Pension Risk Matters : Pension Risk News & Analysis : Investment Governance, Inc. : Pension Risk & Investment

In the last few years, pension funding levels and 401(k) account balances have fallen dramatically. New disclosure rules, volatile market conditions, investment complexity and mandatory cash contributions are only a few of the many challenges that are unlikely to go away. Not surprisingly, ERISA litigation continues to grow, along with lawsuits related to employee benefit plan governance. Personal liability claims against C-level executives and board members have become the normal.

Join FTI Consulting and the Securities Docket for a timely and informative webinar about the link between employee benefit plan management and shareholder value.

During this 60 minute live event, attendees will learn:

• Why ERISA litigation claims against top executives and board members continue to grow
• How securities litigation and ERISA filings are related and what it means for corporate directors and officers
• What ERISA liability insurance underwriters want clients to demonstrate in terms of best practices
• What steps the Board and top executives can take to minimize their liability
• What investment fiduciary bad practices to avoid
• When to get the CFO and board members involved

The distinguished panel includes (a) Attorney Jim Baker, ERISA litigator of the year for 2012 and a partner with Winston Strawn (b) Ms. Rhonda Prussack, EVP and Fiduciary Liability Product Manager for Chartis (c) Mr. Gerry Czarnecki, governance guru and State Farm Insurance board member and (d) Dr. Susan Mangiero, Managing Director with FTI Consulting’s Forensic and Litigation Consulting Practice in New York.

To register for this March 7, 2012 webcast, click here.

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Please join me and fellow panelists on January 24, 2012 fro. 4 to 6 pm for a topical discussion about pension risk management and governance. Given that the last few years have posed unprecedented challenges for plan sponsors, both corporate and public, as well as their asset managers and consultants, life in employee benefit land will never be the same again. Market volatility, low interest rates, increased scrutiny about carrying out fiduciary duties, calls for better disclosure and greater complexity keep pension decision-makers busy.

Hear what legal and financial professionals have to say about what keeps plan sponsors and their advisors and asset managers up at night and how they can implement best practices for pension risk management within a fiduciary framework.

The roster of speakers who will address both defined benefit and defined contribution plan best practices and concerns include:

• Mr. William Carey, President, F-Squared Retirement Solutions
• Attorney Gordon Eng, General Counsel and Chief Compliance Officer, SKY Harbor Capital Management, LLC
• Dr. Susan Mangiero, CFA, FRM, Risk and Valuation Consultant and Expert Witness
• Attorney Martin J. Rosenburgh, CFA

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There are so many interesting insights and analyses we plan to share. It is hard to know where to begin.

We will resume active blogging on January 1, 2012.

In the meantime, have a wonderful holiday season.

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Since I launched my second blog in early 2011 to discuss risk management and investment best practices for a wider institutional audience beyond pension plans alone, I've seldom posted items in both places. Instead, I've tried to provide unique insights for employee benefit plan decision-makers on www.PensionRiskMatters.com and address broader regulatory, litigation and compliance issues on www.GoodRiskGovernancePays.com.

Today is an exception. I am reprinting my comments about risk management on both blogs because I believe so strongly in the importance of effective risk management as an integral component of investment governance. I hope you enjoy reading my comments, originally published on The Glass Hammer website. For those who are not familiar with the group, check out www.TheGlassHammer.com to learn about this award-winning blog and online community created for women executives in finance, law, technology and big business. See below or click on "Thought Leaders: Prioritizing Risk Management" to read the full text of this commentary about the benefits of risk mitigation well done and the costly consequences of inattention or sloppy practices.

Full Text:

Thought Leaders: Prioritizing Risk Management, July 14, 2011, 1:00 pm

Contributed by Susan Mangiero, PhD, Investment Risk Governance Consultant and Author

For those financial institutions which have yet to grasp the importance of identifying, measuring, managing, and monitoring risks on a comprehensive basis, time may not be on their side. Regulators and litigators alike are forcing change.

There are countless individuals who want better information from their service providers about risk and are prepared to vote with their feet if they don’t get good answers. After all, these institutional investors themselves are confronted with a bevy of new mandates that require transparency. The good news is that change opens the door to business opportunities. Enlightened organizations that have good processes in place and have nothing to hide can differentiate themselves from competitors. Providing clients with education and data tools offers yet another way for asset managers, consultants, banks, and advisors to forge stronger relationships with their pension, endowment, foundation and family office clients. On the flip side, those who are reluctant to explain how they manage their financial, operational and legal risks may lose clients or worse yet, could end up as defendants in a lawsuit.

Pay to play conflicts, questions about hidden fees, state and federal legislation and new accounting rules are a few of the forces at work to ensure that trillions of institutional dollars are in good hands. Effective investment stewardship is no longer a luxury. Recent surveys confirm that buy side decision-makers continue to emphasize governance and risk management for their organizations as well as providers of products and services. Institutional investors can ill afford to lose money after a tumultuous few years. Investment committee members who give short shrift to fiduciary duties could end up being investigated by regulators or sued. According to federal court data, the number of ERISA lawsuits is going up. Factor in investment arbitrations, enforcement actions and “piggyback” securities litigation allegations and it is clear that unhappy investors are not going to accept the status quo.

