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Los Angeles Times
June 29, 2007 Friday Home Edition
Conflicts of interest may hurt pension plans; Unreported business dealings can affect consultants' advice and drive down returns, a federal agency finds.
Jonathan Peterson, Times Staff Writer
WASHINGTON
Undisclosed conflicts of interest by pension consultants could be taking a bite out of your retirement plan.
In a report released Thursday, the Government Accountability Office said such conflicts appeared to drive down annual returns for traditional pension plans by 1.3% a year.
Pension consultants advise pension plans on a range of matters, such as investment goals, where to allocate assets and whom to use as money managers. Conflicts may arise if a consultant's advice is influenced by other, unreported business dealings.
Though lower returns are borne by the employer in such pensions, they can add up significantly over time and ultimately lead to benefit cuts, said lawmakers who requested the report.
The findings are the latest piece of evidence that retirement savings may be affected by business decisions made in pursuit of fees and profits rather than the worker's best interest. They follow congressional hearings on the effect of hidden fees and conflicts on 401(k) plans, and seemed likely to stir new calls for stricter oversight of the business arrangements that may affect retirement savings.
"Our overarching concern when it comes to hidden fees or conflicts of interest is this: Are the people entrusted with managing other people's money held to the highest possible ethical standard?" asked Rep. George Miller (D-Martinez), chairman of the House Committee on Education and Labor. "Are they looking to serve the best interests of the pensioners, or are they looking to line their own pockets? That's what this is all about."
Miller is preparing legislation that would address concerns about conflicts of interest and hidden fees in retirement plans, including traditional pensions and 401(k) plans.
In the report, government auditors described the lower returns as "suggestive" of the effect of undisclosed conflicts but stopped short of saying there was an absolute connection. The finding "nevertheless illustrates the importance of detecting the presence of undisclosed conflicts of interest" in pension plans, the GAO said.
The study built on a 2005 analysis by the Securities and Exchange Commission, which scrutinized the dealings of 24 pension consultants and concluded that 13 had conflicts that should have been revealed.
For example, the SEC found that pension consultants were often affiliated with brokerage firms that provided brokerage services to the consultants' client pension plans. It also found that pension consultants sometimes charged money managers to attend conferences and sold them software.
"Concerns exist that pension consultants may steer clients to hire certain money managers and other vendors based on the pension consultant's (or an affiliate's) other business relationships and receipt of fees from these firms, rather than because the money manager is best suited to the clients' needs," the SEC said in its analysis.
At the request of Miller and Rep. Edward J. Markey (D-Mass.), the GAO tried to figure out whether such conflicts cost people money.
Based on the finding, Miller said in a statement that there was "potentially a significant cost to workers and retirees when consultants or money managers have conflicts of interest."
Not everyone shared the concern, however. Mark Ugoretz, president of a group that represents major corporations on pension matters, said the report produced scant evidence of damage and based it on shaky assumptions about business relationships.
"They have made assumptions that these are conflicts of interest, and when they made these assumptions they found a minimal effect," said Ugoretz, of the ERISA Industry Committee (ERISA is an acronym for the Employee Retirement Income Security Act, the 1974 law that set pension standards). "That's not a sound basis on which to take legislative action."
Members of Congress, however, seized on the findings as a further sign that retirees could be victimized by obscure conflicts in the investment world.
"When it comes to the management of pension funds and workers' hard-earned savings, investment decisions should be driven by thorough analysis and research, not by the pursuit of fees that pad profit margins of consultants to the detriment of fund beneficiaries," Markey said.
Questions about the proper handling of retirement savings by financial professionals have become increasingly widespread in recent years, particularly as members of the baby boom generation start to reach their 60s.
The Labor Department is reviewing pension disclosure requirements and expects to unveil soon a proposal that would require pension consultants and other pension service providers to disclose details of their direct and indirect compensation, fees and "other financial arrangements," Bradford P. Campbell, an acting assistant Labor secretary, told the GAO in a letter.
