THE GREAT NEST EGG ROBBERIES
- PART I -
Sightings from The Catbird Seat
~ o ~
December 30, 2008
The Scam That Outscams
"The Scam"
By Dan Solin, Huffington Post
The Bernie Madoff Ponzi scheme is generally regarded as the biggest financial scam of all time. I don't agree.
Hedge funds, and particularly "fund of funds," make Bernie's despicable conduct look like small potatoes.
The underlying premise of hedge funds -- outsized returns with no increase in risk--is fatally flawed. Numerous studies have demonstrated the vast majority of these funds do not beat the returns investors could obtain for themselves, by investing in a simple S&P 500 index fund.
It was only a matter of time before these funds started to implode. According to a web site that tracks hedge fund failures, 108 funds at 66 firms have gone of business since 2006. Many more are sure to follow.
While the pitch of hedge funds is a scam standing alone, the "fund of funds" embellished the con. These funds charged 1% or more for selecting and monitoring the performance of "the best" managers.
This scam relied on the gullibility of investors who believe "best managers" is not an oxymoron. The data clearly indicates that it is. If you own an actively managed fund, the odds of it beating its benchmark over 1 year is 1 in 3, over 5 years it's 1 in 5, over ten years it's 3 in 100 and over 25 years it's essentially zero!
How anyone can claim to be able to beat these odds and convince so many sophisticated investors they should pay them to do so, is the poster child for a combination of greed and cognitive dissonance.
Enter the track record of Bernie Madoff. Fifteen years with steady returns of 11%. This was something fund of funds could really sell -- and they did.
Some funds reaped hundreds of millions of dollars of fees for simply forwarding billions of dollars of assets to Madoff. These investors felt privileged to gain access to him and were happy to pay the fund fee, secure in the knowledge that Madoff was being closely monitored.
You know what happened next.
Here's the real scam: How motivated were these "fund of funds" to carefully monitor Madoff's performance? Did they really want to kill the golden goose? Or is it likely they either knew his returns were too good to be true or engaged in "willful blindness" to his fraud?
It would not have been difficult to detect his misconduct. He used an obscure accounting firm. He had no independent custodian. These are major red flags.
Or, they could simply have read a 2001 story about Madoff written by Erin E. Arvedlund in Barron's.
The article was skeptical of Madoff's track record and noted "[T]hree option strategists for major investment banks told Barron's they couldn't understand how Madoff churns out such numbers using this strategy."
Of course, real monitoring would have included replicating Madoff's results. No one has been able to do so....and with good reason.
The real beneficiaries of the scam are these funds. Their rewards dwarfed those received by Madoff.
They are the ones who engaged in the scam that outscams "The Scam."
For more, GO TO >>> Songs of the Whistler; Confessions of a Whistleblower; CV05-00030 - David C. Farmer vs. Harmon - Witnesses: Eric Martinson & Bruce Nakaoka
November 11, 2008
Retirement fund loses
almost $1 billion
8.5 percent quarterly decline increases ERS' unfunded liability
BY GREG WILES, Honolulu Advertiser
The value of the Employees' Retirement System's portfolio fell almost $1 billion during the recent financial market meltdown as stocks plummeted in July, August and September.
The ERS, a retirement fund for state and county employees in Hawai'i, yesterday was told the value of its investments dropped $974 million to $9.87 billion in that quarter.
Over the past 12 months, the plan's assets plunged almost $1.8 billion.
The investment fund's stunning reversal was yet another example of a financial meltdown that has hammered stock portfolios and the retirement savings of individuals. The cratering of markets has produced losses for pension funds across the country, with the biggest, the California Public Employees' Retirement System, losing more than 20 percent in the same period.
The Hawai'i pension plan's results could pose long-term funding issues, but for now, the ERS will have no problem covering about $800 million a year that it pays in pensions to more than 35,000 retirees, survivors and beneficiaries. The plan also did better than many of its public pension fund peers in losing less on a percentage basis during the quarter.
"A lot of plans have lost billions and billions in the value of their portfolio," said Neil Rue, of Pension Consulting Alliance Inc. Rue, appearing before ERS trustees, said it had been a challenging period for investment managers.
But "your portfolio has weathered the crisis better than your peers have."
The ERS' 8.5 percent decline during the quarter was less than the median 9.4 percent drop of other funds.
The report left the ERS trustees hoping for a continued market recovery and improved performance by its money managers.
The ERS doesn't invest the money itself. Instead, it entrusts it to investment managers who put money in holdings ranging from individual stocks and bonds to real estate and timber land.
But like most pension and retirement accounts, it is heavily invested in stocks. A Congressional Budget Office report last month said that nationwide, such accounts may have lost $2 trillion since the beginning of the year.
The numbers are disquieting on a local and national level and may have implications here for state and county budgets because of the way the ERS is funded.
