Finance crisis / Finanzkrise / crise financière: Swiss parliamentary initiatives
 

11.Mär 11   Laurence Kotlikoff: «Die USA stehen schlechter da als Griechenland», NZZ Online, Marco Metzler
11 Aug 10   Laurence Kotlikoff:  U.S. Is Bankrupt and We Don’t Even Know It, Bloomberg
11 sep 09   Le système de prévoyance doit être assaini, Le Temps, Herbert Brändli, Originaltext
30.Dez 08   Madoff: Der Milliardendieb war auch Kassenwart, Die Weltwoche, Roger Köppel
27 Dec 08   Fellow-Americans, co-racketeers & co-profiteers: Stop Being Stupid, NYT, Bob Herbert
27 Dec 08   Ponzi Schemes: The Haul Gets Bigger, but the Fraud Never Changes, NYT, Eduardo Porter
20 Dec 08   Madoff Scheme Kept Rippling Outward, Across Borders, NYT, Diana B. Henriques
20 Dec 08   One Name, Charles Ponzi, Stands Alone in The Grand Scheme of It All, WP, David Montgomery
19 Dec 08   The Madoff Economy, NYT, Paul Krugman
18 Dec 08   On Wall Street, Bonuses, Not Profits, Were Real, NYT, Louise Story
16 Dec 08   Put Madoff In Charge of Social Security, WSJ, Holman W. Jenkins, Jr.
16 Dec 08   Pyramid Schemes Are as American as Apple Pie, WSJ, John Steele Gordon
13 Dec 08   Madoff Affaire: Now Accused of Fraud, Wall St. Wizard Had His Skeptics, NYT, Alex Berenson et al.
24 Nov 08   G.M.’s Pension Fund Stays Afloat, Against the Odds, NYT, MARY WILLIAMS WALSH
18.Nov 08   Bundesrat als eilfertiger Wegmacher von Pensionskassen-Abzockern, TA, Rudolf Strahm, Kommentare
17 Nov 08   No regulation can match a gold peg's disciplinary effects on central & other banks, WSJ, G.O'Driscoll
15 Nov 08   Did steam-rolled Swiss lawmakers unleash the financial tsunami?, WSJ, Iconoclast
14 Nov 08   Stable, Real-Value Money, e.g. Gold, Is the Key to Recovery, WSJ, Judy Shelton, comments
13 Nov 08   It's Time to Rethink Our Retirement Plans, WSJ, Roger W. Ferguson Jr., comment
13 Nov 08   UBS' QI ties with IRS are bad for Top Banker & Banking Secrecy, WSJ, Evan Perez et al.
12.Nov 08   Farblose Bundesrats-Unterschrift auf SNB-vorgezeichneter punktierter Linie: kein Erfolgsrezept
19.Sep 08   Änderung der BR-Verordnung über die berufliche Vorsorge (BVV 2; BSV-Mitteilungen 108)
19 sep 08   Modification de l'ordonnance du CF sur la prévoyance professionnelle (OPP 2; OFAS Bulletin 108)
18 juin 08   Est-ce prudent d'attirer des hedge funds à Genève?, Bilan
15 Sep 07   A Suspicious Disappearance, NYT, Editorial
27 Aug 07   Pension Managers Rethink Their Love of Hedge Funds, WSJ, Craig Karmin
26 Aug 07   Pension funds demand money back, Sunday Telegraph, Helen Power
4 April 07   N.J. Pension Fund Endangered by Diverted Billions, NYT, MARY WILLIAMS WALSH
26 Jan 07   EU Court: No State obligations in Insolvency Cases, Daily Telegraph
19 Aug 06   KING OF THE ZOMBIES, mailonsunday
8 Aug 06   Public Pension Plans Face Billions in Shortages, NYT, Mary Williams Walsh
27 April 06  Watchdog warns on risky pensions, BBC News
Jun 2006   Private, national & common wealth in the post-socialism/capitalism era, Iconoclast
4 April 06   The Future of Pensions, Downing St 'split' over pensions, BBC News
31 March 06  Shocks Seen in New Math for Pensions, NYT, Mary Williams Walsh
12 March 06  Do the Math For Lost Pensions, Washington Post, Albert B. Crenshaw
1 mars 06   Réformons enfin le système!, LE TEMPS, Ernst Brugger
1 mars 06   Les fonds de pension étrangers peuvent inspirer la Suisse, LT, Jean-Fabrice della Volpe
26 Feb 06   What is the yield curve telling us?, telegraph.co.uk, Roger Bootle
22. Feb 06   Swiss banks groan under weight of assets, nzz.ch, Swissinfo
21 fév 06  Acelor: les fonds spéculatifs entrent en scène, lefigaro.fr, Anne-Laure Julien
19 Feb 06   How States Are Aiming to Keep Dollars Out of Sudan, NYT, Carla Fried
28. Jan 06    Terminmarkt boomt - Kreditderivate boomen, Handelsblatt, Andrea Cünnen
28. Jan 06    Der Markt - Eine Anlageklasse für sich, HB
19 Jan 06   Market turmoil deals further blow to pension funds, The Guardian, Ashley Seager et al.
18 Jan 06   Gilts bubble savages pensions, www.ft.com, Philip Coggan et al.
18 Jan 06   Uphill struggle for pension funds to close deficits, www.ft.com, Philip Coggan et al.
18 Jan06   S.E.C. to Require More Disclosure on Executive Pay, NYT, Stephen Labaton
17 Jan 06   The SEC's Test, Washington Post, John Pierpont
17 Jan 06   Hermes takes BT into commodities, www.ft.com,  Kate Burgess
9 Jan 06   More Companies Ending Promises for Retirement, NYT, Mary Williams Walsh
7 Jan 06   Five Officials in San Diego Are Indicted Over Pensions, NYT, John M. Broder
26 Dec 06   Huge Rise Looms for Health Care in City's Budget, NYT, Mary Williams Walsh et al.
20 Dec 06   Rentokil mothballs pension scheme, BBC News
12 Dec 05   Measures to Tackle Chinese Pension Fund Deficit, caijing 148, Ren Bo
30 Nov 05   State pension age 'to rise to 68', BBC News,
 27 Nov 05  Pension Officers Putting Billions Into Hedge Funds, NYT, Riva D. Atlas et al.
24 Nov 05   Pension reform: What other countries do, BBC News, Steve Schifferes
23 Nov 05   How the pensions crisis evolved, Do we need to work longer?, BBC News, Julian Knight
9 mars 98   La Titanic hélvétique - home made, ASDI, Anton Keller

  La situation est grave.  Sur notre Titanic hélvétique l'air de bal et de casino est mélangée avec une certaine fatigue et un sens de fatalité chez des décideurs.  Ceci a permit aux seigneurs du nouveau ordre mondial et leurs apologistes de s'installer, à l'abordage, au pont de commandement abandonné par l'équipage qui, en rafflant les canots de sauvetage, ont abandonné les passagers à leur sort.  Le deuxième pilier de la prévoyance sociale, un monstre hors contrôle, est devenu l'instrument clé de ces pirates modernes: dans sa conception actuelle [et davantage encore si l'actuel révision de l'OPP2 sera mise en vigueur], l'assurance sur la prévoyance professionnelle permet tous les magouilles et met en danger non seulement sa propre base mais aussi celui de l’AVS et du troisième pilier.  Or, une prévoyance sociale fiable dépend d'une saine structure économique, sociale et politique enracinée dans des petits et moyens entreprises gérées avec une vision à longe terme, des principes éthiques et des institutions qui ont fait leurs preuves.  En effet, des acteurs majeurs de notre système bancaire se sont engagés dans une folle course aveugle aux profits maximalisés à courte terme.  Ceci met en péril nos forces productrices, notamment la volonté et la capacité de nos jeunes de sortir de leur coquille, de reconnaître la chimère de la gratuité - étatique ou privée - et de s’investir dans notre société par une formation professionelle extravertie et adaptée.  En négligeant leurs propres racines, en changeant abusivement les règles du jeu, et en rappelant avant terme leurs crédits, une nouvelle génération [d'apprenti sorciers à la McKinsey] de faux porteurs du drapeau suisse nettoie ainsi leurs bilans, tout en forçant des milliers de PMEs sains et profitables de choisir entre mettre les clés sous le paillasson ou se réfugier dans les bras d'une nouvelle mafia [dont les instruments de travail s'appellent LBO, hedge funds, QI, etc.].

Comment sommes-nous arrivés là? Est-ce une fatalité inéluctable?  Est-ce qu'il y a encore un pilot dans l'avion?  Et si non, où est le "Fähnlein der Sieben Aufrechten" derrière lequel nous pourrions nous rassembler pour arrêter ce train au désastre avec les moyens du bord - avant qu’il emprunte le viaduc qui, visiblement, n’est pas encore ou plus en place?
 

1.  Avec l’introduction de l'assurance obligatoire sur la prévoyance professionnelle (RS 831.40 LPP ¦ BVG) en 1985, une masse des fonds toujours plus importante (1994 env. 275 milliards francs) chasse des titres de placement sûr qui par leur nombre restreint deviennent de plus en plus chers.  Avant 1985, pour assurer la sécurité des fonds de pension, les dirigeants étaient autorisés d’effectuer seulement des "placements en père de famille" (obligations suisse, lettres de gages, etc.).  Déjà dans son message au Parlement sur le LPP de 1975, le Conseil Fédéral a ouvert une brèche pour des placements spéculatifs des fonds de pensions; s'il avait des soucis sur les effets pervers que ces gigantesques fonds pouvaient avoir sur la bourse et le marché des crédits, il les gardait pour lui-même.  Par contre, il se préoccupait du problème de la capacité limité du marché suisse d’offrir des placements adéquates - et rentables - pour ce flot d’argent.

A l’époque, seulement quelques voix rarissimes, comme les parlementairesBrunner et Jauslin (qui finalement ont payé avec la perte de leurs sièges pour avoir sonné l’alarme), ont questionné la sagesse de laisser libre cours à de tels monstres financiers qui ne pouvaient pas manquer de fausser les courses dans la bourse.  Dans l’art.71 LPP on lit donc:

"Les institutions de prévoyance administreront leur fortune de manière à garantir la sécurité des placements, un rendement raisonnable, une répartition appropriée des risques et la couverture des besoins prévisibles de liquidités."

Et tandis que l’ordonnance au LPP du 18 avril 1984 (RS 831.441.1 OPP2 ¦ BVV2) fixe des pourcentages plutôt conservatives (comparé à l’étranger) des différents catégories de placements (art.54s), elle a introduit des directives irréfléchies et qui, ici et là, ont produit des effets non-prévus:

 a) le critère de la dimension d’une entreprise (art.50 al.2; ce qui, en pratique, a amené les dirigeants des fonds à considérer une entreprise comme sûr qu’à partir d’une certaine dimension, éliminant ainsi la plupart des PMUs du champ de placement),

b) l'obligation de poursuivre un rendement conforme au marché  (art.51; ce qui, en négligeant la sécurité, a encouragé un cours au profit à court terme), et

c) l’autorisation des placements dans des instruments dérivatifs  (art.56a; ce qui a davantage encore engendré une atmosphère de casino, ces placements figurant parmi les plus risqués, comme le démontre les cas récents: Barings, Rinderknecht, SBS, UBS).

1. que la nouvelle UBS serait le produit d'un inceste économique - sans que les avantages normalement associés avec une fructification étrangère pourraient être réalisés; en tant que telle, ses dimensions poseraient problème, autant plus que ses nouvelles orientations et vocations étrangères ne correspondraient guère aux traditions et à la culture bancaire suisse et, de toute évidence, seraient même incompatible avec les institutions et l’environnement économique, sociale et politique qui prévalent en Suisse;

2. que de tels buts de rendement favorisent des stratégies, politiques et décisions qui sont risquées  et entraînent l’amputation des organes vitaux (personnel qualifié) qui nourrissaient les pratiques suivies avec succès jusqu’à maintenant;  et

3.  que l’actuel management de l’UBS semble avoir ignoré jusqu’au début janvier 1998 les 15,85% p.a. rendement moyenne (dividende et droits) pour la période 1980-1997 (réponse officielle du 12 janvier 1988 que le département des études économiques de l’UBS à fourni à un actionnaire qui posait le question fin 1997; ainsi on peut se demander si d’autres actionnaires, dans leurs critiques du management, n’étaient pas „right for the wrong reasons").

Les radiations et implications des actuels UBS et SBS à l'intérieur et à l’extérieure indiquent en tout cas des approches alternatifs.  Primo, les règles et innovations de la place financière suisse ne sont pas sans influence sur les grands marchés étrangers.Secondo, en matière fiscale, on a pu constater des effets inattendus des déviations suisses des principes et des innovations de taxation irréfléchi (p.ex. tax militaire). Terzo,nos lois concernant le deuxième pilier furent l’inspiration pour des pratiques dommageables des grands fonds de pensions étrangers.  Nous portons donc une certaine co-responsabilité pour des développements néfastes ici et là.