Friday, June 29, 2007
Obesity and Workers Comp. Claims
Duke Hospital conducted a study on obesity and Workers' Comp. Results:
There was a clear linear relationship between BMI (Body Mass Index) and rate of claims
Employees in obesity class III (BMI40) had 11.65 claims per 100 FTEs, while recommended weight employees had 5.80
The effect on lost workdays (183.63 vs 14.19 lost workdays per 100 FTEs)
Medical claims costs ($51,091 vs $7,503 per 100 FTEs)
Indemnity claims costs ($59,178 vs $5,396 per 100 FTEs) was even stronger The claims most strongly affected by BMI were related to the following:
Lower extremity, wrist or hand, and back (body part affected)
Pain or inflammation, sprain or strain, and contusion or bruise (nature of the illness or injury)
Falls or slips, lifting, and exertion (cause of the illness or injury) The combination of obesity and high risk occupation was particularly detrimental.
This information should really cause you to consider an obesity program in your business.
There was a clear linear relationship between BMI (Body Mass Index) and rate of claims
Employees in obesity class III (BMI40) had 11.65 claims per 100 FTEs, while recommended weight employees had 5.80
The effect on lost workdays (183.63 vs 14.19 lost workdays per 100 FTEs)
Medical claims costs ($51,091 vs $7,503 per 100 FTEs)
Indemnity claims costs ($59,178 vs $5,396 per 100 FTEs) was even stronger The claims most strongly affected by BMI were related to the following:
Lower extremity, wrist or hand, and back (body part affected)
Pain or inflammation, sprain or strain, and contusion or bruise (nature of the illness or injury)
Falls or slips, lifting, and exertion (cause of the illness or injury) The combination of obesity and high risk occupation was particularly detrimental.
This information should really cause you to consider an obesity program in your business.
Thursday, June 28, 2007
Dear Doctor: What You Need To Know About Own Occupation Disability Insurance Policies
You've worked hard to get through medical school, gone on to specialize and now, you need to protect one of your most important assets: your income stream, says Frank N. Darras, the nation's leading disability and long-term care insurance lawyer.
Purchasing disability insurance, however, can be tricky and expensive. Policy features, advantages and benefits vary greatly. While some policies are iron-clad and pay benefits when you need them, others have holes and can cause financial disaster, should you become disabled. See http://www.darrasnews.com.
Darras offers the following tips:
-- Always buy as much individual coverage as you can afford. While doctors think (like everyone else) that they will never become disabled, the reality is that one third of all Americans between the ages of 35 and 65 will become disabled for more than 90 days.
-- Buy your policy as soon as you can, as coverage is the cheapest when we are young and healthy.
-- Even if your practice offers a group policy, be sure you buy your individual coverage first, and pay the premiums for the policy yourself so any benefits will flow tax-free. With individual coverage you also have more rights and remedies in the event your claim is wrongfully denied.
-- Only purchase "non-cancelable" and "guaranteed renewable" coverage. These features mean the insurance company cannot cancel your policy, increase your premiums or change the contract language as long as you pay your premiums on time -- even if the insurer is "taking a bath" on the claim side or decides to stop writing new business in your state.
-- Obtain the longest benefit period possible -- lifetime if available, but at least until you reach age 65. Always buy "own occupation" coverage.
-- Remember, when it comes to insurance, "the big print giveth ... the small print taketh away," so be careful and read the fine print.
-- Be a smart shopper and don't miss a premium payment.
"Finally, physicians often make fatal mistakes early in the claim process," says Darras. "Be sure to seek out the most experienced disability counsel before you file your claim so the carrier doesn't schnooker you with legalese or fine print.
Webb's Tip -- Use a qualified Independent agent to help you. For more information contact us at info@mclaughlin-online.com
Purchasing disability insurance, however, can be tricky and expensive. Policy features, advantages and benefits vary greatly. While some policies are iron-clad and pay benefits when you need them, others have holes and can cause financial disaster, should you become disabled. See http://www.darrasnews.com.
Darras offers the following tips:
-- Always buy as much individual coverage as you can afford. While doctors think (like everyone else) that they will never become disabled, the reality is that one third of all Americans between the ages of 35 and 65 will become disabled for more than 90 days.
-- Buy your policy as soon as you can, as coverage is the cheapest when we are young and healthy.
-- Even if your practice offers a group policy, be sure you buy your individual coverage first, and pay the premiums for the policy yourself so any benefits will flow tax-free. With individual coverage you also have more rights and remedies in the event your claim is wrongfully denied.