'unfunded liability'
Each year, public employers pay into the fund an amount that's less than what's needed to cover the benefit payments. The rest is made up through the ERS placing the money with investment managers with the goal of producing an 8 percent return each year.
When there is a shortfall in either side of the equation, there is a chance that something known as "unfunded liability" grows. That's the difference between the amount the ERS has and the amount it is projected to owe in future pension payments.
At the end of the 2007 fiscal year, the plan had an unfunded liability of $5.11 billion out of its total liability of more than $15 billion.
That meant the state had funded about 68 percent of its liability, one of the lowest levels nationally.
a look at the future
Yesterday, ERS Investment Committee trustees discussed what continued market turmoil would mean, including whether the state and counties may have to increase their contributions.
They discussed other issues related to the lower return, including having to switch some of the portfolio to shorter-term investments that could be sold to help fund pensions, or looking at more aggressive investments that are riskier but could produce larger returns, they said.
They also were told at least one other government pension plan has broached the subject of increasing contributions.
Last month, the California Public Employees' Retirement System said it might have to seek a 2 percent to 4 percent increase in what state and county governments contribute.
More will be known next month when the ERS actuary presents the Hawai'i plan with its annual report and discusses the plan's funding shortfalls.
October 8, 2008
Retirement accounts have
lost $2 trillion — so far
By JULIE HIRSCHFELD DAVIS, Associated Press
Americans' retirement plans have lost as much as $2 trillion in the past 15 months — about 20 percent of their value — Congress' top budget analyst estimated Tuesday as lawmakers began investigating how turmoil in the financial industry is whittling away workers' nest eggs.
The upheaval that has engulfed financial firms and sent the stock market plummeting is also devastating people's savings, forcing families to hold off on major purchases and even delay retirement, Peter Orszag, the head of the Congressional Budget Office, told the House Education and Labor Committee.
As Congress investigates the causes and effects of the meltdown, the panel pressed economists and other analysts on how the housing, credit and other financial troubles have battered pensions and other retirement funds, which are among the most common forms of savings in the United States.
"Unlike Wall Street executives, America's families don't have a golden parachute to fall back on," said Rep. George Miller, D-Calif., the panel chairman. "It's clear that their retirement security may be one of the greatest casualties of this financial crisis."
More than half the people surveyed in an Associated Press-GfK poll taken Sept. 27-30 said they worry they will have to work longer because the value of their retirement savings has declined.
Orszag indicated the fear is well-founded. Public and private pension funds and employees' private retirement savings accounts — like 401(k)'s — lost about 10 percent between the middle of 2007 and the middle of this year, and lost another 10 percent just in the past three months, he estimated.
Private retirement plans may have suffered slightly more because those holdings are more heavily skewed toward stocks, Orszag added.
"Some people will delay their retirement. In particular, those on the verge of retirement may decide they can no longer afford to retire and will continue working," Orszag said.
A new AARP study found that because of the economic downturn, one in five workers 45 and older has stopped putting money into a 401(k), IRA or other retirement savings account during the past year, and nearly one in four has increased the number of hours he works. More than one-third of these workers have considered delaying retirement, according to the study, which also found that more than half now find it difficult to pay for basic items such as food, gas and medicine.
The hearing came just as workers are receiving — or about to receive — their quarterly retirement savings account statements, which are likely to show disheartening drops in the value of holdings.
Jerry Bramlett, the head of BenefitStreet Inc., a retirement savings plan administration company, said there's a risk that people will overreact to the bad news by pulling their money out of the accounts, which could add to their potential losses.
"For participants with many years of retirement, a drastic abandonment of equity positions in their retirement account will only serve to lock in as-of-yet-unrealized losses. Markets do go up and down, and 401(k) participants must try to think long-term," Bramlett said.
Still, he said workers should do their best to diversify their retirement savings accounts and "perhaps consider less volatile investments."
On the heels of enacting a $700 billion market bailout, lawmakers are searching for ways to help workers who are feeling the ripple effects of the financial crisis.
"What should we be doing to try to find a way to salvage the retirement position of American workers?" said Rep. Dennis Kucinich, D-Ohio, an opponent of the government rescue plan. Congress, he added, "rushed to protect Wall Street in hopes that some benefits would trickle down to workers."
The massive losses have already reopened a bitter and long-running debate about what role — if any — the government should play in helping workers save for retirement.
Some experts argue that the hefty tax subsidies that Congress has put in place in recent decades for 401(k) and other worker-contribution accounts have made people's retirement income less secure by shifting risks, decisions and costs from employers to people who often know little about investing.
"They are fatally flawed," Teresa Ghilarducci, an economist at the New School for Social Research, said of the tax-advantaged plans. "They're too risky, and it's not good policy to have workers run their own retirement plan. They want government help."
Common mistakes workers make include overinvesting in a single stock — often their company's — and participating in funds that carry large fees or involve excessive risk, the witnesses said.
