Who Monitors Pensions' Money Managers?

December 1, 2005 (PLANSPONSOR.com) - US Representatives George Miller (D-California) and Edward Markey (D-Massachusetts) have asked the Government Accountability Office (GAO) to investigate whether the federal agencies that enforce pension law have failed to police the consultants and money managers who help decide how pension money is invested.

The law divides the authority for pension plans among three federal agencies that make sure companies are putting enough money into pension funds and are keeping employees informed about the plans.   But the New York Times notes that money managers are regulated by the Securities and Exchange Commission (SEC), which has no authority over pension law.

The regulatory problem has come to light as a series of record-size corporate pension failures has put new burdens on the federal agency that insures private-sector pensions, according to the New York Times.   Specifically, the GAO pointed to the pension plans of United Air Lines (UAL).

Earlier this year the Airline Mechanics Fraternal Association requested that the Department of Labor (DoL) and the Pension Benefit Guaranty Corporation (PBGC) conduct “full forensic audits” of distressed plans, including those of UAL, to look for potential wrongdoing in the management of pension money (See   Airline Union Calls for ‘Forensic Audit’ of United Plans ).  The agencies have not yet launched an investigation.

The GAO also notes that UAL’spension failure came at about the same time as the SEC issued a critical report on the pension consulting business (See  Rules/Regs: Disclose Sure ).   The report, based on an 18-month review, found that more than half the pension consultants in the SEC’s sample were being paid by money management firms, even as they claimed to be screening and selecting money managers objectively on behalf of their pension fund clients.   The SEC referred about a dozen of the consultants to its enforcement division for further action, but it did not name them.  As a result of the investigation, the SEC called for pension consultant disclosure reforms (See  SEC Calls for Pension Consultant Disclosure Reforms ). 

Miller and Markey said they had been asking the SEC whether any of the pension consultants referred to the commission’s enforcement division were used by United’s pension fund, but so far they had not received an answer.

A GAO spokesman confirmed that the request for an investigation had been received and said the GAO would work with the lawmakers on defining the scope and timing of an investigation.