En mettant le doigt sur les vraies causes des dérapages en cours et en agissant en conséquence aussi vis-à-vis ce projet de fusion, nous avons enfin une occasion de nous décharger de cette co-responsabilité d’une façon bénéfique pour les deux cotés.  Car le choque ainsi provoqué devrait aussi arrêter cette folle course au gigantisme malsaine et exposer l’absurdité économique de créer des entités de plus en plus concentrés (sur des agendas cachées, voir notre site spéciale: www.solami.com/a$UBS.htm ).

Justement en matière de concurrence, le législateur suisse a stipulé que „La présente loi a pour but d’empêcher les conséquences nuisibles d’ordre économiques ou social imputables aux cartels et aux autres restrictions à la concurrence et de promouvoir ainsi la concurrence dans l’intérêt d’une économie de marché fondée sur un régime libérale." (art.1 LCart).  Soucieux de la concurrence à l’intérieure des différents secteurs de l’économie, il n’entendait jamais instaurer ou protéger une compétition au profit, ou de favoriser la mentalité du casino.  S’il avait eu la moindre indication à quel point la Suisse serait suivi dans cette course mal considérée - bourse gonflée, fusionitis, manie de performance à courte terme, négligence de sécurité, etc. - il n’aurait jamais emprunté cette voie.  Jusqu’à nouvel ordre, il appartient alors aux acteurs de veiller - par leurs paroles, actes et inactions - à ce que l’économie du marché garde bien sa fonctionnalité et qu’elle reste libérale.

3.  Les banquiers "worth their salt" (qui méritent leur salaire) le sont parcequ’ils connaissent leur métier et respectent les limites à ne pas dépasser pour maintenir la santé économique.  Ils n’exploitent pas des lacunes juridiques sur le dos de la substance.  Il ne suivent pas - comme quelques greenhorns - le dernier guru de passage, ni se laissent aveugler par quelconque aberration de la doctrine qui risquerait de provoquer davantage d’interventions des autorités ou juges étrangers dans nos affaires.  En tant que fiduciaire conscient de leurs nobles traditions, rôles et obligations, ils ne manquent d’agir sans autre dans le sens du législateur et, le cas échéant, de se substituer même à lui, comme indiqué ci-dessus (en paraphrasant l’art.1 CC).  Toute action ou inaction contraire à ces notions traditionnelles du bon sens ne peut pas servir nos intérêts; il contribuera à un affaiblissement, à une menace existentielle non seulement de la banque mais de l’économie et de la place financière suisse toute entière.  Sur notre site Internet - www.solami.com - quelques banquiers genevois prévoyants sont mentionnés.  Néanmoins, cela ne suffit pas pour assurer les mesures qui s’imposent sur le plan politique et juridique et qui doivent être prises dans des délais extrêmement courts.  Les autres quatre porteurs du drapeau des justes - dont l'écrivain Zurichois Gottfried Keller nous a déja raconté le siècle dernier - sont alors invités de se présenter rapidement.

    Faced with growing numbers of retirees, pension plans are pouring billions into hedge funds, the secretive and lightly regulated investment partnerships that once managed money only for wealthy investors.
     The plans and other large institutions are expected to invest as much as $300 billion in hedge funds by 2008, up from just $5 billion a decade ago, according to a study by the Bank of New York and Casey, Quirk & Associates, a consulting firm. Pension funds account for roughly 40 percent of all institutional money.
     This month, the investment council that oversees the New Jersey state employees pension fund said it would put some of its money into hedge funds for the first time, investing $600 million over the next several months. While most pension plans have modest stakes in hedge funds, others have invested more than 20 percent of their assets. Weyerhaeuser, the paper company, has 39 percent of its pension fund's assets in hedge funds. In Congress, there has been a push for amendments that would make it easier for hedge funds to manage even more pension money, without having to comply with the federal law that governs company pensions.
     Pension officials who have been shaken by market downturns and persistent deficits are attracted by hedge funds' promise of richer, or more consistent, returns. But the trend has caused some consultants and academics to voice cautions. They question whether hedge funds, with risks that are hard to measure, are appropriate for pension funds, whose sole purpose, by law, is to pay out predetermined benefits to retired workers.
     Those benefits are considered so crucial that they are guaranteed: corporate pension failures are covered by the Pension Benefit Guaranty Corporation, a federal agency, while pension failures by state and local governments are covered by taxpayers. Given that the benefits are paid out on a set schedule, critics wonder whether it makes sense to rely on investments whose returns are hard to predict, managed by private partnerships that disclose little about their operations and charge some of the highest fees on Wall Street.
     "It's very inappropriate when the company is offering a pension plan that is guaranteed by the federal government," said Zvi Bodie, a professor of finance and economics at Boston University who is enthusiastic about hedge funds in other contexts.
     Hedge funds make large, sophisticated investments based on the premise that by swimming outside the currents of the markets, often betting against conventional wisdom, they can outperform other investments. Hedge funds became famous in the 1990's, when managers like Michael Steinhardt and George Soros made huge swashbuckling bets that sometimes produced returns of 30 percent or more.
     More recently, hedge funds have made headlines when they ran into trouble: Long-Term Capital Management, a hedge fund whose principals included two Nobel Prize-winning economists, nearly collapsed in 1998; and this summer, Bayou Group, a $450 million hedge fund based in Connecticut, shut down after most of its money disappeared. Its two officers have pleaded guilty to fraud charges. Hedge funds have traditionally been only for wealthy, sophisticated investors so regulators have not monitored them as they have stocks or mutual funds, although they are starting to do so.
     The news of splashy gains and scandals may not paint an accurate picture of a business that in many ways has become more conservative as a result of the flood of pension fund money. To attract that money, many hedge fund managers emphasize stability.
     Among pension fund managers, however, "the whole mentality has changed," said Jane Buchan, chief executive of Pacific Alternative Asset Management, which manages $7.5 billion in funds that invest in hedge funds, primarily for large pension funds. "They are saying, we need returns and we will be aggressive about getting them. They just don't want any downturns."
     One of the first pensions to start working with hedge funds is also the nation's biggest corporate pension fund, the $90 billion General Motors fund. It started with a small test investment in 1999 and increased it to about $2 billion in 2003, said Jerry Dubrowski, a G.M. spokesman.
     The company is using hedge funds, along with other unconventional investments, in hopes of getting something close to stock market returns without the market's volatility, Mr. Dubrowski said. To pay out the $6.5 billion G.M. owes to its retirees each year, the pension fund must produce annual returns of a little more than 7 percent. Otherwise, G.M. will have to dip into the fund's principal. At current interest rates, G.M. cannot get those returns with bond investments, and if it tries to juice returns by betting on the stock market, it will have to cope with market swings.
     "It's really not helpful to have that up-10, down-10" performance, Mr. Dubrowski said. "You want a return that allows you to cover the benefits payments without attacking the capital." It is that kind of consistency some pension mangers are seeking. "We are looking for consistently positive returns rather than the absolute highest returns," said Robert Hunkeler, manager of International Paper's $6.8 billion pension plan, which has been invested in hedge funds for around five years.
     Most pension funds have modest stakes of less than 5 percent, according to a recent J. P. Morgan survey. Verizon has 3 to 4 percent of its portfolio invested with hedge funds, and is considering adding to its investment, said William F. Heitmann, senior vice president for finance.
     Some pension fund managers say that diversifying away from stocks through a modest stake in hedge funds is reasonable, especially as hedge funds offer the promise of returns not linked to stock market performance. In 2000, for example, when the Standard & Poor's 500-stock index fell 9 percent, hedge funds rose 5 percent, according to Hedge Fund Research.
     The New Jersey state pension fund's investment of $600 million represents less than 1 percent of its assets, but it hopes eventually to raise the figure to $3 billion as part of a plan to diversify its portfolio, said Orin Kramer, the chairman of the oversight board.
     The New Jersey fund has been wrestling with a $30 billion shortfall, after the stock market bubble burst five years ago. "In recent years, conventional stock investments haven't worked," said Mr. Kramer, who is also a hedge fund manager. He said that in general it is good to diversify no matter what the market does.
     Other pension plan managers are far more aggressive. Eli Lilly has about 20 percent in hedge funds and the Pennsylvania state employees' pension fund has 22 percent. Weyerhaeuser's big position has significant benefits for the company. Accounting rules let companies factor expected pension returns into their operating income; Weyerhaeuser's hedge-fund-laden portfolio allows it to claim expected annual returns of 9.5 percent. By comparison, the 100 largest companies that sponsor pension funds predicted last year that their average long-term returns would be 8.5 percent, according to Milliman Inc., an
actuarial firm.
     For Weyerhaeuser, each 0.5 percent increase in the expected rate of return is worth an additional $21 million to the company's pretax income this year, according to S.E.C. filings. Weyerhaeuser did not respond to phone inquiries about its hedge fund investments, but said in S.E.C. filings that its actual pension investment returns more than justify its assumption of 9.5 percent.
     Hedge fund investors place a lot of trust in the funds' managers, giving them great flexibility in how they produce returns. The managers do not need to give investors specifics about trading activities, and there are no daily updates on the value of investors' holdings as there are with mutual funds.
     Employees of G.M., Verizon or International Paper, who are involuntary hedge-fund investors through their participation in pension plans, will not find any reference to the funds in those companies' annual reports. In their footnotes, these and other companies drop hints that a sophisticated investor might recognize as a reference to hedge funds, but they do not give the particulars. International Paper's description of its pension asset allocation, for example, breaks it down into "equity securities," "debt securities," "real estate" and "other."
     Some companies and governments, like Pennsylvania, make the argument that hedge funds are not really an asset class at all, but an "asset management tool" that does not have to be disclosed as part of the fund's allocation to stocks or bonds.
     That lack of disclosure has some regulators and pension specialists worried. Labor Department officials, who regulate pension funds, declined to discuss the hedge fund phenomenon, but referred to a 1996 letter the department wrote to the United States comptroller of the currency.
     The letter said that the Labor Department still expected pension officials to exercise prudence when investing in derivatives, a form of trading in which hedge funds often engage. The letter also said pension officials were responsible for understanding and fully vetting their hedge fund investments, and measuring how they might perform - and how they might affect the pension fund - under a variety of conditions.
     Susan M. Mangiero, author of "Risk Management," a textbook for pension officials, said she had come across pension executives who had not done that level of analysis. Some did not even know they had derivatives in their portfolios, she said. "A lot of well-intentioned people don't know they don't know," she said.
     In Washington, despite concerns over the health of the nation's pension system, there has been little discussion of pension plans' growing use of nontraditional investments.
     Even as Congress has been working to shore up the pension system and strengthen the Pension Benefit Guaranty Corporation, a provision to relax the pension law for hedge funds has been proposed. The provision would raise the limit on how much pension money a hedge fund can handle before it is deemed a fiduciary under the pension law, which would require it to be more prudent and careful than is required under securities law and would bar some trades entirely. The provision was added to a broad pension bill in the House shortly before the Committee on Education and the Workforce approved the legislation.
     Currently a financial institution becomes a pension fiduciary when more than 25 percent of its assets consist of pension money; the bill would raise that to 50 percent. The House bill would also change the definition of "plan assets," so that only corporate pension money would be counted, not pension money from government plans or foreign plans.
     These two changes are not in the counterpart Senate pension bill that was recently approved, but they could be added soon during efforts to reconcile the House and Senate bills.  Wall Street's interest in overcoming these legal barriers shows the allure of pension money, which tends to stick with an investment strategy and is far less likely to fly out the door when the markets turn bad. "Pension money is the stickiest form of capital," Mr. Kramer of the New Jersey pension fund noted.
     But the surge of pension money is coming at a time when the returns of many hedge funds have not been as strong as in past years, raising questions about whether pensions are arriving at the party late. Hedge funds actually lost money in four of the first ten months of this year, although they still had an overall average return of 5.7 percent.
     Those returns easily beat the stock market: the S.& P. 500 index was up 1 percent in the same period. But as they continue to attract money, hedge funds may start to more closely mimic the performance of plain old stocks and bonds.
     "There is no such thing as a free lunch," said Frank Partnoy, a professor at the University of San Diego law school and a former trader at Morgan Stanley whose clients once included large pension funds. "And even if there were, nobody is offering it to pension funds."