"You cannot tell the participants at the bottom of your fund prospectus, 'Warning: Your psychology may lead you to make irrational choices,'" said Christian E. Weller of the University of Massachusetts Boston.
The current market turmoil adds to an already difficult retirement savings picture for Americans, who are increasingly shouldering the burden of managing and funding their own company-sponsored retirement savings plans as firms eliminate traditional pensions.
Even before the recent downturn, older Americans were on track to continue working longer. Twenty-nine percent of people in their late 60s were working in 2006, up from 18 percent in 1985, according to the Bureau of Labor Statistics. Over the next decade, the number of workers who are 55 and older is expected to increase at more than five times the rate of the overall work force, the BLS reported.
Falling home values and now the decimation of much of their savings could plunge older Americans into period of austerity not seen in decades, Miller said: "The fear factor is huge, and they don't see the availability of resources to them to get well."
Orszag said the situation has little precedent in American history.
"The period that we're experiencing is arguably the greatest collapse in confidence that we've experienced since the Great Depression," he said.
See also: Dirty Gold in Goldman Sachs; Googling for AIG: The American Idol of Greed; Googling for The Great Nest Egg Robberies; Vulture Nests Along Wall Street; Henry Paulson’s Secret Treasury
August 13, 2008
Retiree fund
down $150.2M
Advertiser Staff
The market value of assets in the Hawai'i Employees' Retirement System slid by $150.2 million during the latest quarter as the pension fund had a negative return on investments because of turbulent financial markets.
The pension plan had a negative 1 percent return during the April-June period, a better performance than expected — and better, too, than the negative 1.4 percent median returns of similar plans.
The pension plan ended the quarter with $10.8 billion in assets.
The end of the quarter also marked the end of the fiscal year for the ERS. During the second half of the 12-month period the ERS had negative returns; it ended its fiscal year with assets lower by $730.1 million.
The pension plan provides retirement benefits for state and county workers and employs investment advisers to manage its portfolio of stocks, bonds, real estate and other investments as it tries to achieve an annual return of 8 percent.
For the fiscal year, the ERS had a return of negative 3.4 percent. Its peer plans had a median return of negative 4.4 percent during the period.
Even with the decline in assets the ERS has enough money for now to provide retirement benefits for its more than 100,000 members.
For more, GO TO > > > The Great Nest Egg Robberies - Part II; Citigroup: Vampires in the City; Googling for The Great Nest Egg Robberies; Marsh & McLennan’s Mercer Consulting; CV05-00030-Farmer vs. Harmon - Witnesses: Bernard Madoff, Yukio Takemoto; Eric Martinson; Bruce Nakaoka; Linda Lingle; Ben Cayetano; David Farmer
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March 21, 2004
CONCERNS RAISED OVER CONSULTANTS TO PENSION FUNDS
By MARY WILLIAMS WALSH, THE NEW YORK TIMES
A small but growing part of the $2 trillion in state and local pension funds is being steered into high-risk investments by pension consultants and others who often have business dealings with the very money managers they recommend. After making such investments, a few of these pension funds have come up short, forcing the governments to draw on tax dollars.
The Securities and Exchange Commission is so concerned that it has begun an inquiry into the practices of pension consultants, who serve as gatekeepers for thousands of money managers.
The regulators will find not just financial consultants but a web of intermediaries -- marketing agents, lobbyists, brokers and world leaders -- between pension funds and the investments they choose.
Some play surprising roles. Former President Bill Clinton meets with pension trustees on behalf of the Yucaipa Companies, a private firm that seeks financial returns through social investing. Ehud Barak, the former Israeli prime minister, persuaded the Pennsylvania teachers' pension fund to commit $125 million to SCP Private Equity Partners, a firm that invests in Israeli military technology. New York's former state comptroller, H. Carl McCall, encouraged the Illinois teachers' pension fund to place $20 million in Healthpoint, a private firm that invests in orthopedic devices companies.
Some pension consultants play host to gatherings that showcase such famous people to pension officials. Money managers may pay tens of thousands of dollars to participate and often supply the marquee talent. Consultants, meanwhile, are being paid by the pension funds to track and rate the money managers but may take money from the managers for other services.
Under the consultants' watch, more money is flowing into private or alternative investments, which are not publicly traded like stocks and bonds and whose performance cannot be tracked in any agreed-upon way. Private investment pools attracted virtually no state pension money a decade ago, but the typical state pension fund now has nearly 5 percent of its assets in them, and some states have far more.
Though such unregulated investments offer the potential for high returns, they carry more risk than conventional stocks and bonds. A few governments have lost money. Richard Holbein, a pension consultant in Dallas, put the Arkansas teachers' pension fund in touch with Andrew S. Fastow, then chief financial officer of Enron, who was pitching investments in one of Enron's off-balance-sheet entities. Arkansas committed $30 million and may have lost it all.