-- Only purchase "non-cancelable" and "guaranteed renewable" coverage. These features mean the insurance company cannot cancel your policy, increase your premiums or change the contract language as long as you pay your premiums on time -- even if the insurer is "taking a bath" on the claim side or decides to stop writing new business in your state.
-- Obtain the longest benefit period possible -- lifetime if available, but at least until you reach age 65. Always buy "own occupation" coverage.
-- Remember, when it comes to insurance, "the big print giveth ... the small print taketh away," so be careful and read the fine print.
-- Be a smart shopper and don't miss a premium payment.
"Finally, physicians often make fatal mistakes early in the claim process," says Darras. "Be sure to seek out the most experienced disability counsel before you file your claim so the carrier doesn't schnooker you with legalese or fine print.
Webb's Tip -- Use a qualified Independent agent to help you. For more information contact us at info@mclaughlin-online.com
Tuesday, June 26, 2007
"Feds Indict Adviser for Huge Borrowing"
The adviser, who managed investments for the Ohio Bureau of Workers' Compensation, allegedly borrowed 4500 percent of a fund's assets.
Charging Mark D. Lay with failing to report to investors overleveraging that had grown to more than 4000 percent, U.S. attorneys for the Northern and Southern Districts of Ohio indicted the investment manager on four counts concerning his handling of an offshore hedge fund that allegedly resulted in the Ohio Bureau of Workers Compensation losing $216 million of its $225 million investment.
In directing the bulk of the trade activity of the MDL Active Duration Fund, an investment consisting primarily of government, corporate, and mortgage-backed fixed-income securities, Lay far exceeded the fund's pre-set limit of 150 percent in borrowing, according to the indictment issued Friday. In an April 2004 meeting with the workers' comp board's chief investment officer, Lay did not admit that the fund's leverage was 900 percent, according to the U.S. attorneys.
In September 2004, the CIO and CFO of the board confronted Lay about the fund's poor performance, which by then had a value of $57 million despite the $200 million the workers' comp board had invested, according to the indictment. While Lay admitted at that meeting that the fund was overleveraged, he "falsely" told the board executives that he had only borrowed 900 percent of the funds assets while knowing that the leverage exceeded 4500 percent, the U.S. attorneys contended.
The indictment charges that Lay, the chairman and chief executive officer of MDL Capital Management, hid the true nature and effect of the use of leverage in the fund by failing to disclose the overleveraging and its effect on the investment funds to the comp board, thus breaching his fiduciary role as an investment advisor. He was charged with investment advisory fraud, mail fraud, and conspiracy to commit mail fraud and wire fraud.
CFO.com could not reach Lay at press time for comment on the indictment. Lay stated last week, however, that "Recent reporting and comments concerning MDL Capital Management and its investment performance have painted an inaccurate and misleading picture of the Company and our track record." Lay claimed that all his company's fixed-income products, with the exception of the one the workers' comp board invested in, had made money.
The indictment seeks forfeiture of nearly $1.8 million , which represents the amount of compensation MDL received from the workers' comp board for managing the Fund. If convicted, Lay faces up to 20 years in prison and a fine of $500,000.
Lay is the 19th person to be charged in the case, according to the Columbus Dispatch. So far, the task force probing the fraud has produced 16 convictions, the paper added."
Next time your Pension Fund Trustees meet, maybe you should ask about Fiduciary Insurance and your limits. If one of your advisors also sells insurance to the fund, maybe its time to make a change. That advisor may not want an Independent agent asking hard questions.
Charging Mark D. Lay with failing to report to investors overleveraging that had grown to more than 4000 percent, U.S. attorneys for the Northern and Southern Districts of Ohio indicted the investment manager on four counts concerning his handling of an offshore hedge fund that allegedly resulted in the Ohio Bureau of Workers Compensation losing $216 million of its $225 million investment.
In directing the bulk of the trade activity of the MDL Active Duration Fund, an investment consisting primarily of government, corporate, and mortgage-backed fixed-income securities, Lay far exceeded the fund's pre-set limit of 150 percent in borrowing, according to the indictment issued Friday. In an April 2004 meeting with the workers' comp board's chief investment officer, Lay did not admit that the fund's leverage was 900 percent, according to the U.S. attorneys.