    When the Metropolitan Transportation Authority proposed making new workers chip in more to its pension fund than current workers do, it was enough to send the union out on strike and bring the nation's largest mass-transit system to a halt for three days.
    But the cost of pensions may look paltry next to that of another benefit soon to hit New York and most other states and cities: the health care promised to retired teachers, judges, firefighters, bus drivers and other former employees, which must be figured under a new accounting formula.
    The city currently provides free health insurance to its retirees, their spouses and dependent children. The state is almost as generous, promising to pay, depending on the date of hire, 90 to 100 percent of the cost for individual retirees, and 82 to 86 percent for retiree families.
    Those bills - $911 million this year for city retirees and $859 million for state retirees out of a total city and state budget of $156.6 billion - may seem affordable now. But the New York governments, like most other public agencies across the country, have been calculating the costs in a way that sharply understates their price tag over time. Although governments will not have to come up with the cash immediately, failure to find a way to finance the yearly total will eventually hurt their ability to borrow money affordably.
    When the numbers are added up under new accounting rules scheduled to go into effect at the end of 2006, New York City's annual expense for retiree health care is expected to at least quintuple, experts say, approaching and maybe surpassing $5 billion, for exactly the same benefits the retirees get today. The number will grow because the city must start including the value of all the benefits earned in a given year, even those that will not be paid until future years.
    Some actuaries say the new yearly amount could be as high as $10 billion. The increases for the state could be equally startling. Most other states and cities also offer health benefits to retirees, and will also be affected by the accounting change. "It's not likely that New York City has a way to fund current costs, its pension obligation and fund retiree health care without raising taxes or cutting services," said Jan Lazar, an independent consultant specializing in city retirement finances. "These are huge numbers, not a one-time cost."
    The pay-as-you-go accounting method that New York now uses greatly understates the full obligation taxpayers have incurred because it does not include any benefits to be paid in the future. Most other state and local governments that offer significant health benefits to retirees use the same method and will also have to bring newer, larger numbers onto their books in the next two or three years. The increases will vary from place to place, but New York is expected to be at the high end because it offers richer benefits than many other cities and has many police officers, firefighters and sanitation workers who can retire with full pension at age 50.
    At the transit talks, pensions were pulled off the table in the end, and the final settlement is likely to reflect an increased health care payment by current workers, not retirees. But even though New York was pushed to a standstill over proposed changes in transit workers' pensions, virtually no one in government, outside of a tiny group of experts, is talking publicly about the far more daunting bill for citywide retiree health insurance.
    The total value of the pensions promised is probably bigger, but money has already been set aside to pay the pensions, to a significant degree. For retiree health care, nothing stands behind those promises except the expectation that taxes will be raised enough in the future to cover them.
    At last count, the city's biggest pension fund - the one for about 300,000 workers not covered by police, firefighter, teacher or school workers plans - said it had $42 billion set aside in trust for the $42.2 billion it owed. No money at all has been set aside for that same group of city employees' post-retirement health care.
    Determining the correct amount will be "a tremendous undertaking," a city official said, adding that rapid changes in the overall health care environment, including the Medicare and Medicaid programs, make it extremely difficult to see what future costs will be.  No one really knows what the total health care obligation is for the 836,000 people already retired or now working for the city and state, much less who will pay for it. Neither side in the transit dispute, for example, has publicly mentioned retiree health care.
    A small group of city officials has been quietly working for months, gathering data on the dozens of city retiree health plans, large and small, but the process is not expected to be complete for months.
    Meanwhile, a handful of other states and cities have already done the same calculations. If their results are any guide, New York City and the state could ultimately find that they have each promised their retirees health care worth tens of billions of dollars. The transportation authority, a state entity whose retiree health care costs are partially borne by New York City, could find that it has already promised more than $5 billion worth of benefits to its current and future retirees.
    At the moment, the transportation authority is spending about $380 million a year on health care for its unionized workers. That covers both active workers and retirees; while a precise breakdown does not exist, citywide demographics suggest that about $165 million of that may be for retirees.
    Once the new accounting rule is in force, the transportation authority may find itself scrounging for 5 to 10 times that amount every year, $825 million to $1.6 billion, if an accounting rule of thumb devised by one of the chief credit rating firms, Fitch Ratings, holds up. By the time anybody knows for sure, the authority will probably be halfway through the union contract it is still struggling to complete.
    To find the money, the authority will have to turn to "higher fares, less service, or more pressure on the city government to fork over subsidies," said Robert A. Kurtter, an analyst with Moody's Investors Service who monitors New York's finances. The city's retirement system, meanwhile, will be struggling with the same problem on a much larger scale.
    The city has been offering free health care to its retirees for decades. In the private sector, companies that once offered health insurance for retirees began to stop doing so in the 1990's, for a number of reasons, including accounting rule changes like those now coming into effect for states and cities. Today, only 38 percent of companies with more than 200 workers offer retiree health insurance, according to the Citizens Budget Commission, a group that analyzes city and state finances.
    An even smaller number of companies, 9 percent, pay any part of the premiums that can be used to buy optional supplements to Medicare for retirees over 65. New York City and the state both pay the full cost of Medicare supplements for their retirees. "They've stuck with that, although the rest of the world has changed," said Charles M. Brecher, research director of the Citizens Budget Commission and a professor of public and health administration at New York University's Wagner School of Public Service.
    While the private sector was curtailing retiree benefits, New York City and the state have been preserving and even expanding benefits in bargaining with their unions. Both sides focused mainly on the current cost of the benefits. No one was paying much attention to the deferred cost of the benefits that would come due once current workers retired. Meanwhile, health costs resumed rising at double-digit rates, and a large share of the public work force began to reach retirement age. Currently, the city administers a big health plan for its workers and retirees and contributes to dozens of smaller retiree health plans that are run by individual unions and supplement the city's coverage.
    The calculations are now being done, privately, because of the accounting rule change. In 2004 the Governmental Accounting Standards Board, a nonprofit body that writes accounting rules for governments, issued a new standard for retiree medical plans. It roughly follows a similar standard issued in 1994 for public pension plans.
    But rather than requiring local governments to finance their retiree medical plans, the rule simply requires them to lay out a theoretical financing framework, then report how they are dealing with it. Localities that create trust funds will get certain financial rewards. Localities that do not put money behind their promises risk being punished by falling credit ratings. When a city's credit rating falls, it becomes harder and more expensive to issue bonds or otherwise borrow money.
    Municipal bond analysts at Moody's and Standard & Poor's said they were taking a wait-and-see stance. "How the city addresses the burden is another question - by reducing the benefit or funding the cost, or allowing this liability to mount," said Mr. Kurtter, of Moody's. If the amount grows, "at some point it will create a credit issue," he said. Mr. Kurtter said city officials have acknowledged privately that the amounts will be large, "in the billions, they say."
    Labor officials say that even though the change is just a new way of accounting, not a price increase in the conventional sense, they fear that putting a number on the city's promises for future retiree health care will lead to sticker shock and renewed calls to cut benefits. "There's a lot of fear that this kind of disclosure will reignite the whole battle of who assumes retiree health costs," said Randi Weingarten, the president of the United Federation of Teachers and the chairwoman of the Municipal Labor Committee. "Even though it should be a data point, it will be used as a hammer."

Michael Cooper contributed reporting for this article.

    LOS ANGELES, Jan. 6 - San Diego's legal and financial troubles deepened on Friday as a federal grand jury handed up fraud and conspiracy indictments against five current and former officials of the city's pension system.
    The charges centered on a 2002 decision by the 13-member San Diego City Employees' Retirement System to enact a plan to increase significantly the pension benefits of city employees, including all the defendants, while failing to provide sufficient money to keep the pension fund solvent.
    Federal prosecutors said the five defendants had conspired to hide the details of the proposal from other members of the pension board as part of a scheme to enrich themselves and cover up the financial danger to the pension system posed by the plan. The decision helped to push the city to the brink of bankruptcy and led to the resignation of Mayor Dick Murphy last spring. The San Diego retirement system now has a deficit of at least $1.4 billion, and the city is unable to borrow in the capital markets.
    The local United States attorney, Carol Lam, said the five pension fund officials had violated their obligations to city retirees and the taxpaying public. "The defendants had a duty to act in the best interest of the city retirement system," Ms. Lam said in a statement accompanying release of the indictments. "They breached that duty by engaging in self-dealing, ignoring conflicts of interest and exploiting their positions to the detriment of the retirement system."
    In addition to the pension fund scandal, San Diego has been rocked in the past two years by a political corruption case involving three City Council members, and Representative Randy Cunningham's sudden resignation from Congress in November, when he pleaded guilty to bribery charges.
    Federal and local prosecutors said Friday that their investigations were continuing. The Securities and Exchange Commission and the F.B.I. have been examining city finances for more than two years. Those newly indicted are Ronald Saathoff, Cathy Lexin and Teresa Webster, former San Diego retirement fund trustees; Lawrence Grissom, the system's former administrator; and Loraine Chapin, its current general counsel. They are expected in court next week to enter pleas.
    The three former trustees are already under indictment on state conflict-of-interest charges arising from the pension debacle, and civil charges are pending against them and Mr. Grissom. All have denied any wrongdoing, as has Ms. Chapin, contending that their jobs with the pension fund required them to act on matters that would naturally affect their own benefits.
    Mr. Saathoff is president of the San Diego firefighters' union and served as a labor representative on the pension board for 20 years. Ms. Lexin, a nonvoting member of the pension board, was the city's human resources director and a lead negotiator with city employee unions, including Mr. Saathoff's. Ms. Webster, also a nonvoting member of the board, was San Diego's assistant auditor and comptroller.
    As a result of the 2002 vote, the indictment alleges, Mr. Saathoff's pension benefits were to rise by more than $25,000 a year. The benefits of the four other defendants would also have been enhanced, but the indictment does not specify by how much.
    As they were concealing the benefits they were to receive from the proposal, the defendants also pushed a plan to permit the pension fund to operate at a substantial deficit, allowing the city to avoid payment of as much as $100 million, the indictment says. The City Council approved the pension plan shortly after it was adopted by the board.
    Michael Aguirre, the San Diego city attorney, has brought civil charges against all of the defendants except Ms. Chapin. He said the federal indictment confirmed what his own investigation had found: that the accused had concealed various side deals that would enrich themselves and bankrupt the pension system. "The result was the largest financial catastrophe in the history of San Diego," Mr. Aguirre said.

    The death knell for the traditional company pension has been tolling for some time now. Companies in ailing industries like steel, airlines and auto parts have thrown themselves into bankruptcy and turned over their ruined pension plans to the federal government.
    Now, with the recent announcements of pension freezes by some of the cream of corporate America - Verizon, Lockheed Martin, Motorola and, just last week, I.B.M. - the bell is tolling even louder. Even strong, stable companies with the means to operate a pension plan are facing longer worker lifespans, looming regulatory and accounting changes and, most important, heightened global competition. Some are deciding they either cannot, or will not, keep making the decades-long promises that a pension plan involves. I.B.M. was once a standard-bearer for corporate America's compact with its workers, paying for medical expenses, country clubs and lavish Christmas parties for the children. It also rewarded long-serving employees with a guaranteed monthly stipend from retirement until death.
    Most of those perks have long since been scaled back at I.B.M. and elsewhere, but the pension freeze is the latest sign that today's workers are, to a much greater extent, on their own. Companies now emphasize 401(k) plans, which leave workers responsible for ensuring that they have adequate funds for retirement and expose them to the vagaries of the financial markets.  "I.B.M. has, over the last couple of generations, defined an employer's responsibility to its employees," said Peter Capelli, a professor of management at the Wharton School of Business at the University of Pennsylvania. "It paved the way for this kind of swap of loyalty for security."
    Mr. Capelli called the switch from a pension plan to a 401(k) program "the most visible manifestation of the shifting of risk onto employees." He added: "People just have to deal with a lot more risk in their lives, because all these things that used to be more or less assured - a job, health care, a pension - are now variable."
    I.B.M. said it is discontinuing its pension plan for competitive reasons, and that it plans to set up an unusually rich 401(k) plan as a replacement. The company is also trying to protect its own financial health and avoid the fate of companies like General Motors that have been burdened by pension costs. Freezing the pension plan can reduce the impact of external forces like interest-rate changes, which have made the plan cost much more than expected. "It's the prudent, responsible thing to do right now," said J. Randall MacDonald, I.B.M.'s senior vice president for human resources. He said the new plan would "far exceed any average benchmark" in its attractiveness.
    Pension advocates said they were dismayed that rich and powerful companies like I.B.M. and Verizon would abandon traditional pensions. "With Verizon, we're talking about a company at the top of its game," said Karen Friedman, director of policy studies for the Pension Rights Center, an advocacy group in Washington. "They have a huge profit. Their C.E.O. has given himself a huge compensation package. And then they're saying, 'In order to compete, sorry, we have to freeze the pensions.' If companies freeze the pensions, what are employees left with?"
    Verizon's chief executive, Ivan Seidenberg, said in December that his company's decision to freeze its pension plan for about 50,000 management employees would make the company more competitive, and also "provide employees a transition to a retirement plan more in line with current trends, allowing employees to have greater accountability in managing their own finances and for companies to offer greater portability through personal savings accounts."