Another of Mr. Holbein's clients, the Louisiana teachers' pension fund, committed an unusually large part of its portfolio to private equities and other alternative investments at his recommendation. Because of recent losses, Louisiana and its taxpayers must contribute $589 million to the pension fund -- $147 million more than last year.
Louisiana fund officials and Mr. Holbein say that private equity tends to be a volatile investment with unexpected swings from year to year, but the overall approach remains sound and does not present a long-term problem for the fund.
In other cases, pension money is landing in investments that deduct big fees. Some of the costs may not be clearly disclosed, and some may be wholly unnecessary.
The Chicago teachers' pension fund was about to commit $35 million to a Boston real estate partnership last December when one official noticed that nearly 2 percent of the money would go to the consulting firm of Edward M. Kennedy Jr., the senator's son, which the real estate developer had retained to market the investments. Normally, pension funds are not billed for marketing fees. The teachers' fund refused to pay and was permitted to invest anyway.
Specialists say the structure of public pension funds leaves them particularly vulnerable. Fund boards are responsible for investing hundreds of millions of dollars, but only the biggest ones can afford professional investment staffs. Public trustees are often drawn from the ranks of firefighters, teachers and other public employees whose retirements they are protecting. They often have little financial training and are expected to serve as volunteers. Most public funds therefore rely heavily on consultants, even though the consultants may have business ties with the very money managers they are supposed to help select.
''In my opinion, there is a mismatch,'' said Brian N. Minturn, who was fired last year by the Louisiana teachers' pension fund. He said he was dismissed after he raised concerns that the prominent Dallas investment firm of Hicks, Muse Tate & Furst was plying the trustees and their consultants with food and drink, and taking them on golf excursions, hunting trips and other outings that he thought distracted them from their fiduciary duty to vet investments prudently. An ethics panel ultimately found that some pension officials, Mr. Holbein and Hicks, Muse had violated state ethics laws.
''On the side of the pension fund, you may have food-service workers on $35,000 a year, and they never get to do any of this kind of stuff,'' he said. ''And on the side of the alternative investments, there is very high-powered talent, and very strong motivations, to go out and get whatever you can.''
What the investment community wants, of course, is big blocks of money.
''If you look at where the money is, it's kind of what Willie Sutton said about why he robbed banks,'' said Mr. Minturn, who once worked for Fidelity Investments and the Invesco funds. ''Pension funds are just these huge piles of money.''
Consultants and many pension fund officials say that they are not being swayed by business relationships, and that private equities are an important tool in their portfolios, when used in moderation.
''Our board does believe in diversifying our portfolio into some active investments that are riskier,'' said Brad Pacheco, a spokesman for the California state employees' pension fund, known as CalPERS. ''They do it to add value to the fund.'' In some cases, pension officials say they also choose alternative investments to achieve other goals, like local development.
Mr. Minturn and some other concerned pension specialists said they had no objection to private investment partnerships per se, but questioned the appropriateness of investing public pension money in them. Because the assets are not publicly traded, they cannot be sold quickly to raise cash; they have no listed price, and their performance cannot be tracked or evaluated in conventional ways. They also involve fees much larger than those for publicly traded stocks or simpler investments. They sometimes generate large profits, but not always, and the partnerships are usually structured so that the outside investors -- like pension funds -- bear most of the risk.
A few states and municipalities bar pension funds from investing in private equities. Most states limit these investments to a small share of their portfolios. Data compiled by Wilshire Associates, the investment advisory company, suggests that the average state pension fund had 4.7 percent of its assets in private equities last year.
By Wilshire's count, the Louisiana teachers' pension fund had 18 percent of its portfolio in such investments last year. But when its total commitment over time to various private partnerships is calculated -- and the state cannot really back out of these pledges -- Louisiana had at one point committed 42 percent of its assets to what it calls ''alternative investments,'' according to state pension plan documents.
Mr. Holbein said that Louisiana's investment problems were unforeseeable. Though some individual private equity funds may falter, he said he believed that they could produce higher returns than publicly traded stocks on the whole. He advocated a high level of alternative investments for Louisiana, he said, because a state law requires the teachers' pension fund to accumulate money quickly to reach full funding. More conservative investments will not provide adequate gains, he said.
In December, the S.E.C. sent 12-page letters to about two dozen pension consultants, requesting extensive information about what they do for pension funds, how they are paid and how their pension work may conflict with their other business operations. The agency appears to be trying to learn how often pension consultants work for both sides of the table, receiving compensation from their pension clients and money managers. Lori A. Richards, director of the commission's inspections unit, said the study was still in progress and the commission had not drawn any conclusions.
Pension consultants sort money managers into asset classes and build databases using their own criteria to help trustees compare and select managers. Some consultants also sell their databases and tracking software to money managers and even sell advice on how to achieve higher rankings.
