Federal Investigation Requested by Nolan into Potential Mismanagement of Central States Pension Fund Moves Forward
U.S. Rep. Rick Nolan today lauded the U.S. Government Accountability Office’s (GAO) recent decision to heed his call for a comprehensive review of the investment decisions of the Central States, Southeast and Southwest Areas Pension Fund. In June, Minnesota Democratic Reps. Nolan, Peterson and McCollum joined more than 40 colleagues in a letter to GAO Comptroller General Gene Dodaro requesting the investigation following news reports of the apparent mishandling of the Central States Pension Fund investments.
“Big corporations that get into financial trouble should not be permitted to take their problems and failures out on employee pensions – especially while executives collect tens of millions of dollars in golden parachutes,” Nolan said. “I’m pleased that GAO will get to the bottom of this egregious mismanagement, and as part of this investigation, I will strongly encourage them to fully examine the ‘who, what and how’ regarding the 13,000 companies that were allowed to escape their obligation to the fund.”
The lawmakers’ letter listed a series of questions for the GAO to consider, including but not limited to:
· How did the named fiduciaries, the Independent Special Counsel (ISC), and other relevant parties ensure compliance with the consent decree and Title I of ERISA, ensure the Fund received conflict-free investment advice with reasonable fees, and the Fund operated to protect the interests of participants and beneficiaries? Are there instances where behavior was inadequate or in violation of responsibilities? Were investment decisions free of conflict of interest? If not, please identify such investments, the particular conflict(s) of interest and individuals who participated in these decisions.
· For each year from 1997 to 2015, what was the Central States Pension Fund’s investment strategy, how was this strategy set, who implemented the strategy (including any contracted investment managers), and how did the average annual return on investment under this strategy compare to similarly situated pension funds by asset class? How did the rate of return for each asset compare to standard benchmark indices?
· What was the annual asset allocation of the Fund by asset class by year from 1982 through 2015 (in both dollars and as a percent)? Was the overall asset allocation of the Fund altered in 2008? 2009? 2010-2015? What positions were sold during 2008 and 2009? How were the proceeds from these sales reinvested?
· What was the assumed rate of return on future investments by year and by asset class for the Fund from 1982 through 2015? How was the discount rate used to calculate future liabilities adjusted to reflect the historically low interest rates seen in the past ten years?
· Experts believe factors such as stock market losses, industry deregulation, and employer withdrawals contributed to the current critical and declining financial status of the Central States Pension Fund. How and when did the Fund’s investment strategy respond to these factors and were these actions timely and appropriate given fiduciary responsibilities?
· At any point did the Fund’s investment strategy reflect a greater than appropriate level of reliance on aggressive or alternative investments in violation of Title I of ERISA? For example, the Fund invested $1.4 billion in single-A-rated bonds at the height of the 2008 economic meltdown. If so, what was the purpose of such investments and who directed these investment decisions?
· How much of the Fund’s overall portfolio were invested in credit default swaps, collateralized debt obligations, mortgage-backed securities, insured variable rate bonds or other instruments or asset classes in 2005-2010, by year, by instrument or asset class?
· To what extent have the interests of board members of the Fund’s investment advisors been a factor in the investment strategies or decisions made by the Fund? To what extent have the interests of the Fund’s investment committee been a factor in the investment strategies or decisions made by the Fund? Did these decisions expose fund assets to greater than appropriate levels of risk or volatility?