    In a pension freeze, the company stops the growth of its employees' retirement benefits, which normally build up with each additional year of service. When they retire, the employees will still receive the benefits they earned before the freeze. Like I.B.M., Verizon said it would replace its frozen pension plan with a 401(k) plan, also known as a defined-contribution plan. This means the sponsoring employer creates individual savings accounts for workers, withholds money from their paychecks for them to contribute, and sometimes matches some portion of the contributions. But the participating employees are responsible for choosing an investment strategy. Traditional pensions are backed by a government guarantee; defined-contribution plans are not.
    Precisely how many companies have frozen their pension plans is not known. Data collected by the government are old and imperfect, and companies do not always publicize the freezes. But the trend appears to be accelerating. As recently as 2003, most of the plans that had been frozen were small ones, with less than 100 participants, according to the Pension Benefit Guaranty Corporation, which insures traditional pensions. The freezes happened most often in troubled industries like steel and textiles, the guarantor found.
    Only a year ago, when I.B.M. decided to close its pension plan to new employees, it said it was "still committed to defined-benefit pensions." But now the company has given its imprimatur to the exodus from traditional pensions. Its pension fund, the third largest behind General Motors and General Electric, is a pace-setter. Industry surveys suggest that more big, healthy companies will do what I.B.M. did this year and next. "There's a little bit of a herd mentality," said Syl Schieber, director of research for Watson Wyatt Worldwide, a large consulting firm that surveyed the nation's 1,000 largest companies and reported a sharp increase in the number of pension freezes in 2004 and 2005. The thinking grows out of boardroom relationships, he said, where leaders of large companies compare notes and discuss strategy.
    Another factor appears to be impatience with long-running efforts by Congress to tighten the pension rules, Mr. Schieber said. Congress has been struggling for three years with the problem of how to make sure companies measure their pension promises accurately - a key to making sure they set aside enough money to make good. But it is likely to be costly for some companies to reserve enough money to meet the new rules, and they - and some unions - have lobbied hard to keep the existing rules intact, or even to weaken them. So far, consensus has eluded the lawmakers. "If Congress will not do its job and clarify the regulatory environment, then I think more and more companies will come to the conclusion that, given everything else that they've got to face, this just isn't the way to go," Mr. Schieber said of the traditional pension route.
    Defined-benefit pensions proliferated after World War II and reached their peak in the late 1970's, when about 62 percent of all active workers were covered solely by such plans, according to the Employee Benefit Research Institute, a Washington organization financed by companies and unions. A slow, steady erosion then began, and by 1997, only 13 percent of workers had a pension plan as their sole retirement benefit. The percentage has held steady in the years since then. The growth of defined-contribution plans has mirrored the disappearance of pension plans. In 1979, 16 percent of active workers had a defined contribution plan and no pension, but by 2004 the number had grown to 62 percent.
    For many workers, the movement away from traditional pensions is going to be difficult. Already there are signs that people are retiring later, or taking other jobs to support themselves in old age. Participation in a pension plan is involuntary, but most 401(k) plans let employees decide whether to contribute any money - or none at all. Research shows that many people fail to put money into their retirement accounts, or invest it poorly once it is there.
    Even skillful 401(k) investors can be badly tripped up if the markets tumble just at the time they were planning to retire. Mr. Schieber of Watson Wyatt ran scenarios of what would happen to a hypothetical man who went to work at 25, put 6 percent of his pay into a 401(k) account every year for 40 years, retired at 65, then withdrew his account balance and used it to buy an annuity, a financial product that, like a pension, pays a lifelong monthly stipend. He found that if the man turned 65 in 2000 he would have enough 401(k) savings to buy an annuity that paid 134 percent of his pre-retirement income. But if he turned 65 in 2003, his 401(k) savings would only buy an annuity rich enough to replace 57 percent of his pre-retirement income.
    When a company switches from a pension plan to a 401(k) plan, the transition is hardest on the older workers. That is because they lose their final years in the pension plan - often the years when they would have built up the biggest part of their benefit. They then start from zero in the new retirement plan. Jack VanDerhei, an actuary who is a fellow at the Employee Benefit Research Institute, offered a hypothetical example. If a man joins a firm at 40, works 15 years, and is making $80,000 a year by age 55, he might expect to have built up a pension worth $16,305 a year by that time, Mr. VanDerhei said. If he keeps on working under the same pension plan, that benefit will have increased to $27,175 a year when he retires at 65.
    But if instead when the man turns 55 his company freezes the pension plan and sets up a 401(k) plan, the man will get just the $16,305 a year, plus whatever he is able to amass in the 401(k). It will take both discipline and investment skill to reach the equivalent of the old pension payments in just ten years, Mr. VanDerhei said. For women, the challenge is even tougher. They have longer life expectancies, so they have to pay more than men if they buy annuities in the open market. It turns out the traditional, pooled pension offered them a perk they did not even know they had.

    Hermes Pensions Management, which is owned by and manages the BT pension scheme, the UK’s largest, is investing £1bn of the BT fund’s £34bn of assets in commodities. The investment, representing 3 per cent of scheme assets, is the largest single allocation to commodities by a UK pension fund and is designed to improve returns while reducing volatility.
     The move comes as pressure rises on UK pension funds to find surer ways of funding their long-term promises to pensioners and to plug widening gaps between their assets and liabilities. The BT pension fund deficit was £2.1bn when last reported in 2002.
     James Walsh, head of strategy and alternatives at Hermes, said: “It has become evident that schemes should not rely on bonds and equities alone to deliver consistent returns.” Several European and US retirement funds have increased their investment in commodities. ABP, Europe’s largest pension fund, has been investing in commodities since 2001 and they now represent about 3 per cent of its €190bn (£130bn) assets.
     Mr Walsh said the investment was part of a strategic allocation to diversify risk in equities rather than a bet on rising commodities prices. “Over the past 50 years commodities and equities have provided similar real returns at 5.2 per cent a year (compared to bonds at 1.5 per cent). However, the correlation of the performance especially over the longer term, has been quite different – with commodities stronger for instance in inflationary periods,” he said.  Initially, the Hermes Commodity Index Fund will be passively managed to track the Goldman Sachs Commodities Light Index.

    Morgan, who dominated Wall Street a hundred years ago, famously doubted the stability of companies that paid their top executive more than 20 times what the lowliest employee got. Business norms have since undergone a revolution, with the median chief executive in a survey of 2,000 large companies pocketing $2.5 million in 2004, up from $1 million five years earlier. Some of these packages may be justified as rewards for strong performance. But others amount to a cash-grab at the expense of shareholders, many of them unsuspecting owners of mutual fund shares and 401(k) retirement plans. One recent study identified 60 underwhelming companies that lost $769 billion in market value in the five years ending in 2004. Their top five executives pocketed more than $12 billion over this period, meaning that they averaged more than $8 million each per year.
    The challenge of disciplining bosses' pay must fall to the bosses' bosses: company shareholders and the boards of directors that represent them. But this isn't going to happen unless, at a minimum, bosses' pay is disclosed accurately. Today the Securities and Exchange Commission will unveil a proposal to improve transparency. If the proposal survives the SEC's sometimes rancorous rulemaking process, companies will be required to report the total compensation for five top executives, including stock-option grants, perks and retirement promises.
    The question is whether the SEC's proposal will go as far as it should, especially on retirement compensation. At present, firms are not required to disclose the value of defined-benefit pension promises to executives, so reports of bosses' pay generally leave these out. But the value of these promises can be enormous. When Franklin D. Raines was pushed out of the top job at Fannie Mae in 2004, he left with an annual pension of $1.4 million for as long as he or his wife lives. Pension promises generally account for almost a third of a chief executive's total career compensation, according to Harvard's Lucian A. Bebchuk.
    The SEC's five commissioners have been debating the details of their proposal. They apparently want better pension disclosure, but not the sort that would count most. What shareholders need is an honest estimate of the cost of future pension payments, expressed in today's money: Thus a promise of a $1 million pension has to be multiplied by the number of years the executive can be expected to collect, then discounted to reflect the fact that the payments will be made in the future. According to an SEC spokesman, the commissioners may be content merely to require firms to disclose what the boss stands to collect after retirement. But that doesn't tell shareholders how much the boss is costing them today.
    The SEC hasn't revamped rules on executive pay since the early 1990s, and its new chairman, Christopher Cox, deserves credit for tackling the issue. But if he stops short on pensions, he will be missing one-third of executives' compensation. Moreover, that third is especially troubling, because it tends not to be linked to executive performance. And of course that third is bound to grow rapidly if it is allowed to remain murky while other forms of compensation are dragged into the light.

© 2006 The Washington Post Company

    WASHINGTON, Jan. 17 - The Securities and Exchange Commission voted unanimously on Tuesday to overhaul the way companies report their pay packages for senior executives, a move that is expected to lead to greater disclosure but not to any significant decline in executive compensation.
    The proposal - the biggest change in this area in more than a dozen years - is the first major rule suggested by the commission's new chairman, Christopher Cox. S.E.C. officials said it would be adopted in a few months, after a few details were sorted out. It is expected to go into force for the 2007 proxy season. The move comes after a series of corporate scandals at the New York Stock Exchange and Tyco International, among others, that drew criticism over excessive pay.
    In 1992, when the five-member commission first addressed executive pay issues, it sought to require greater disclosure as an antidote to excessive pay. But in the intervening years, many boards have come up with partly or completely hidden benefits for top executives, ranging from paying their taxes to allowing use of corporate jets for personal reasons. "Simply put, our rules are out of date," Mr. Cox said at a commission meeting. But Mr. Cox emphasized that the agency did not intend to produce rules that forced changes in executive pay scales, but to make them more apparent to investors. "It's about wage clarity, not wage controls," he said. "By improving the total mix of information available to the marketplace, we can help shareholders and compensation committees of boards of directors to assess the information themselves, and reach their own conclusions."
    In recent years the commission has said that several companies, including General Electric and the Walt Disney Company, failed to adequately describe significant payments and benefits to top executives. Just as the accounting scandals prompted Congress and the regulators to adopt rules to invigorate audit committees of directors, the proposal on executive pay is meant to prompt compensation committees to be more exacting.
    At the same time, large institutional investors, like pension funds, have been raising more questions about the compensation of executives at companies where they own stock. The pay of the average worker remained almost flat at $27,000 from 1990 to 2004, adjusted for inflation, while average chief executive pay has risen from $2.82 million to $11.8 million, a ratio of more than 400 to 1, according to the Institute for Policy Studies and a group, United for a Fair Economy, which has been critical of the disparity between the pay of senior executives and lower-ranking employees.
    The proposed rules would for the first time require public companies to provide a figure for total compensation, including significant perks, stock options and retirement benefits for the chief executive, the chief financial officer and three other top-paid officers, as well as all directors.
    It is intended to prod companies into providing greater justification for pay packages, retirement plans, severance agreements and so-called golden parachutes - large payments to executives when control of a company changes hands. And it would require companies to place a precise dollar value on grants of stock options and restricted stock.
    Many companies now do little more than provide legal boilerplate to justify the pay packages.
    But the plan fell short of calls by some institutional investors to give a greater voice to shareholders in setting some pay packages. And it proposed to loosen at least one area of disclosure by raising the threshold to $120,000 for reporting a business transaction between a company and an executive or relative. Such disclosures are now required for transactions of $60,000 or more.
    Experts hailed the proposal for leading to greater transparency, saying that it would end up showing many hidden benefits given to top executives - particularly the value of stock options, pension plans and a wide assortment of perks - that are now either not disclosed or obscured. But they acknowledged that the changes, while they may encourage reining in some perks, would not lead to a decline in the rapidly growing pay packages of top executives at many public companies. "The positive effect will be that on the margin - and it is an important margin - there will be a new so-called outrage constraint," said Lucian A. Bebchuk, the director of the corporate governance program at Harvard Law School, who has documented how executive pay is often hidden and has far outpaced compensation for other employees. "The caveat is that even though there is an outrage constraint, shareholders have very limited power to do anything about it."
    Professor Bebchuk said that once what he has called the stealth compensation - pension and retirement plans in particular - became public, the disparities between the top and bottom of a company would be even greater. His research has found, for instance, that at the companies in the Standard & Poor's 500 with pension plans, the median actuarial value for pensions given to chief executives is about $15 million, or about a third of the overall total compensation.
    B. Espen Eckbo, director of the corporate governance center at the Tuck School of Business at Dartmouth, said the new rules would give institutional investors more ammunition to use to scrutinize boards and management. "There will be criticism; there will be second-guessing," said Professor Eckbo, speaking in part from his experience as an adviser to the Norwegian Petroleum Fund, a large pension fund. Still, he said, "forcing people to explain what they are doing can't be bad."
    Once the commission publishes the proposal, it will entertain comments for 60 days before voting on a final rule. Agency officials are preparing for a spirited debate over the best way to value options: some business groups have already complained that the proposal would unfairly overvalue options by giving them a full value at the time they are granted, while some institutional investors have urged the commission not to permit companies to undervalue them.
    The Business Roundtable, which represents chief executives from many of the nation's largest companies, issued a statement generally supporting the commission's proposal, although it cautioned that it wanted to examine the details. The statement, by the group's president, John J. Castellani, also asked the agency not to require companies to calculate stock options in a way that overvalues them. "Our goal is to effectively balance the goal of providing shareholders with timely disclosure of accurate and complete compensation information with the need to prevent strategic company information from being revealed to competitors and damaging a company," he said.
    Ira Kay, a compensation consultant at Watson Wyatt Worldwide, a human resources consulting firm, said company directors now found themselves caught between highly marketable executives, who could often command huge packages, and more active institutional investors seeking greater accountability. "Boards are caught balancing the interests of the executives and the shareholders," he said. "It's a difficult balancing act."