A 2002 audit of Hawaii's pension fund found that its consultant, Callan Associates, had recommended 16 money managers over time -- and 14 of them were paying Callan for marketing advice and other services. ''The consultant's objectivity could be suspect,'' said the state auditor, Marion M. Higa, calling for further scrutiny. She noted that the Hawaii fund's overall five-year investment performance ''ranks in the bottom 5 to 15 percent nationwide.''
A Callan spokeswoman said that Hawaii's trustees stood by Callan after the audit, issuing a statement calling it ''a highly regarded investment advisory firm with an unblemished reputation for integrity.'' In a statement, Callan said that it kept its various business lines separate and that it told all money managers that they would not win preferential treatment from Callan's pension consultants by buying other Callan services.
Early this year, Wilshire Associates took steps to make its pension consulting work more independent of its other lines of business, and the leader of its consulting and asset-management units left the firm. ''Wilshire has never participated in 'pay to play,' '' a spokeswoman said.
Many consultants hold educational conferences for pension trustees. The trustees pay a modest admission fee or none at all; the costs are borne by money managers, who pay tens of thousands of dollars for the chance to attend and meet the trustees. The more they pay, the more influence they tend to have over content and the more access to trustees, from leading workshops to closer seating assignments.
CRA RogersCasey, a consulting firm, charges money managers $35,000 to $40,000 to send two representatives to its gatherings, which take place at resorts and in the past have featured speakers like retired Gen. H. Norman Schwarzkopf; Colin L. Powell, now the secretary of state; and Mary Matalin, the Republican political strategist.
Mercer Investment Consulting, a large firm that is a unit of the Marsh & McLennan Companies, charges money managers $35,000 to $58,000 a year to attend its conferences. This month, Mercer sent a letter to its clients, telling them it had complied fully with the S.E.C.'s request for information and outlining its other business activities, like software sales and investment conferences.
''Making these products and services available to the broader investment community does not in any way impact our objectivity,'' the letter said.
Bill Clinton addressed at least two public trustees' conferences last year and was well received, said Jack Silver, a former trustee of the Chicago teachers' pension fund who attended both. Mr. Silver has been an outspoken critic of the undisclosed business relationships of pension intermediaries, but he said Mr. Clinton made useful remarks about the economy -- not a sales pitch -- and that the trustees benefited from his appearance. So, he added, did Mr. Clinton's sponsor, Yucaipa. ''It's marketing,'' Mr. Silver said. ''When you have somebody like him, people remember.''
Yucaipa's managing partner, Ronald W. Burkle, is a billionaire and has been a substantial donor to many politicians, including Mr. Clinton and several past and present trustees of Calpers. In 2001, Calpers voted to commit $450 million to three Yucaipa private investment funds, which are designed to generate returns and societal benefits, by financing neglected businesses in poor neighborhoods and companies that treat workers conscientiously. Calpers' most recent annual report showed that these funds have drawn about $51 million in total investments and related fees, and have so far not produced returns.
A Calpers spokesman said that private investment funds routinely draw on the partners' capital in the first few years, and pay returns only later. He also said the commitment to Yucaipa's funds is only a small part of Calpers's $164 billion portfolio. Yucaipa said its fledgling investments were poised to bear fruit, but it could not provide additional information last week.
Some pension officials say they find the out-of-office politicians useful liaisons. Jon Bauman, the executive director of the Illinois teachers' pension fund, said his board had been considering an investment in Healthpoint when Mr. McCall became vice chairman. His arrival ''added to a favorable opinion,'' Mr. Bauman said.
See also: Aloha Airlines: Flying with the Bankruptcy Buzzards; CV05-00030 - David C. Farmer, Trustee vs. Harmon - Witness: David Farmer
July 5, 2008
Employers use federal law
to deny benefits
By Mark Sherman, Associated Press Writer
Workers - and some judges - frustrated in legal fights
over benefits with large employers
WASHINGTON (AP) -- Dying of cancer, Thomas Amschwand did everything he was told to make sure his wife would collect on the life insurance policy he had through his employer.
"He was obsessed with dotting every `i' and crossing every `t'," Melissa Amschwand-Bellinger recalled about her husband, who died in 2001 at age 30.
But Spherion Corp., the temporary staffing company where Amschwand worked, told Amschwand-Bellinger she would not receive any of the $426,000 in benefits she believed she was due. When she went to court, Spherion succeeded in getting her lawsuit thrown out. The Supreme Court on June 27 refused to review the case.
Amschwand-Bellinger received a refund of the few thousand dollars in insurance premiums she and her husband dutifully had paid. The total, she said, would not cover the costs of his funeral.
The story has played out often under the federal Employee Retirement Income Security Act. Designed to protect employee benefits, the law has been used by employers as a shield against suits.
Federal appeals courts, interpreting Supreme Court decisions dating to 1993, consistently have said companies that offer health, life and retirement benefits under ERISA cannot be sued for large amounts of money, or damages. Instead, they can be sued only for typically smaller sums such as Amschwand's insurance premiums.
Several federal judges have bemoaned the unfairness even as they have felt constrained to rule in favor of employers.