1. Fiduciary Focus

Besides efforts underway by the U.S. Securities and Exchange Commission (SEC), the U.S. Department of Labor (DOL) has proposed an expanded definition of who should serve as a fiduciary to ERISA employee benefit plans. If adopted, countless more professionals will be tasked with demonstrating procedural prudence when it comes to the investment of over $30 trillion in money from corporate retirement plan sponsors. States are likewise seeking change in the form of trust law reforms that tighten accountability for the investment of monies held by endowments, foundations and charities. The questions now being addressed by judges and arbitration panels relate to “excessive” risk-taking, insufficient diversification, absence of independent assessments of hard-to-value instruments and oversight failures that have led to large losses that might have been highly preventable.

One asset management firm recently settled with the SEC for $242 million over a mistake with one of its risk management models. Another firm just settled with the SEC for $200 million due to problems in the way subprime securities were marked. A few years ago, a Northeast pension plan was sanctioned by the DOL for not having thoroughly vetted valuation numbers provided by one of its hedge fund managers.

When I testified before the ERISA Advisory Council in 2008, I emphasized that having good valuation policies and procedures is essential because it impacts so many decisions having to do with asset allocation, hedging and fees paid.

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I am pleased to announce that I will be speaking in an upcoming live phone/web seminar entitled "ERISA Fiduciaries Under Attack: Key Litigation and Regulatory Developments" scheduled for Thursday, June 16, 1:00pm-2:30pm EDT.

Litigation surveys cite breach of fiduciary duties as a fast-growing driver of ERISA lawsuits involving securities fraud and questions about investment-risk governance and prudence. Economic losses and investment complexity are only a few reasons for continued new rules, regulations and claims.

In addition, significantly increased liability exposure is expected due to the SEC's and DOL's focus on expanding the definition of plan fiduciaries.

Evolving case law is putting plan sponsors and service providers in the spotlight as never before with regard to their investment-related processes. Litigation claims are focusing on who is making the investment decisions, and the due-diligence and other procedures these decision-makers use.

My fellow panelists and I developed this program to guide attorneys through the ERISA fiduciary minefields, address best practices for fiduciaries, discuss practical realities regarding case management and settlement, and recommend action steps for counsel to investment committees, board members and the advisers, consultants, appraisers, custodians and managers who provide products and services to employee benefit plan sponsors.

We will offer our perspectives and guidance on these and other critical questions

• When are plans adopting risk management strategies?
• What should the composition of the investment committee be?
• How may an expanded "fiduciary" definition impact potential damages?
• Does Dodd-Frank affect plan-management concerns?
• How should insurance coverage be reviewed and managed?

After our presentations, we will engage in a live question and answer session with participants — so we can answer your questions about these important issues directly.

I hope you'll join us.

Click for more information or to register for this webinar about ERISA litigation.

Sincerely,

Susan Mangiero, PhD, CFA, FRM

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In "New reporting trend may ultimately put pain in rearview mirror" (Retirement Townhall, March 23, 2011), Milliman Inc. executive Bart Pushaw cites "Big Baths and Pension Accounting" by Susan Mangiero (March 9, 2011) and "Rewriting Pension History" by Michael Rapoport (Wall Street Journal, March 9, 2011) in his discussion about pension plan reporting reform. Specifically, Pushaw talks about the convergence of U.S. Generally Accepted Accounting Principles ("GAAP") with international standards and the likelihood that plan sponsors' earnings "would be automatically increased, and expenses decreased, for future years" because of accelerated "hits" when performance is poor. He adds that a move towards more realistic representation of the funding status of a particular defined benefit plan will encourage the use of liability driven investing ("LDI") as a way to "avoid the significant mark-to-market hits that are expected in the future."

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Five years ago, valuation and risk management professional Dr. Susan Mangiero launched the first blog devoted exclusively to the topic of retirement plan governance and investment best practices. This unique blog, www.PensionRiskMatters.com, continues to serve as a resource for ERISA and public plan trustees, board members, actuaries, advisers, attorneys, auditors, consultants, money managers and regulators who want to explore important ideas about pension risk issues within a fiduciary framework.

Since the inception of www.PensionRiskMatters.com, the challenges that confront retirement plan decision-makers continue to mount. The U.S. Department of Labor (“DOL”) and U.S. Securities and Exchange Commission (“SEC”) each seek to expand the definition and scope of investment fiduciary duties. Pension litigation is on the rise with some lawsuits being certified as class actions and resulting in multi-million dollar settlements. Liability insurance underwriters and federal, state and international regulators are asking tough questions about risk-taking and due diligence. Lawmakers actively examine issues relating to 401(k) fees. Taxpayers worry that more than $3 trillion of unfunded IOUs will strain local budgets. Pay-to-play and other types of conflict of interest investigations grab headlines. Investors worry that bad employee benefit plan economics could roil share prices or thwart corporate mergers.

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