· Jitters send gilt yields to their lowest for 50 years
· Treasury under pressure to issue debt to ease panic
Market turmoil deals further blow to pension funds
Ashley Seager and Larry Elliott

    Pension funds are facing the same torment as the luckless Sisyphus from the Greek fables. He was condemned to push a ball up a steep hill, only to see it roll back down as soon as it reached the top. They are finding that, no matter what they do to try to close their deficits, the gilts market simply makes the problem worse again.
    The difficulty is pension fund liabilities are increasingly calculated using the yield on long-dated conventional or index-linked gilts. Every time funds buy gilts to match liabilities, yields fall and deficits rise again. The result is that rising equity markets, which ought to have rescued the pension fund industry, have not solved the deficit problem. Moyeen Islam, of Barclays Capital, says: “Funds that had relied on the rally in equities alone to improve their funding positions have found themselves pretty close to where they were at the start of 2005, and, effectively, have seen no benefit at all from 2005’s bull market in equity.”
    Changes in the pension regulatory system have made the situation worse. Companies face a risk-based levy, based in part on the health of their pension funds, from the Pension Protection Fund, the government-sponsored lifeboat set up to pick up some of the bill for retirement benefits when companies with a pension fund deficit go bust. In addition, companies making takeovers have been required by the Pensions Regulator to make payments to shore up deficits. The regulator has indicated pension deficits should be closed over 10 years. The result is deficits have turned from a long-term problem into a more immediate difficulty.
    Dawid Konotey-Ahulu, head of insurance and pensions solutions group at Merrill Lynch, says: “The Pensions Regulator has made it abundantly clear that sponsors have to fund mark-to-market deficits over a shorter time-frame than they had anticipated. In return for funding those deficits, finance directors also want to see their pension funds reduce their exposure to interest rates and inflation.” Hence there is an incentive to buy either long-dated gilts, both conventional and index-linked, or derivatives with the same hedging effect.
    With pension funds chasing a small amount of index-linked and long-dated conventional gilts, the result has been a sharp rise in prices and fall in yields. Nick Horsfall, senior in-vestment consultant at Watson Wyatt, the consultants, says the 0.5 percentage point drop in yields represents “a 7.5 to 10 per cent increase in liabilities over the past two months on average across UK plc”. Mr Konotey-Ahulu says a company with a £1bn pension fund, 60 per cent of which is invested in equities, and a 20 per cent deficit would have seen its deficit increase by £22m, or 11 per cent, on the basis of Tuesday’s market movements alone. In terms of equity markets, the equivalent move in the FTSE 100 index would have been a 260-point, or 5 per cent, one-day fall.
    Pension funds do not always buy index-linked bonds in the market directly; they are also trying tohedge their liabilities with inflationswaps, a kind of derivative. Watson Wyatt says it is seeing 10 times the demand for these products than a year ago. The situation has prompted growing calls in the market for the Debt Management Office, which borrows on behalf of the government, to intervene and issue emergency supplies of long-dated and inflation-linked paper to improve the liquidity in the market.
    Last May the DMO reintroduced the 50-year conventional gilt into the market after a pause of more than 40 years. Last September it launched the world’s first 50-year inflation-linked bond. There are now £7.1bn of 50-year conventional gilts and a total of £1.97bn in 50-year index-linked gilts. The DMO is poised to issue £650m of 50-year index-linked gilts on Tuesday. Helen Roberts, head of government bonds at F&C Asset Management, said: “The market is getting very frothy, it is boiling over. If liquidity worsens from here, the DMO is obliged to do something.”
    However, some investors believe such a move is not appropriate. David Scam-mell, director of fixed in-come at Schroders, is among them. “It would alleviate the pressure short term, but it does nothing to address the real problem which is pension fund demand at the long end,” he says.
    Even more drastic solutions have been suggested. Willem Buiter, an erstwhile member of the Bank of England’s monetary policy committee and now a professor at the London School of Economics, suggested in a letter to the Financial Times on Monday that the government should refinance most of the outstanding stock of government debt with long-dated, index-linked issues.
    Either this would push real yields higher, easing the plight of pension funds, or it would allow the government to finance its debt more cheaply, at great benefit to the taxpayer. “You can do it gradually or you can do it all overnight,” he said yesterday. He suggested that even refinancing the £55bn-£60bn of debt he estimated came due each year with longer-dated index-linked gilts could help ease the supply pressures.

Additional reporting by Joanna Chung

     The health of pension funds is being savaged by what investors describe as a bubble in the gilt market: pension deficits of FTSE 350 companies have increased by £20bn this month, according to Mercer Investment Consulting, thanks to a dramatic fall in the real yield on long-dated gilts. Lane Clark and Peacock, the actuarial group, estimates that the same factor has increased FTSE 100 pension fund liabilities by about £35bn since June 2005.
    The sudden rise in the price of index-linked government bonds this week, which has taken yields at the long-dated end to record lows, has had the same effect on pension deficits as would a 260-point, or 5 per cent, fall in the FTSE 100 index, says Dawid Konotey-Ahulu, head of insurance and pensions solutions at Merrill Lynch.
    The problem has led investors and traders to lobby government to issue more long-dated bonds to quench the thirst for gilts. A meeting with the Treasury is scheduled for two weeks’ time.

Uphill struggle for pension funds to close deficits
    Furthermore, the increase in deficits may be distorting company decisions. “It is diverting company cash away from business investment into pension contributions, which will reduce future economic output,” says Jeremy Toner, fixed-income portfolio manager at Investec Asset Management.
    The problem for pension funds is that their liabilities are calculated using a discount rate based on bond yields. As real yields fall, liabilities increase. The result has been a vicious cycle in which pension funds buy index-linked gilts to match their liabilities, forcing real yields lower and causing pension funds to buy more gilts.
    What makes matters worse is that long-dated index-linked issues are very small in relation to the size of the pension fund industry. The whole 50-year index-linked issue, for example, is worth less than £2bn. “An entire industry is being valued on the back of an illiquid market,” said one investor.
    Tuesday’s fall in yields, which took the real yield on the 2055 issue from 0.59 per cent to 0.48 per cent, was one of the biggest one-day drops recorded. Yields touched 0.38 per cent yesterday before recovering. The gilt yielded 1.1 per cent when it was issued in September. The plunge has also been driven by some hedge funds, which had bet on yields falling no further, being forced to cover their positions. “There was some serious dislocation in the market [in the morning],” said John Wraith, head of rates strategy at RBS Global Banking & Markets.
    Investors such as Mr Toner are describing the market as a “bubble”, while Chris Fellingham of Merrill Lynch Investment Managers talked of a “crisis” that required greater issuance from the government to push yields higher. Market participants are understood to be lobbying the Debt Management Office, the body responsible for government issuance, to increase the amount of long-dated index-linked gilts; a consultation meeting with the Treasury is due on February 1.
    The sudden fall in real yields seems to be related to the introduction of a risk-based levy by the Pension Protection Fund, set up by the government to protect the retirement rights of workers in companies that go bust. The levy will be partly based on the size of the pension fund’s deficit. The PPF requires companies to give details of their deficit position by March 31, and there may be a scramble to buy index-linked gilts before that deadline.

Der Markt für Kreditderivate wächst rasant. Die wichtigsten Instrumente sind Credit Default Swaps (CDS). Sie sind eine Art Ausfallversicherung auf Anleihen oder auch Kredite, mit der sich die Risiken handeln lassen, ohne dass die zu Grunde liegenden Referenzobligationen den Besitzer wechseln. Knapp zwei Drittel der Geschäfte entfallen auf Unternehmensrisiken, die von den Ratingagenturen mit Noten innerhalb des Investment-Grade eingestuft werden, womit der Schuldner als solide gilt.

CDS sind bilaterale Kontrakte, die sich auf ein bestimmtes Kreditrisiko (zum Beispiel Anleihen von Daimler-Chrysler) beziehen. Während der Laufzeit des Kontrakts verpflichtet sich der Sicherungsgeber (Risikokäufer), einen etwaigen wirtschaftlichen Verlust in der Referenzobligation bei Eintritt eines Kreditereignisses gegenüber dem Sicherungsnehmer (Risikoverkäufer) zu kompensieren. Als Kreditereignisse gelten üblicherweise vor allem Insolvenz oder Zahlungsverzug des Schuldners. Tritt ein solches juristisch vordefiniertes Kreditereignis ein, so liefert der Sicherungsnehmer eine entsprechende Referenzobligation an den Sicherungsgeber und erhält im Gegenzug dafür den Nennwert erstattet. Alternativ kann auch auf die Lieferung verzichtet werden und die Entschädigung komplett in bar gezahlt werden. Für diese Absicherung zahlt der Sicherungsnehmer eine Prämie an den Sicherungsgeber.

In diesem Jahr pendeln die Risikoaufschläge (Spreads) von CDS – gemessen am I-Traxx-Europe-Index – zwischen 0,36 und 0,38 Prozentpunkten und sind damit sehr niedrig, ähnlich wie die Risikoaufschläge von Unternehmensanleihen. Die meisten Experten fürchten, dass die Spreads in diesem Jahr steigen werden. Der I-Traxx-Europe-Index bildet die 125 liquidesten Credit Default Swaps europäischer Unternehmen ab. Es gibt verschiedene I-Traxx-Indizes, die Investoren aktiv handeln können.  „Die Indizes haben die Transparenz und Liquidität des Marktes enorm erhöht“, sagt Regier. Meist reagierten die CDS und die Indizes viel schneller auf bestimmte Ereignisse als die Unternehmensanleihen. „Zudem sind die Umsätze bei Kreditderivaten deutlich höher als bei den Anleihen selbst“, betont Michael Zaiser, Stratege für Kredite und Derivate bei der Hypo-Vereinsbank (HVB).

Besonders aktiv am CDS-Markt sind Banken, gefolgt von Versicherern. Auch Hedge-Fonds und herkömmliche Investmentgesellschaften gehören zu den Marktteilnehmern. Deutsche Fonds dürfen Kreditderivate erst seit gut zwei Jahren einsetzen. Dafür müssen sie nachweisen, dass sie die Risiken messen und überwachen können. „Dabei hapert es noch an der Umsetzung, weshalb deutsche Fonds CDS nur vereinzelt einsetzen“, sagt Zaiser. Er geht aber davon aus, dass sich die deutschen Fonds in den nächsten zwei Jahren stärker auf CDS konzentrieren werden. „Das wird dem Markt noch weiteren Schub geben“, meint der Stratege.

Erfunden wurden die Credit Default Swaps in den neunziger Jahren von Banken, vornehmlich, um die Bücher von Kreditrisiken zu entlasten. Heute nutzen die Handelsabteilungen der Banken wie auch die anderen Akteure die Derivate auch, um bei steigenden Spreads Gewinne zu machen. „Bei herkömmlichen Anleihen kann man in der Erwartung steigender Risikoaufschläge einzelner Bonds nur besser als der Markt abschneiden, wenn man die Anleihen nicht im Portfolio hat“, erklärt Klaus Oster, Leiter des Kreditresearchs bei der Fondsgesellschaft Deka Investment: „Im CDS-Markt kann man dagegen durch den Kauf von Sicherung direkt von steigenden Spreads profitieren.“

Außerdem gilt das größere Anlageuniversum im Derivatemarkt als Vorteil. Mit den CDS lassen sich Kreditrisiken auf alle Laufzeiten nachbilden, auch wenn es keine entsprechenden Anleihen gibt. „Das führt auch dazu, dass sich die Risiken über die einheitlichen CDS besser vergleichen lassen als über Anleihen, die in Laufzeit und Ausstattung stärker variieren“, sagt Oster. „Hinzu kommt die Hebelwirkung, weil sich Risiko handeln lässt, ohne dass Anleihen ge- oder verkauft werden müssen.“

Die Hebelwirkung wird jedoch auch kritisiert, genau wie die Tatsache, dass nicht nachvollziehbar wird, wer welche Derivate hält, so dass ein Systemrisiko entsteht. Gefahren sehen etwa die Bank für Internationalen Zahlungsausgleich (BIZ) und nationale Aufsichtsbehörden auch dadurch, dass es bei der Abwicklung der Derivategeschäfte zu Verzögerungen kommt, was bei tatsächlichen „Credit Events“ die Turbulenzen an den Finanzmärkten verstärken könnte. JP-Morgan-Fachmann Regier hält dagegen, dass es der Stabilisierung des Finanzsystems diene, wenn die Risiken breit gestreut seien: „Außerdem entwickeln die Marktteilnehmer die Risikomodelle und die Abwicklung weiter, so dass das systemische Risiko stetig abnimmt.“

Credit Default Swaps (CDS) sind die bedeutendsten und liquidesten Kreditderivate. CDS machen Kreditrisiken handelbar – unabhängig von den zu Grunde liegenden Anleihen oder Krediten. Wer die Sicherung kauft, muss dafür eine Prämie bezahlen. Der Markt entstand in den 90er-Jahren und hat zum Teil pro Jahr Wachstumsraten von über 100 Prozent. Derzeit sind weltweit CDS-Kontrakte über 12,4 Billionen Dollar am Markt. Die Teilnehmer Erfunden wurden die CDS in den 90er-Jahren von Banken. Inzwischen sind auch viele Versicherer auf dem Markt aktiv, ebenso wie Hedge-Fonds, Investmentgesellschaften und Unternehmen.