"The facts ... scream out for a remedy beyond the simple return of premiums," Judge Fortunato Benavides of the New Orleans-based 5th U.S. Circuit Court of Appeals said in the Amschwand case. "Regrettably, under existing law it is not available."
The Bush administration has argued that the appeals courts are misreading the precedents and has asked the high court at least twice to clarify the earlier rulings. So far it has refused.
Congress, which could amend ERISA to make clear such suits are allowed, also has taken no action.
The result, in the view of ERISA experts, the administration and some lawmakers, is perverse.
"The beneficiary under the policy didn't get the promised benefit," said Colleen Medill, an expert on ERISA at the University of Nebraska-Lincoln. "To say we're just going to return your premiums, that's a total farce. That's not what they paid the premiums for. They paid them for the benefits."
Sen. Patrick Leahy, chairman of the Senate Judiciary Committee, said at a recent hearing that before ERISA became law, employees clearly could sue for benefits in state courts.
The court rulings, said Leahy, D-Vt., have left people "more vulnerable than they were before the law was passed."
Spherion's decision to deny benefits to Amschwand-Bellinger turned on an odd set of facts. Spherion, which employs about 300,000 people, switched insurers after Thomas Amschwand was diagnosed with a rare form of heart cancer. The new policy did not take effect until an employee worked one full day. Spherion never informed Amschwand of the requirement.
Amschwand asked repeatedly whether there was anything else he needed to do and was told no. He asked that the new policy be sent to him. Spherion never did so.
He died without returning to work. His widow said he easily could have worked a day if that was what it took to activate the new policy. Spherion could have waived the one-day-of-work provision, as it did for other employees but not for Amschwand.
Spherion spokesman Kip Havel issued a brief statement when contacted by The Associated Press after the high court declined to review the case. "We are pleased the court has made its decision and the matter has finally been resolved," Havel said.
The court also recently turned down an appeal from Louis Gerard "Gerry" Goeres, who sued Charles M. Schwab & Co. over hundreds of thousands of dollars in retirement plan benefits.
For 16 months, Schwab mistakenly refused to acknowledge Goeres as the beneficiary in the retirement plan of his domestic partner, Stephen Ward, a Schwab employee who died in 1999. By the time Schwab acknowledged its error, the value of the account had declined by more than $500,000. Goeres sued for the rest. Federal courts dismissed the suit. "Unfortunately, legal relief is not available," U.S. District Judge Charles Breyer said in ruling against Goeres.
"You know the Schwab commercial, `Talk to Chuck?'" Goeres said. "I thought if Chuck knew this, he'd say, 'Oh my God, this is so wrong.' I live on naive dreams."
Schwab said in court papers that Goeres could have taken legal action soon after Ward's death, when he first was told he was not the beneficiary.
Amschwand-Bellinger said the cases show the need for either the court or Congress to provide "some sort of meaningful remedy for employees when employers have a breach of fiduciary duty."
A Texas native who lives in an unincorporated Houston suburb, she has since remarried and has an 18-month-old daughter. She is president and executive director of the Amschwand Sarcoma Cancer Foundation, which she founded with her first husband.
She recognizes that she is more fortunate than many others who have fought similarly futile battles for benefits under ERISA. "What if we had had children and I was a stay at home mom?" said Amschwand-Bellinger, who previously worked for a public hospital system. "What if I was 60 years old, with no skill sets, and I had to go back to work?"
http://biz.yahoo.com/ap/080705/benefit_battles.html
June 28, 2008
Your retirement fund may be to blame for gas prices
By Matthew Perrone, Associated Press
WASHINGTON — All those speculators getting the blame for driving up the price of oil these days — just who are they? For part of the answer, look in the mirror.
The retirement savings of workers across the country, entrusted to pension fund managers, are being plowed into one of the few investments that has delivered phenomenal returns in recent years.
For decades, futures contracts were mostly traded by commodity producers and the people who use the actual products, such as crude oil, corn and soybeans. Agreeing to a price today for a commodity to be delivered in, say, two months is a way to smooth out price fluctuations for those supplies.
But large investors faced with inflation have increasingly used them as protection against the falling dollar. That includes pension funds, along with investment banks, mutual funds and private hedge funds.
Research firm Ennis Knupp and Associates says $139 billion had been funneled into energy commodities, primarily crude oil, by the end of March — and it estimates that more than half of that is from retirement money.
The investments have paid off. The Standard & Poor's GSCI index, which tracks a basket of commodities, is up 19 percent in the past five years, compared with just 9 percent for the S&P 500 stock index.
The risk is that if the remarkable run in oil and other futures markets reverses course, billions of dollars of retirement benefits could be wiped out.
"A pension fund is supposed to be investing money in secure, stable investments for the benefit of the people whose money they are investing," said Dan Lippe, an energy analyst at Houston-based Petral Consulting Inc.