In September 2004, the CIO and CFO of the board confronted Lay about the fund's poor performance, which by then had a value of $57 million despite the $200 million the workers' comp board had invested, according to the indictment. While Lay admitted at that meeting that the fund was overleveraged, he "falsely" told the board executives that he had only borrowed 900 percent of the funds assets while knowing that the leverage exceeded 4500 percent, the U.S. attorneys contended.
The indictment charges that Lay, the chairman and chief executive officer of MDL Capital Management, hid the true nature and effect of the use of leverage in the fund by failing to disclose the overleveraging and its effect on the investment funds to the comp board, thus breaching his fiduciary role as an investment advisor. He was charged with investment advisory fraud, mail fraud, and conspiracy to commit mail fraud and wire fraud.
CFO.com could not reach Lay at press time for comment on the indictment. Lay stated last week, however, that "Recent reporting and comments concerning MDL Capital Management and its investment performance have painted an inaccurate and misleading picture of the Company and our track record." Lay claimed that all his company's fixed-income products, with the exception of the one the workers' comp board invested in, had made money.
The indictment seeks forfeiture of nearly $1.8 million , which represents the amount of compensation MDL received from the workers' comp board for managing the Fund. If convicted, Lay faces up to 20 years in prison and a fine of $500,000.
Lay is the 19th person to be charged in the case, according to the Columbus Dispatch. So far, the task force probing the fraud has produced 16 convictions, the paper added."
Next time your Pension Fund Trustees meet, maybe you should ask about Fiduciary Insurance and your limits. If one of your advisors also sells insurance to the fund, maybe its time to make a change. That advisor may not want an Independent agent asking hard questions.
Wednesday, June 20, 2007
U.S. Supreme Court to decide right to sue for mishandling 401(k) plans.
The U.S. Supreme Court will decide whether a federal pension law gives workers who participate in 401(k) plans the right to sue claiming their accounts were mishandled.
The justices on Monday agreed to hear arguments from a man who says his retirement account is $150,000 short because the consulting firm that employed him didn't make investment changes he requested. A federal appeals court barred the suit.
The case will shape the rights of participants in "defined contribution" plans, a category that also includes employee stock ownership and profit-sharing plans. Together, those plans hold more than $3.2 trillion in U.S. employee assets.
The case before the court concerns James LaRue, who says his employer, management-consulting firm DeWolff Boberg & Associates, didn't follow his investment instructions in 2001 and 2002. He sued the firm, the administrator of the plan, in 2004 in federal court in Charleston, S.C. The suit invokes the 1974 Employee Retirement Income Security Act.
The 4th U.S. Circuit Court of Appeals in Richmond, Va., said the pension law allows suits for damages only when a participant is seeking to vindicate the rights of a plan "as a whole," not just the interests of a single account.
DeWolff Boberg urged the Supreme Court not to hear the case, saying the appeals court correctly applied a 1985 Supreme Court ruling.
The justices on Monday agreed to hear arguments from a man who says his retirement account is $150,000 short because the consulting firm that employed him didn't make investment changes he requested. A federal appeals court barred the suit.
The case will shape the rights of participants in "defined contribution" plans, a category that also includes employee stock ownership and profit-sharing plans. Together, those plans hold more than $3.2 trillion in U.S. employee assets.
The case before the court concerns James LaRue, who says his employer, management-consulting firm DeWolff Boberg & Associates, didn't follow his investment instructions in 2001 and 2002. He sued the firm, the administrator of the plan, in 2004 in federal court in Charleston, S.C. The suit invokes the 1974 Employee Retirement Income Security Act.
The 4th U.S. Circuit Court of Appeals in Richmond, Va., said the pension law allows suits for damages only when a participant is seeking to vindicate the rights of a plan "as a whole," not just the interests of a single account.
DeWolff Boberg urged the Supreme Court not to hear the case, saying the appeals court correctly applied a 1985 Supreme Court ruling.
Monday, June 11, 2007
Fast-Growing, State-Run Property Insurers Pose Risk for Taxpayers
Exponential growth of state-run property insurers of last resort ultimately may shift much of the long-term risk of hurricane-related losses to policyholders and taxpayers, even those who live nowhere near the coast, reports the private insurance industry's Insurance Information Institute.
