Weekend - DOL Blotter - Enron Flashback

It was a slow news week at the Department of Labor's EBSA enforcement division - so this time we will take this opportunity to review some Enron-related goings on in February and March 2008 which actually related to Hewitt, the behemoth HR outsourcer. This issue has largely stayed out of the mainstream media news coverage.

On February 7, 2008, the DOL posted a news release on it's website: "U.S. Labor Department seeks contempt order against Hewitt over improper distribution of assets from Enron litigation settlement fund." The news release claimed:

The U.S. Department of Labor today announced that it has asked a federal district court in Houston, Texas, to hold Hewitt Associates LLC in civil contempt for failing to comply with an allocation formula approved by the court when it disbursed court-supervised settlement funds to Enron employees at the end of 2006. The proposed motion for civil contempt must be approved by the U.S. District Court for the Southern District of Texas.

Hewitt caused the settlement fund to have insufficient cash to pay Enron workers, retirees and beneficiaries all amounts due them. The fund holds recoveries obtained by the department and class-action plaintiffs in related lawsuits regarding Enron's pension plans. Even with other corrective action being undertaken by parties to fix the misallocation, there will be a $9.15 million shortfall in the settlement fund as a result of Hewitt's noncompliance with the court-approved allocation formula. Hewitt served as the administrator for the settlement fund.

"This department has been relentless in seeking to protect the retirement security of America's workers and their families," said U.S. Secretary of Labor Elaine L. Chao. "With this legal action we are seeking to ensure that the pension plan participants receive all the funds they are entitled to."

Hewitt did not perform the allocation correctly and some participants received too much in settlement proceeds at the expense of the remaining participants — amounting to $22 million being overpaid. The settlement fund now has insufficient funds to pay the correct amounts to participants who were underpaid.

The Labor Department asks the court to require Hewitt to provide funds sufficient to permit the allocation of settlement funds in accordance with the allocation formula approved by the court. The department also asks the court to prohibit Hewitt from collection, repayment and other actions against participants who received overpayments without the court's permission. The department's motion is in addition to a separate motion filed by Enron to hold Hewitt 100 percent responsible for an interest-free loan to Enron's pension plan for the full amount needed to make whole the underpaid participants.

Then, inside of one month, the DOL posted this news release: "Hewitt and Enron to restore $11.2 million to Enron litigation settlement fund"

Thus bringing an end to the sordid pension drama (just kidding). The news release quoted Secretary Chao stating that this settlement will result in "...all pension plan participants will receive all the funds to which they are entitled."

What was left unaddressed was what about the participants who were overpaid?

Preserving Your Pensions in Tough Times - NPR Interview

Teresa Ghilarducci, Professor of Economics at Notre Dame was featured on NPR's Fresh Air radio program on July 7th. You can listen to the entire interview at the title link above or by clicking here. Ms. Ghilarducci was promoting her new book titled "When I'm Sixty-Four: The Plot Against Pensions and the Plan to Save Them."

This is a great radio program, and undoubtedly will be a great book to read. I look forward to reading it and writing something about it as soon as I get a chance. Here's the introduction from the NPR website:

"Stock and bond funds in 401(k) accounts took a hit this past quarter, and many people are worried about their retirement funds. Economist Teresa Ghilarducci addresses financial concerns about retirement and offers her own solution to the pension problem.

Ghilarducci is a professor of economic policy analysis at the University of Notre Dame, where she specializes in pension benefits. She is also the director of the Higgins Labor Research Center and a Wurf fellow at the Labor and Worklife Program at Harvard Law School.

Her latest book, When I'm Sixty-Four: The Plot Against Pensions and the Plan to Save Them, proposes that pensions should be managed by the federal government rather than Wall Street."

I am going to try and stay out of this political debate for a bit, but I can't help but comment that as a Democratic sweep of the upcoming general elections becomes more apparent over the coming months, I can start to hear the drumbeats getting louder calling for greater legislation on Wall Street.

Business Week - 2008 Retirement Guide

Business Week's 2008 Retirement Guide is out this week. As expected from a magazine of this stature, it was fairly well put together. The tone of the headlines seems to reflect the dour mood prevailing in the financial economy, and in some ways a tad alarmist, starting right from the headlined article.

"Retirement Strategies for Tough Times"

"Will You Outlive Your Money?"

"How to Enjoy a Scam-Free Retirement"

and one chock full of cautionary tales:

"Ruined by 401(k) Predators"

"Will You Outlive Your Money" visits the familiar topic which we have covered before in "WSJ Report - How to Bulletproof Your Nest Egg." Notable by their absence, are any references to the new payout mutual funds developed by Vanguard and Fidelity. These funds offer the retirement-stage investor the ability to cheaply obtain a regular income stream without paying the higher fees typically associated with retirement annuity products.

Vanguard's products called "Managed Payout Funds" are based on a given investor's appetite for risk, whereas, Fidelity's product called "Income Replacement Funds" are similarly structured with the biggest difference being their emphasis on "target dates" kind of like target date date portfolios in reverse.

One great article mentioned in the 2008 report is, "Target-Date Funds Hit Their Stride." Some interesting factoids on target date funds:

• Assets collectively hit $204.2 billion at the end of May 2008, as compared to $116 billion last year
• Funds managing for a 2020 retirement date snagged the largest share of target date assets
• Exposure to international equities increased from 7% in a typical fund in 2005 up to 17% in 2007
• Exposure in REITs has also increased with AllianceBernstein target date funds allocating up to 10% of their assets in this asset class
• Hedging strategies are also turning up in this class of funds, with TIPs and commodities (the "usual" hedges), along with Bank of America's funds considering some exposure to Asian currencies, nuclear power and water.