"When we hit that wall and things start falling," he said, "they will fall very fast, and the pension funds that invested in commodities will see a tremendous loss of value."
The retirement system for public employees in California, the nation's largest, has $1.3 billion invested in commodities.
That's still just 0.5 percent of the fund's total $240 billion in assets, said Michael Schlachter, who advises the fund. He said a collapse in oil or other commodity prices would have little effect on retirees.
Still, a growing chorus of experts is convinced retirement investments are enough to distort prices.
Billionaire George Soros, the airline industry and the International Monetary Fund are all pressuring Congress to curb speculation by large investors, and action may come by August.
"Your pension fund manager may be using your retirement money to drive up the price of oil," said Rep. Bart Stupak, D-Mich., at a hearing this week.
"What would happen if pension fund managers decided to increase their commodity investment by another 20-fold?"
In 2002, when the stock market swooned after the dot-com crash and 9/11, retirement assets dropped $7 billion, losing 8 percent of their value.
Speculators put money into commodity markets simply to make money on investments — unlike commercial investors, who are actually buying or selling orders for physical goods.
Energy analysts say it's unclear what effect speculators have had on oil prices, which climbed briefly to a new record above $142 yesterday before easing.
But Stupak and other lawmakers already have more than a dozen proposals to rein in commodity trading, including limiting how many contracts speculators can hold.
Schlachter, who is also managing director for investment consulting firm Wilshire Associates, said pension funds should not be compared to Wall Street speculators, who take huge risks every day to maximize returns.
"The pension plans we work with are using commodities only as a long-term hedge against inflation," he said.
Unlike the stock market, where there are a limited number of shares of each company, futures markets have no limits on contracts available. As long as a buyer can find a seller for each contract, investment opportunities are virtually unlimited.
Critics say retirement funds that accumulate contracts are artificially driving up commodity prices.
In the case of oil, that means higher prices for gas, food and other goods.
"If they're going to be in the futures market, they need to trade rather than take this buy and hold strategy," said Michael Masters, portfolio manager of hedge fund Masters Capital Management. "That is the worst possible thing for the futures market."
http://www.kentucky.com/216/story/446285.html
November 25, 2007
Benefit change, bonds
may be in pension fix
Ky. panel studies funding shortfall
By Stephenie Steitzer, The Courier-Journal
FRANKFORT, Ky. -- The solution to Kentucky's public pension crisis could include issuing bonds to cover previous funding shortfalls and reducing benefits for future hires.
Both will likely be among the recommendations of a special commission studying the state's pension problem.
The final report is expected to be released Jan. 1, in time for the General Assembly session, where shoring up an estimated $18 billion shortfall in the retirement systems for 432,000 state employees, teachers and retirees likely will be a major priority.
If nothing is done to address the shortfall in the pension funds, they are expected to be broke by 2022 -- a scenario that would leave the state unable to issue pension checks to retirees and pay for their health care.
Commission members -- who represent government, employees and other related fields -- told The Courier-Journal they largely agree that a necessary first step is issuing bonds to replenish pension funds that for several years have received less funding than experts recommended.
The amount of bonds could be as little as $500 million and as much as $1.5 billion, said Personnel Cabinet Secretary Brian Crall, the commission chairman.
"We believe through bonding we can bring them up to full funding," said commission member Brent McKim, who represents the Kentucky Education Association.
The idea is to borrow money at a lower interest rate than would be expected once the money is invested by the retirement systems....
But Williams' plan includes a controversial proposal to eliminate traditional pension plans for new hires and move toward a system that mirrors the 401(k) plans widely used by private businesses....
"I hope most members now understand it's a dumb idea," said Bill Hanes, retired executive director of Kentucky Retirement Systems and a commission member....
Two of the more controversial proposals include reducing the cost-of-living adjustment and increasing the age or years of service before retirees qualify for full benefits.
Representatives of employee and retiree groups argue that because health care is the culprit for the crisis, changing other benefits is not necessary.
And, they say, it takes away appealing incentives for people to work for government, where salaries are generally lower than in the private sector.
"Throughout the hearings we've heard consistently it's not a pension problem, it's a health-care problem," said commission member Lee Jackson, who represents the Kentucky Association of State Employees. "So what are you going to do on the health-care side?"
But those in favor of reducing benefits for future hires say that making employees work longer will address health-care costs because the state pays a portion of insurance premiums from the time workers retire until they are eligible for Medicare....
Crall said other states have required more years of service to reduce costs.
"Get employees to work longer so they don't draw on the health insurance earlier," he said....
June 11, 2007
Public pension funds take
a risky gamble
Looking for the spectacular return, many are investing in heavily
hyped, oh-so-dangerous portions of the debt market.
Ultimately, that market is going to melt down.
By Bill Fleckenstein, MSN Money Central
I'd like to continue my focus on the debt market -- because, without the incomprehensible complacency in all of its sectors, we would not be seeing the lunacy now on display in the equity market. I've already discussed how the world's central banks, by printing their own money to suppress their own currencies, have wound up owning trillions of dollars' worth of U.S. Treasurys.