By year-end 2006, total exposure to loss in state-run property insurers is estimated to have surged to more than $600 billion, compared with $54.7 billion in 1990. Total policies in force had also risen to in excess of 2 million.
The explosive growth in these plans is attributable to a number of factors, including the rapid rise in coastal development and property values, and the changing shape and role of state-run property insurers in a number of states, according to a new study from the I.I.I.
'While state-run insurers of last resort fulfill a key role by ensuring that policyholders can obtain insurance coverage, many have morphed from their traditional role as urban property insurers into major providers of insurance in high-risk coastal areas," said Dr. Robert P. Hartwig, president and chief economist of the I.I.I.
According to Dr. Hartwig, this shift of high risk exposure away from the private property insurance market is placing an enormous financial burden on state-run insurers, leaving a number of them operating at substantial deficits. As a result, state-run insurers of last resort may end up shifting the long-term risks of hurricane-related losses to policyholders and taxpayers who do not live near the coast.
"Depending on the state, the redistribution of costs is commonly achieved via laws that allow state-run insurers (which are often the largest insurers in the most hazardous areas) to recover their losses in excess of their claims-paying resources by assessing (effectively taxing) the insurance policies of homeowners and business owners throughout the state, including those well away from the coast and those who have never filed a claim," Dr. Hartwig said. "In some cases, even unrelated types of insurance such as auto insurance and commercial liability coverage can be assessed."
"Even in states where the value of insured coastal property represents a relatively small percentage of total insured property values, this does not mean that state-run property insurers are not experiencing rapid growth," added Claire Wilkinson, vice president, Global Issues at the I.I.I. and co-author of the study.
For example, North Carolina's $105.3 billion in insured coastal exposure represents just 9 percent of the state's total insured property values. Yet the state's beach and windstorm plan saw its exposure and total policy count more than double between 2003 and 2006.
"The insurance industry is committed to working in partnership with public policymakers, consumers and businesses in developing solutions to the formidable challenges posed by catastrophe risks in future," said Dr. Hartwig.
By year-end 2006, total exposure to loss in state-run property insurers is estimated to have surged to more than $600 billion, compared with $54.7 billion in 1990. Total policies in force had also risen to in excess of 2 million.
The explosive growth in these plans is attributable to a number of factors, including the rapid rise in coastal development and property values, and the changing shape and role of state-run property insurers in a number of states, according to a new study from the I.I.I.
'While state-run insurers of last resort fulfill a key role by ensuring that policyholders can obtain insurance coverage, many have morphed from their traditional role as urban property insurers into major providers of insurance in high-risk coastal areas," said Dr. Robert P. Hartwig, president and chief economist of the I.I.I.
According to Dr. Hartwig, this shift of high risk exposure away from the private property insurance market is placing an enormous financial burden on state-run insurers, leaving a number of them operating at substantial deficits. As a result, state-run insurers of last resort may end up shifting the long-term risks of hurricane-related losses to policyholders and taxpayers who do not live near the coast.
"Depending on the state, the redistribution of costs is commonly achieved via laws that allow state-run insurers (which are often the largest insurers in the most hazardous areas) to recover their losses in excess of their claims-paying resources by assessing (effectively taxing) the insurance policies of homeowners and business owners throughout the state, including those well away from the coast and those who have never filed a claim," Dr. Hartwig said. "In some cases, even unrelated types of insurance such as auto insurance and commercial liability coverage can be assessed."
"Even in states where the value of insured coastal property represents a relatively small percentage of total insured property values, this does not mean that state-run property insurers are not experiencing rapid growth," added Claire Wilkinson, vice president, Global Issues at the I.I.I. and co-author of the study.
For example, North Carolina's $105.3 billion in insured coastal exposure represents just 9 percent of the state's total insured property values. Yet the state's beach and windstorm plan saw its exposure and total policy count more than double between 2003 and 2006.
"The insurance industry is committed to working in partnership with public policymakers, consumers and businesses in developing solutions to the formidable challenges posed by catastrophe risks in future," said Dr. Hartwig.
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