Die Folgeprodukte

CDS sind die Grundlage für viele andere derivative Produkte, zum Beispiel synthetische Asset Backed Securities, bei denen Kreditrisiken übertragen und als Wertpapiere an den Markt gebracht werden.

THE latest American initiatives to put pressure on the government of Sudan are centered many thousands of miles away from its capital, Khartoum. A handful of state legislatures in the United States have passed laws that bar their public pension funds from investing in companies with ties to Sudan, which has been accused of extensive human rights abuses in a long-running civil war.

The United States State Department has also labeled Sudan a state sponsor of terrorism.

While a 1997 executive order by President Bill Clinton bars American companies from conducting business in Sudan — except for a few technical exceptions, like a humanitarian mission — foreign businesses do not fall under that restriction. But in this age of global asset allocation, it is not uncommon for investors in the United States to have a link to Sudan through foreign stock holdings. Such foreign holdings would be the most affected by the recent state legislation.

The New Jersey Legislature passed a law in August that requires its public pension funds to divest itself of holdings in businesses that have equity stakes, including investments, facilities or employees, in Sudan. A similar law went into effect in Illinois last month, requiring its pension funds to be fully divested of any company with a Sudan tie by July. Oregon has also passed such a law for its public investment funds, while Louisiana has approved legislation that permits, but does not require, its public funds to shed investments linked to Sudan.

In December, the biggest public pension hammer, the California Public Employees Retirement Plan, or Calpers, took aim at three companies in which it has invested. The Calpers board voted 9 to 2 to call for the companies, ABB, Alcatel and Siemens, to cease business operations in Sudan.

A Calpers spokesman said that "our board believes that an engagement process with the companies is the best avenue if we are going to effect some change." Last week, Calpers reported that the three companies would not sever their Sudan ties; Calpers is considering its next step.

Phil Angelides, the California state treasurer and a Calpers board member, says he is prepared to pursue divestment if those companies do not pull out of Sudan. "The U.S. government has told Americans to have no business in Sudan," he said, "so why should California invest in companies that are supporting the regime?"

Spokesmen for the three companies say that leaving Sudan would do more harm than good. Ron Popper, a spokesman for ABB, for example, said the company had sought comment from many individuals and organizations within Sudan. "We have unanimously heard one message: do not withdraw because the country needs international investment," Mr. Popper said.

The states have left it to their money managers to figure out who belongs on the divestment list. Money managers have relied on private research firms that scour publicly available documents, trade journals and news accounts, and that conduct independent research to compile databases of companies involved in Sudan. Among the firms providing this research are KLD Research and Analytics, Institutional Shareholder Services and the Conflict Securities Advisory Group.

For example, KLD started its Sudan Compliance Service last November. Noel Friedman, managing director of KLD, said that 124 companies were currently on its Sudan list, including eight American businesses that he declined to name.

The lists, however, are far from definitive. Some companies that appear on them declare that they do no business in Sudan, and for at least one, 3M, the involvement was described by the company as aiding the United Nations. A spokesman at 3M said the United Nations bought 3M's Scotchshield Ultra Safety and Security Film, used to protect windows.

Steven Schoenfeld, chief investment strategist for quantitative investments at Northern Trust, is responsible for determining the companies his firm will exclude from the six "Sudan free" index funds it has started for institutional clients, including the State of Illinois. More than $8 billion of Illinois pension money has already moved into the six portfolios.

Mr. Schoenfeld's goal is to track closely the performance of traditional indexes even after he has removed stocks with ties to Sudan. He says his fund that tracks the MSCI EAFE index, a popular benchmark for developed countries across Europe and Asia, as well as Australia, will pose his biggest challenge. He said that more than 25 companies, representing more than 9 percent of the index's market capitalization, could be booted from the fund.

Among the big names that could be dropped from the portfolio are Royal Dutch Shell, which represents more than 2 percent of the EAFE index; Total, the French energy giant, about 1.5 percent; Toyota, about 1 percent; and Siemens of Germany and Ericsson of Sweden, both about 0.5 percent.

The six Northern Trust funds are to complete Sudan divestment by the summer.

While Sudan has been in a two-decades-long civil war that has claimed thousands of lives through fighting and famine, the state initiatives picked up momentum after Colin L. Powell, then the secretary of state, said in late 2004 that the United States viewed violence in the Darfur region of western Sudan as genocide.

Agreement over the gravity of the situation in Sudan has not meant a united push for divestiture. It stalled in the Arizona Legislature and didn't get far in Maryland. William C. Thompson, the New York City comptroller, has identified 24 stocks in the city pension system's holdings in which the parent company has some operations in Sudan. A spokesman for Mr. Thompson said his preferred course — echoing the stance of Calpers and others — was discussion with those companies, not divestment.

Mutual funds that call themselves socially responsible routinely screen out companies that they regard as having poor records on humanitarian issues and thus have generally avoided investing in companies with Sudan ties. But Julie Gorte, director of social research at Calvert Investments, which specializes in socially responsible funds, says she can still appreciate the complexity of the issue.

"You have to ask yourself what your goal is with divestment," she said. "What's there if the government falls? Is there a government there that will take over and be better? If the companies that pull out provide money, goods and services, is there an understanding that will make the people poorer in the short run?"

Before the states' recent push, there were other moves to exert pressure. In 2002, Talisman Energy of Canada decided to end its Sudan investment after American investors steeply discounted its stock. In 2000, many college endowments and public pension funds, including Calpers, did not participate in the initial public offering of PetroChina, a subsidiary of the China National Petroleum Company, because of PetroChina's involvement in oil extraction from Sudan.

THE nation's largest mutual fund companies have remained on the sidelines so far. A spokesman for Vanguard said it was "taking an 'analyze and see' approach before making any broad policy changes to either our internally or externally managed funds," while a spokesman for Fidelity said the Sudan issue was not currently a concern.

The $9 million Bull Moose Growth fund, which calls itself a "terror free" fund, is an exception. The investment manager relies on a database, maintained by the Conflict Securities Advisory Group, that tracks public companies with business ties to countries designated as state sponsors of terrorism; about 450 companies are listed in Conflict Securities' global security risk monitor, including about 120 with ties to Sudan. The fund's gain of 12.8 percent in 2005 was more than double that of the Standard & Poor's 500-stock index.

    DEPUIS le début du raid boursier de Mittal Steel sur Arcelor le 27 janvier dernier, environ un quart des actions du sidérurgiste européen a changé de mains. Comme dans toute OPA, les fonds spéculatifs sont entrés dans le jeu, à l'image d'Atticus qui presse aujourd'hui la direction d'Arcelor de négocier avec son assaillant pour obtenir un meilleur prix. La réponse n'a pas tardé : le conseil d'administration, qui rejeté à l'unanimité l'offre de Mittal Steel, répondra par lettre à ce minoritaire mécontent. Ensuite, à partir du 28 janvier, le président du groupe, Guy Dollé, rencontrera Atticus s'il le souhaite, au même titre que deux
cents autres grands investisseurs pour tenter de les convaincre de conserver leurs actions.
     Derrière ce fonds spéculatif américain réputé pour son activisme auprès des sociétés cotées, se cache en réalité Nathaniel Rothschild. Issu de la branche britannique de la célèbre famille, ce jeune loup de la finance, âgé d'une trentaine d'années, codirige l'affaire avec son fondateur Timothy Barakett et son vice-président David Slager. Créé il y a dix ans, Atticus gère actuellement plus de 10 milliards de dollars, investis dans de grands groupes cotés. La participation que le fonds détient dans le deuxième producteur mondial de cuivre, l'américain Phelps Dodge, représente la ligne la plus importante de son portefeuille, soit plus de 600 millions de dollars. L'énergie dans son ensemble est l'un de ses secteurs de prédilection, mais il est également présent au capital du producteur de biens de consommation Procter & Gamble.

La Deutsche Börse et Euronext harcelés
     En Europe, Atticus s'est illustré dernièrement dans les dossiers Deutsche Börse et Euronext. Dans les deux cas, il a agi parallèlement à un autre fonds spéculatif, The Children's Investement Fund (TCI), deux fois plus petit que lui en taille d'actifs et reversant une partie de ses gains à des oeuvres caritatives.
     Au printemps dernier, avec près de 20% du capital de Deutsche Börse en leur possession, Atticus et TCI sont ainsi parvenus à leurs fins : la Bourse de Francfort a abandonné son projet de fusion avec le London Stock Exchange, distribué un superdividende à ses actionnaires et changé de direction. Aujourd'hui, ces mêmes fonds revendiquent près de 20% d'Euronext, la plate-forme boursière commune à Paris, Amsterdam, Bruxelles et Lisbonne, et l'incitent fortement à se rapprocher de Deutsche Börse.
     A chaque fois, leur technique est la même. Atticus ou TCI expriment au management de la société visée leur divergence sur l'utilisation des profits et réclament des dividendes et des rachats d'actions. En 2005, Phelps Dodge a ainsi restitué au marché 1,5 milliard de dollars, Deutsche Börse 450 millions d'euros, tandis qu'Euronext envisage de distribuer prochainement un dividende exceptionnel.
     Reste qu'aujourd'hui, avec seulement 1,3% du capital d'Arcelor en main et un droit luxembourgeois inexistant, la marge de manoeuvre d'Atticus semble pour l'instant assez limitée. Atticus, qui demande au groupe sidérurgiste de revoir sa position sur l'offre de Mittal Steel, s'est déjà illustré dans plusieurs affaires en Europe.

    Assets administered in Switzerland shot up by more than a quarter last year, reaching SFr4.3 trillion ($3.3 trillion), ten times the gross domestic product.
      Statistics from the central bank revealed that Switzerland's financial centre is in robust health, and attracting record levels of foreign money. The value of assets belonging to foreigners grew by 29.8 per cent to SFr2.6 trillion by the end of 2005, said the Swiss National Bank (SNB). Assets owned by domestic investors rose 20.3 per cent to SFr1.8 trillion. The sums dwarf Switzerland's GDP of SFr433.36 billion. Foreign customers now account for almost 60 per cent of assets administered by Swiss-based financial institutions, said the SNB in its monthly statistical bulletin for February 2006. This was 1.9 per cent more than in 2004 and also a new record for the country.

Institutional investors
    Among those pouring money into assets looked after in Switzerland are institutional investors overseas, such as pension funds. Their holdings account for 55.5 per cent of those belonging to foreign customers, as compared with 49.6 per cent a year earlier.
     The SNB started publishing monthly statistics of assets administered in Switzerland in 2000, when stock prices peaked. What is not clear is whether the recent increase is down to a recovery in the financial markets, or an influx of new money. Money held in savings accounts and investment accounts rose 16 per cent to SFr1.2 billion, while fiduciaries handled SF389 billion worth of assets last year, a rise of 22 per cent. Added together, Swiss banks handled SFr5.931 trillion last year.

The yield curve is not a subject which normally lights up the nation's breakfast tables. But now it is of special relevance. Once you rephrase the matter as "why long-term interest rates are so low in relation to short-term rates" the relevance should become clear, particularly for those grappling with the problems of pension underfunding or those contemplating retirement on today's low annuity rates.