The nightmare in retirement dreams
Now I'll turn my attention to those who have been gullible enough to buy the sliced-and-diced mortgages that found their way into collateralized debt obligations (CDOs) and other exotica. A synopsis of what's happening in that arena was recently penned by Bloomberg writer David Evans in a story titled "Banks Sell 'Toxic Waste' CDOs to Calpers, Texas Teachers Fund."
It begins: "Bear Stearns Cos., the fifth-largest U.S. securities firm, is hawking the riskiest portions of collateralized debt obligations to public pension funds."
Evans explains: "Worldwide sales of CDOs -- which are packages of securities backed by bonds, mortgages and other loans -- have soared since 2003, reaching $503 billion last year, a fivefold increase in three years. Bankers call the bottom sections of a CDO, the ones most vulnerable to losses from bad debt, the equity tranches. They also refer to them as toxic waste because as more borrowers default on loans, these investments would be the first to take losses. The investments could be wiped out."
At a recent presentation to pension managers, a Bear Stearns shill described the bottom rung of the CDO ladder as follows: "It has a very high cash yield to it. . . . I think a lot of people are confused about what this product is and how it works.''
I'm sure that's the case, but not in the way the Bear Stearns marketer meant it.
At the presentation, she likened CDOs to financial institutions in terms of having strict oversight: "The outside agencies that oversee these structures are the rating agencies,'' she said.
However, her comment drew the following from Gloria Aviotti, managing director of global structured finance for rating service Fitch: "It's not accurate. We don't provide any oversight.'' That view was echoed by Yuri Yoshizawa, group managing director of structured finance at another rating service, Moody's Investors Service: "It's a common misperception," he said. "All we're providing is a credit assessment and comments.''
Thus, the ratings agencies are trying to have it both ways: They want to be paid to rate these structures so people will feel good about them. But they're also trying to say: If they blow up, don't blame us, as we're really not doing any work.
Bloomberg's Evans noted the motivation of the buyers: "Many pension funds, facing growing numbers of retirees, are still reeling from investments that went sour after technology stocks peaked in March 2000."
So, because the funds took too much risk or weren't competent, or both, they got themselves into a hole. Now they're attempting to dig themselves out by reaching for yield in the form of debt that's been ginned up and blessed by the ratings agencies. I would not be surprised to find out that these pension funds are the biggest subscribers to high-risk leveraged buyout (LBO) funds, as well.
Marketing serpents pitch to civil servants
Next, Evans quoted Chriss Street, treasurer of Orange County, Calif. (The county, for those who don't know, went bankrupt by over-leveraging itself during the infamous 1994 version of the carry trade.) Said Street, regarding the appropriateness of public funds investing in equity tranches, the diciest of all mortgage paper:
"It's grossly inappropriate to take this level of risk. Fund managers wanted the high yield, so Wall Street sold it to them. The beauty of Wall Street is they put lipstick on a pig. . . . Very few pension plans could meet their fiduciary duty by buying portfolios of subprime loans. They (Wall Street) spiked up the yield, but that yield means nothing when the defaults start to mount, as we know they will. The funds will take big losses."
Is your pension safe?
Many companies are freezing or dropping pensions. Here's what to do if it happens to you.
Those losses will be enormous, and we'll see an incredible witch hunt when these pension funds are left holding the bag, even though they brought it on themselves.
As I noted at the beginning, a variation of this theme is going on in the funding of all the junk debt being created for the current LBO craze. However, knowledgeable people have told me that we're starting to see some covenant tightening and higher coupons, as deals already announced are being finalized via bond financing. At some point, even though some of those deals have been announced, they actually won't be funded (a la what happened in 1989 with United Airlines).
As to which deals meet that outcome, I don't know, but I have no doubt that LBO artists will go too far. It doesn't take much imagination to see why once the music finally stops, we will face a litany of problems like we've never seen before.
Ultimately, the debt market is going to gag. That will certainly end the equity party (though other things could end it, as well), and this LBO mania will be over.
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July 1, 2006
Bear Stearns: Let’s Throw in the Ace (Greenberg)
The Bear Stearns Companies, Inc. is the parent company of Bear, Stearns & Co. Inc., one of the largest and best-known global investment banksand securities trading and brokerage firms in the world. The company was founded in 1923 and serves corporations, institutions, governments and individuals. The company's business includes corporate finance, mergers and acquisitions, institutional equities and fixed income sales, trading and research, private client services, derivatives, foreign exchange and futures sales and trading, asset management and custody services. Through Bear, Stearns Securities Corp., it offers global clearing services to broker dealers, prime broker clients and other professional traders, including securities lending.
The former CEO of Bear Stearns was Alan (“Ace”) Greenberg, currently chair of the board, and is the cousin of