Wall Street Goes Shopping in the Frozen Pension Aisle?
August 16, 2008
Numerous financial firms, including banks, insurers, hedge funds, and private equity firms, are pushing for legislation that would allow them to buy and manage the estimated $500 billion currently in “frozen” defined benefit pension plans—plans that no longer accept new participants, BusinessWeek reported.
Government agencies appear sympathetic to the move. The U.S. Treasury and the Pension Benefit Guaranty Corp., which insures pension plans under ERISA (Employee Retirement Income Security Act), are both said to be supportive of a change in the law that would allow Wall Street firms to assume the management of pension funds.
But “these deals should only be permitted where the acquiring entity has a higher credit-rating than the seller,” said Charles Millard, PBGC’s director. Companies pressing for the right to buy pensions include Aon Consulting, Citigroup, JPMorgan Chase, Morgan Stanley, Prudential Financial and Cerberus Capital Management, the magazine reported.
Some observers expressed alarm that Wall Street might assume the management of pension funds, which traditionally shun excessive risk or reward. “We think this is a terrible idea, said Karen Friedman, policy director Pension Rights Center, an advocacy group. “In the wake of the subprime crisis, it would be crazy to allow financial institutions to manage these plans.”
The report noted that some companies with ailing defined benefit retirement plans are already using the pension assets to buy group annuities from insurers such as John Hancock, Prudential, and MetLife.
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