Market wisdom
    In practice, as our chart shows, the yield curve is of different shape in different countries. So what is it telling us? In America, an inverted relationship between 3-month and 10 year interest rates has correctly predicted every post-war recession and this measure has given only one false reading. It is inverted now. So is a recession on the way?
    Despite the yield curve's record, we must beware of attributing mystical significance to what is, after all, a market construct. The curve is surely not telling us anything about forces which will be unleashed on the economy as a result of the relation of short and long rates. I know of no one, individual or corporate, whose decisions on anything important for the real economy are likely to be materially influenced by this factor.
    If the yield curve has predictive power, it is because it reflects the views on the future of interest rates of participants in the market and that will be a reflection of their views of the economy. In the US, the yield curve is kinked.
    I read this as telling us that the market fears a sharp economic adjustment, perhaps encompassing a recession, once the current period of rate rises is over. This will require lower interest rates. But further out on the curve there is also a substantial downward influence from overseas buying of Treasury bonds. Nevertheless, it is striking that very long rates are about the same as very short rates.
    The reason for the upward slope in both the euro zone and Japan is that short-term interest rates are on the up from abnormally low levels. This means that investors in long-term bonds need a premium over current short-term interest rates to compensate them for the fact that future short-term rates will be higher.
    The UK case is different. The market thinks that in a year's time, short-term rates will be about the same as they are today. So why the downward slope out to 50 years? Sometimes the weight of money which market prices reflect is not so much the result of a careful view of the future as of sheer fear or institutional quirks.
    That is the case in the UK now. Having decided, late in the day, that their pension liabilities are bond-like in nature and that it was taking on a huge risk to hold equities against these bond-like liabilities, the pension funds have piled into bonds even at yields which you would have thought were bound to give poor returns.
    Thus, the structural imbalance of supply and demand at the long-end has overwhelmed rational consideration of the most likely course of future short rates; but the structural imbalance has completely flipped over from the direction presumed in conventional interest rate theory, that is to say, at the long end there is now a preponderance of investors seeking income security, thereby wanting to hold long fixed-rate assets. Meanwhile, although government borrowing remains strong, companies are strangely reluctant to borrow large sums at interest rates fixed for long periods.

Time to act?
    There may well be good reasons to be worried about the UK economy and good reasons to fear that last year's economic slowdown may be extended. I don't even rule out the recession risk in the UK. But to my mind these reasons do not include the shape of the yield curve.
    Nevertheless, the current shape of the yield curve is significant. With long rates so low, surely the authorities should substantially alter the balance of their new funding heavily towards the long end, or even issue long debt to redeem existing short debt. They have a once in a lifetime opportunity to reduce the cost of government funding.
    And the higher long yields which would result from this process would serve to alleviate some of the pressure on pension funds and thereby on their sponsoring companies and also bring some relief to all those about to retire, facing these wincingly low annuity rates. Why don't they do it?
    Search me. It is yet another example of public sector failure. So the UK yield curve is telling us something - although not in the Mystic Meg mould. In fact it is telling us three things: that the investing institutions are being sheep-like; would-be corporate borrowers are being excessively cautious; and the authorities are being complacent and supine in not taking advantage for the public good.

    En Suisse, la majorité des caisses de pension privilégie toujours une approche traditionnelle des investissements basée sur les indices, principalement d'actions et d'obligations, alors que certaines de leurs consœurs européennes sont plus radicales: elles abandonnent des stratégies d'investissement traditionnelles auxquelles elles ne croient plus, rationalisent leur gestion, convaincues qu'elles pourront ainsi mieux contribuer à la réalisation de leurs obligations de prévoyance.
    Voici ce que proposent certains fonds de pension européens: aux Pays-Bas, PGGM, la caisse de pension aux 72 milliards d'euros, abandonne l'approche conventionnelle basée sur les classes d'actifs et décline sa stratégie d'investissement en catégories: celles liées aux risques de marché, celles actives et les stratégies alternatives, avec un horizon d'investissement très long, introduisant opportunément de nouvelles catégories tout en vérifiant leur adéquation avec le profil de risque global du portefeuille. PGGM concrétise ainsi une stratégie d'investissement qui depuis dix ans donne des résultats impressionnants.
    En Grande-Bretagne, Schroders, qui gère et conseille plus de 600 caisses de pension, a décidé pour sa propre caisse de pension d'investir dans les dérivés et dans un large éventail d'investissements alternatifs comme les hedge funds, l'immobilier, le private equity et les matières premières. Les actions ne représenteront désormais qu'une part minime dans l'allocation d'actifs alors que traditionnellement elles représentent l'essentiel du portefeuille des caisses en Grande-Bretagne. La volatilité des actions et la difficulté à l'intégrer dans une stratégie d'investissement de très long terme visant à garantir les engagements de prévoyance, aboutit à reconsidérer la suprématie quasi dogmatique que les investissements en actions avaient su imposer dans la gestion institutionnelle.
    Aux Pays-Bas et en Grande-Bretagne, le fonds de pension d'Unilever crée Univest qui regroupe au sein d'un FCP luxembourgeois l'ensemble des actifs des caisses de pension du groupe avec une sélection «best in class» de gérants de fonds. L'objectif est de rationaliser l'«asset management», diminuer le risque global et actionner des économies d'échelle.
    Enfin, aux Pays-Bas, le fonds de pension de Philips cède la gestion de ses 16 milliards à Merrill Lynch Investment Management, pour anticiper une réforme législative mais surtout bénéficier d'un service sur mesure avec plus de cohésion et de professionnalisme vis-à-vis des besoins spécifiques.

Le système de prévoyance vieillesse doit subir de profonds changements pour qu'il soit durable.
Des mesures peuvent lui permettre de perdurer les 30 à 50 prochaines années.

    Même si le système à trois piliers de la prévoyance vieillesse suisse bénéficie, à juste titre, d'une excellente réputation internationale, il n'en est pas moins en danger, tout particulièrement en raison des profonds changements démographiques qui se profilent. Des réformes prises à temps devraient lui permettre de perdurer efficacement dans les 30 à 50 prochaines années. Tout comme ses voisins à l'étranger, la population suisse a une espérance de vie qui ne cesse d'augmenter.

Deux actifs pour un retraité
    Ces profondes modifications démographiques pèsent de plus en plus sur le système de prévoyance vieillesse nationale, dans la mesure où de moins en moins d'actifs doivent prendre en charge de plus en plus de retraités. Alors que la relation entre les actifs et les retraités était en 1950 de 6:1, le quotient actuel est de 4:1 et, selon les prévisions, il n'y aurait plus que deux actifs pour un retraité en 2040.
    La mise en place d'une réforme s'impose donc de toute urgence! Néanmoins, la question est de savoir comment refondre la prévoyance vieillesse de manière à assurer son financement durable dans les 40-50 prochaines années tout en assumant les objectifs sociaux, c'est-à-dire en garantissant la solidarité intra et intergénérations.

Remaniement des trois piliers
    Navos propose de remanier l'actuel système à 3 piliers et de l'accompagner d'importantes mesures de politique économique. Conformément au mandat constitutionnel, le but du 1er pilier est d'assurer les besoins vitaux pour tous au moment de la retraite, ce que l'AVS n'est déjà plus en mesure de garantir actuellement. C'est pourquoi les rentes devront être portées de 24000 à 30000 francs par an. De conception uniforme, elles permettront alors de réduire considérablement les frais administratifs.
    L'assurance invalidité AI, dont le déficit énorme est financé par l'AVS, devra être découplée et fonctionner de manière autonome, si nous ne voulons pas que le fonds de compensation de l'AVS soit épuisé dans trois ou quatre ans environ.
    Le 2e pilier devra être allégé et ne verser des rentes qu'à partir du revenu annuel soumis au 1er pilier (c'est-à-dire à partir de 24000-30000 francs) jusqu'à concurrence d'un montant maximum de 90000 francs environ, ce qui permettra à chacun de maintenir convenablement son niveau de vie antérieur. L'actuel régime surobligatoire sera déréglementé et transféré dans le 3e pilier.
    Selon la fourchette du salaire assuré, il sera également possible de réaliser des économies à ce niveau. La transparence sera ainsi majeure, dans la mesure où toutes les institutions d'assurance privées et publiques seront soumises aux mêmes règles fondamentales en matière de garantie des prestations et de gestion des risques (solvabilité!).

Plus de liberté de choix
    Parallèlement, la liberté de choisir telle ou telle institution sera renforcée au même titre par les entreprises que la liberté de chacun. Les prestataires proposeront aux assurés un choix de produits de placement adaptés à leur capacité de risque.
    Au niveau du 3e pilier, il conviendra d'encourager la prévoyance facultative accompagnée d'avantages fiscaux, afin de donner au plus grand nombre possible les moyens de se prendre en charge au moment de la retraite. Pour ce faire, l'Etat devra renoncer à toute directive de placement et ne contrôler que la solvabilité des prestataires. Il devra en être de même pour l'actuel régime surobligatoire qui sera dorénavant intégré au 3e pilier.
    De telles réformes exigeant du temps, elles doivent être amorcées le plus rapidement possible et complétées par des mesures d'accompagnement. L'allongement de la durée de cotisation par une avancée de l'entrée dans la vie active par exemple et une flexibilisation de l'âge de la retraite sont inévitables.

Rentabilité financière accrue
    Les économies réalisées au niveau des 2e et 3e piliers ainsi que les contributions futures dans le 1er pilier sont étroitement liées à l'évolution de l'économie. Un système de prévoyance vieillesse durable passe impérativement par une rentabilité financière accrue des épargnes institutionnelles et par une croissance dynamique de l'économie en général.
    L'objectif des propositions formulées par Navos est de garantir une prévoyance vieillesse durable pour les 40-50 années à venir. Il ne s'agit pas de démanteler le système en place, mais d'y apporter des réformes en profondeur.

    As company after company across the country freezes or terminates traditional pensions, typically at the same time shifting to new or sweetened 401(k) plans, workers face a new and very important question:
    How much do I need to save to make up for pension benefits I was expecting and now won't get? The answer, for tens of thousands of mid-career workers, is a lot. Exactly how much depends on so vast a number of variables -- including the worker's age, the generosity of the original plan, the rate of return achieved under the 401(k) -- that no rule of thumb can be reliable.
    But a study by pension expert Jack L. VanDerhei of Temple University and the nonprofit Employee Benefit Research Institute (EBRI) finds that middle-age workers who had generous pensions and who don't get particularly high 401(k) returns would have to sock away 20 percent of pay to save enough to buy an annuity to replace lost pension benefits.
    The money doesn't all have to come from workers. It could be contributed by employers or could come from a combination of employee contributions and employer match, as is common today. But, since the cost of traditional pensions is commonly borne entirely by employers, whatever additional money a worker has to put in represents a pay cut.
    That cut can come today, if the worker ponies up to have more retirement income, or later in the form of reduced retirement income. But either way, it's a cut.

How much?
    Let's look at a specific example that VanDerhei worked out. Assume a worker joined a company as he turned 30, expecting to work to age 65. Assume further that the company has a "final-average defined benefit" pension plan, a common type for middle managers, and that the plan promised a benefit calculated by multiplying the number of years worked times the average of the three highest years of pay times 1 percent.
    Now assume that the worker reaches age 50 this year and is earning $70,000. If his pay goes up 3 percent every year, at 64 he will make $105,881, and the average of his "high three" years will be $102,827.
    If the pension plan remained in place, his annual benefit would work out to: $102,827 x 35 x 0.01 = $35,989. But look what happens if the plan is frozen this year, making his high-three average $67,980 and his years of service 20. His annual benefit, beginning at age 65, would be: $67,980 x 20 x 0.01 = $13,596. This would leave him with $22,393 a year to make up out of his 401(k). VanDerhei figured that the worker would have to accumulate $299,536 in his 401(k) to buy an annuity "to fill in the gap created by the pension freeze."
    To get there, assuming the asset allocation common for someone his age -- about 63 percent stocks at age 50 and declining to about 55 percent at retirement -- and a 10.5 percent return on stocks and 5.5 percent on bonds, he (and/or his employer) would have to contribute 12.87 percent of his pay for each of the succeeding 15 years. If he gets only 8 percent return on his stocks, though, the required contribution rises to 14.3 percent of his pay.
    Looking at hundreds of plans for his study, which was published last week by EBRI, VanDerhei found that to make up for a frozen final-average plan -- and such plans vary widely in their generosity -- the additional share of pay that workers and/or employers in the median plan would have to contribute to make up for lost benefits would be 8.1 percent if their 401(k)s were assumed to earn an 8 percent return. To make participants in three-quarters of all final average plans whole, the contribution rate on average would have to be 16 percent of pay.
    If their 401(k) plans earned only 4 percent, however, a contribution rate of 13.5 percent would be necessary to cover participants in the median plan, and 21 percent to cover workers in three-quarters of such plans. Other types of pension plans with less-generous benefit formulas would require lower contributions. Cash-balance plans, in which workers have a hypothetical account that is credited with a percentage of pay each year along with interest, would under some scenarios require new 401(k) contributions as low as 2.7 percent of pay to offset a freeze.
    The good news, if you want to call it that, is that younger workers could, in theory, make up for their lost pension benefits with fairly modest 401(k) contributions. That is because they would have many years for their k-plan balances to compound. But even those workers would have lost something: risk protection.
    In a defined-benefit plan, the investment risks are borne by the employer, which is given tax benefits to pre-fund its pension obligations but is required to make up for deficit if the investment returns fall short. When a company shifts to a 401(k), the risks don't disappear; they are simply shifted to the worker. General Motors Chairman Rick Wagoner acknowledged as much as the company announced the freezing of its pension plans for white-collar workers. "These changes will reduce financial risks . . . for GM," he said.
    Further, there is no guarantee that the improved 401(k) matches that have accompanied pension freezes at GM, International Business Machines and elsewhere will continue through an employee's career. Generally, companies are free to raise, lower or eliminate their matching programs as they see fit.
    And finally, the increased limits that allow workers to contribute as much as $15,000 to their 401(k) plans this year -- plus $5,000 for workers 50 or older -- are scheduled to expire at the end of 2010. At that point, unless Congress acts, the limit would revert to $10,500 plus inflation adjustments, meaning that to contribute the amounts VanDerhei's study indicates are needed, workers would have to make a portion of their payments in after-tax dollars.
    Today, the private pension system provides about $120 billion to retirees and their families each year, the fruit of years of contributions and investments by employers. Some big pension plans are in trouble, but most are not. Nonetheless, companies, including healthy ones, are shedding such plans wherever they can to rid themselves of the risk and expense. So workers are left to cast about for a system that decades from now will provide the equivalent of $120 billion a year, or see their living standards slide toward poverty.
    What's it gonna be, folks?

