hold.

Contagion itself is dangerous but when you consider what some describe as an inevitable convergence towards one global market, with trading that occurs 24/7, the potential for serious harm is real. Continued technological advances, international deregulation and investors' willingness to go offshore promote lightening speed information flow. When bad news hits, it's the shot heard 'round the world. Having worked on three trading desks during volatile times, I know firsthand how quickly things can change.

Taking a page from science, the "butterfly effect" describes how tiny changes can lead to large-scale disturbances. Click here to read about meteorologist Edward Lorenz and his seminal work in chaos theory. Does his notion that the flap of a butterfly's wings in Brazil can set off a Tornado in Texas apply to pensions?

Let's consider some facts.

1. The graying of the global population is real.

2. Life expectancies are climbing in the U.S. and in most developed countries.

3. Countless U.S. and non U.S. government plans are hamstrung by reluctant taxpayers, binding labor contracts and defined benefit plans with fixed terms.

4. Regulatory reform here and abroad has accelerated the need for liquidity.

5. Companies around the world rely on higher return (read higher risk) investments to close the pension gap.

6. Shareholders in U.S. companies are preparing for the worst with the first batch of annual reports that reflect FAS 158 compliance, similar to the FRS 17 effect in the UK. GASB 45 is keeping public plan leaders up at night.

7. Many companies outsource or have global staffs with benefits offered to all.

8. Different country governments and multinational companies alike invest in each other's securities.

Market returns are correlated. Labor mobility exists. Companies buy and sell around the world. News travels fast.

What does that infer? Pension contagion is a real possibility.

Editor's Note:

The World Bank website links to some research papers about financial contagion that may be of interest.

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Strange bedfellows? Maybe not. Here's why.

1. Angelina Jolie has agreed to play the role of Dagney Taggart in the film verson of Ayn Rand's best-selling book, Atlas Shrugged.

2. Christopher Cox wrote a review of Letters of Ayn Rand.

3. Christopher Cox heads the SEC.

4. The SEC just proposed several major changes that potentially impact pension funds' investments in hedge funds, securities issued by companies that comply with the Sarbanes-Oxley Act of 2002 and non-U.S. issuers of equity, respectively.

In addition, U.S. Treasury Secretary Henry Paulson is busy advocating improved regulations in order to promote U.S. competitiveness. His remarks to the Economic Club of New York referenced a forthcoming Conference on Capital Markets and Economic Competitiveness early next year that will address regulatory, accounting and legal issues. He added that the strength of the U.S. economy can be a springboard to reform entitlement programs and "focus on economic and educational policies that will add jobs, improve productivity, and result in tangible income growth for all Americans."

With a new Congress and talk of regulatory investigations and oversight hearings, school's still out on how pension sponsors are likely to fare. At the same time, given the clear and significant link between regulation and pension finance, we all have a vested interest in monitoring what's happening in Washington.

Angelina may do a terrific job at entertaining us as capitalist heroine but it's the lawmakers and chief regulators who are getting the big reviews in pension land. No popcorn