    The U.S. Circuit Court of Appeals for the 4th Circuit last week sent a sigh of relief through the life insurance industry in Maryland and states with similar laws by vacating a judge's ruling that a trust cannot have an "insurable interest" in a person. That would mean, in effect, that a trust couldn't own life insurance, potentially upsetting one of the prime estate-planning devices in today's financial marketplace.
    Since life insurance death benefits are not subject to income tax but are included in the insured's taxable estate if he owned the policy, it has become common to set up irrevocable life insurance trusts to own big policies. When everything is done right, the policy proceeds escape tax altogether at the death of the insured.
    But, in a case involving a trust as well as allegations of fraud, U.S. District Judge Claude M. Hilton ruled that the Transamerica Occidental Life Insurance Co. did not have to pay on the policy it sold on the life of Harald Giesinger not only because of misrepresentations in the application but also because the trust couldn't have had an insurable interest in Giesinger's life.
    A three-judge panel of the appeals court sustained Hilton on the issue of misrepresentation, rejecting arguments by the trustee Vera Chawla that Transamerica ignored obvious evidence of Giesinger's poor health and therefore should have known about it. But it set aside Hilton's ruling on the insurable interest question, saying it "appears to have unnecessarily addressed an important and novel question of Maryland law."
    While Hilton's ruling is void and not available as a precedent, the appeals court did not say that his reasoning was wrong, merely that it was a thicket into which he needn't have plunged.
    Maryland legislators are working on a fix that might resolve the issue, but in the meantime, insurance buyers and sellers are left to wonder what the court would have decided if it had addressed the question. Chawla's attorney, William H. Crispin of Washington, also said the misrepresentation ruling will make it much easier for insurers to sell policies without paying too much attention to the insured's health and then rescinding them if the insured dies within two years.

The board that writes accounting rules for American business is proposing a new method of reporting pension obligations that is likely to show that many companies have a lot more debt than was obvious before.

In some cases, particularly at old industrial companies like automakers, the newly disclosed obligations are likely to be so large that they will wipe out the net worth of the company.

The panel, the Financial Accounting Standards Board, said the new method, which it plans to issue today for public comment, would address a widespread complaint about the current pension accounting method: that it exposes shareholders and employees to billions of dollars in risks that they cannot easily see or evaluate. The new accounting rule would also apply to retirees' health plans and other benefits.

A member of the accounting board, George Batavick, said, "We took on this project because the current accounting standards just don't provide complete information about these obligations."

The board is moving ahead with the proposed pension changes even as Congress remains bogged down on much broader revisions of the law that governs company pension plans. In fact, Representative John A. Boehner, Republican of Ohio and the new House majority leader, who has been a driving force behind pension changes in Congress, said yesterday that he saw little chance of a finished bill before a deadline for corporate pension contributions in mid-April.

Congress is trying to tighten the rules that govern how much money companies are to set aside in advance to pay for benefits. The accounting board is working with a different set of rules that govern what companies tell investors about their retirement plans.

The new method proposed by the accounting board would require companies to take certain pension values they now report deep in the footnotes of their financial statements and move the information onto their balance sheets — where all their assets and liabilities are reflected. The pension values that now appear on corporate balance sheets are almost universally derided as of little use in understanding the status of a company's retirement plan.

Mr. Batavick of the accounting board said the new rule would also require companies to measure their pension funds' values on the same date they measure all their other corporate obligations. Companies now have delays as long as three months between the time they calculate their pension values and when they measure everything else. That can yield misleading results as market fluctuations change the values.

"Old industrial, old economy companies with heavily unionized work forces" would be affected most sharply by the new rule, said Janet Pegg, an accounting analyst with Bear, Stearns. A recent report by Ms. Pegg and other Bear, Stearns analysts found that the companies with the biggest balance-sheet changes were likely to include General Motors, Ford, Verizon, BellSouth and General Electric.

Using information in the footnotes of Ford's 2005 financial statements, Ms. Pegg said that if the new rule were already in effect, Ford's balance sheet would reflect about $20 billion more in obligations than it now does. The full recognition of health care promised to Ford's retirees accounts for most of the difference. Ford now reports a net worth of $14 billion. That would be wiped out under the new rule. Ford officials said they had not evaluated the effect of the new accounting rule and therefore could not comment.

Applying the same method to General Motors' balance sheet suggests that if the accounting rule had been in effect at the end of 2005, there would be a swing of about $37 billion. At the end of 2005, the company reported a net worth of $14.6 billion. A G.M. spokesman declined to comment, noting that the new accounting rule had not yet been issued.

Many complaints about the way obligations are now reported revolve around the practice of spreading pension figures over many years. Calculating pensions involves making many assumptions about the future, and at the end of every year there are differences between the assumptions and what actually happened. Actuaries keep track of these differences in a running balance, and incorporate them into pension calculations slowly.

That practice means that many companies' pension disclosures do not yet show the full impact of the bear market of 2000-3, because they are easing the losses onto their books a little at a time. The new accounting rule will force them to bring the pension values up to date immediately, and use the adjusted numbers on their balance sheets.

Not all companies would be adversely affected by the new rule. A small number might even see improvement in their balance sheets. One appears to be Berkshire Hathaway. Even though its pension fund has a shortfall of $501 million, adjusting the numbers on its balance sheet means reducing an even larger shortfall of $528 million that the company recognized at the end of 2005.

Berkshire Hathaway's pension plan differs from that of many other companies because it is invested in assets that tend to be less volatile. Its assumptions about investment returns are also lower, and it will not have to make a big adjustment for earlier-year losses when the accounting rule takes effect. Berkshire also looks less indebted than other companies because it does not have retiree medical plans.

Mr. Batavick said he did not know what kind of public comments to expect, but hoped to have a final standard completed by the third quarter of the year. Companies would then be expected to use it for their 2006 annual reports. The rule will also apply to nonprofit institutions like universities and museums, as well as privately held companies.

The rule would not have any effect on corporate profits, only on the balance sheets. The accounting board plans to make additional pension accounting changes after this one takes effect. Those are expected to affect the bottom line and could easily be more contentious.

Up to 300 occupational pension schemes are at risk of collapsing, according to the Pensions Regulator.
The watchdog has announced plans to monitor at-risk schemes and intervene if necessary in order to protect the benefits of workers.

It also wants to ease the potential burden on the Pension Protection Fund (PPF), set up to administer funds left in deficit by insolvent companies.

A year after being set up, the PPF has taken on at least 40 insolvent schemes.

Poor pension trustees

In a strategy report published on Friday, the Pensions Regulator said it had serious concerns about the level of pension trustees' "knowledge and understanding", particularly those looking after funds with under 1,000 members.

"Our experience is that the standard of governance of many schemes, particularly smaller ones, is poor."

The regulator said that other priorities for the next few years would be to ensure that employers funded their schemes more fully and that workers understood the risks of defined-contribution (also known as money purchase) schemes, which are set to become the main form of retirement saving.

Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/1/hi/business/4953022.stm

In 2003, a whistle-blower forced San Diego to reveal that it had been shortchanging its city workers’ pension fund for years, setting off a wave of lawsuits, investigations and eventually criminal indictments.

The mayor ended up resigning under a cloud. With the city’s books a shambles, San Diego remains barred from raising money by selling bonds. Cut off from a vital source of cash, it has fallen behind on its maintenance of streets, storm drains and public buildings. Potholes are proliferating and beaches are closed because of sewage spills.

Retirees are still being paid, but a portion of their benefits is in doubt because of continuing legal challenges. And the city, which is scheduled to receive a report today on the causes of its current predicament, still has to figure out how to close the $1.4 billion shortfall in its pension fund.

Maybe someone should be paying closer attention in New Jersey. And in Illinois. Not to mention Colorado and several other states and local governments.

Across the nation, a number of states, counties and municipalities have engaged in many of the same maneuvers with their pension funds that San Diego did, but without the crippling scandal — at least not yet.

It is hard to know the extent of the problems, because there is no central regulator to gather data on public plans. Nor is the accounting for government pension plans uniform, so comparing one with another can be unreliable.

But by one estimate, state and local governments owe their current and future retirees roughly $375 billion more than they have committed to their pension funds.

And that may well understate the gap: Barclays Global Investments has calculated that if America’s state pension plans were required to use the same methods as corporations, the total value of the benefits they have promised would grow 22 percent, to $2.5 trillion. Only $1.7 trillion has been set aside to pay those benefits.

Not all of that shortfall, of course, is a result of actions like those that brought San Diego to its knees. And few governments have been as reckless as San Diego officials in granting pension increases at the same time as they were cutting back on contributions.

Still, officials in Trenton have been shortchanging New Jersey’s pension fund for years, much as San Diego did. From 1998 to 2005, the state overrode its actuary’s instructions to put a total of $652 million into the fund for state employees. Instead, it provided a little less than $1 million. Funds for judges, teachers, police officers and other workers got less, too.

To make up the missing money, New Jersey officials tried an approach similar to one used in San Diego. They said they would capture the “excess” gains they expected the pension funds’ investments to make and use them as contributions.

It was a doomed approach, leaving New Jersey to struggle with a total pension shortfall that has ballooned to $18 billion. Its actuary has recommended a contribution of $1.8 billion for the coming year, but the state has found only $1.1 billion, so it will fall even farther behind.

Illinois also duplicated one of San Diego’s pension mistakes. It tried to make its municipal pension plan cheaper by stretching its funding schedule over 40 years — considerably longer than the 30 years that governmental accounting and actuarial standards permit, and more than five times what companies will get under a pension bill that has just passed Congress.

Illinois is stretching its pension contributions over 50 years. At that rate, many of its retirees will have died by the time the state finishes tapping taxpayers for their benefits.

Colorado does not meet the 30-year funding guidelines, either. “At the current contribution level, the liability associated with current benefits will never be fully paid,” the state said in its most recent annual financial report.

Many officials dispute the suggestion that their pension plans are less than sound. The director of the New Jersey Division of Pensions and Benefits, Frederick J. Beaver, wrote recently that “our benefits systems are in excellent financial condition.”

Illinois officials say the state’s 50-year schedule is actually an improvement; before adopting it in 1995, the state had no funding schedule at all. In Colorado’s most recent legislative session, lawmakers enacted pension changes that they hope will make the plan solvent in 45 years.

And the National Association of State Retirement Administrators says it is unrealistic to expect all public plans to be fully funded, because they do not have to pay all the benefits they owe at once.

Still, the lack of a national response to what would seem to be a nationwide problem underscores a peculiarity of the public pension world: like banks and insurance companies, the pension plans are large and complex financial institutions, but they face no comparable systems of checks and balances.

“There’s no oversight; there’s no requirements; there’s no enforcement,” said Lance Weiss, an actuary with Deloitte Consulting in Chicago who advised Illinois on its pension problems. “You’re kind of working off the good will of these public entities.”

Experts do not think that is good enough.

In January, the board that writes the accounting rules for governments announced that it was looking for ways to tighten the rules for public pensions.

In July, Senators Charles E. Grassley and Max Baucus, the Republican chairman and the ranking Democrat on the Finance Committee, asked the Government Accountability Office to investigate the financial condition of the nation’s public pension plans.

In some states, lawmakers have been trying to stop some of the more egregious pension practices that have come to light. Illinois, Louisiana and Nebraska passed laws making it hard for employees to “spike” pensions higher by manipulating their salaries. Because pensions are often based on a worker’s final salary, workers have found ways to credit one-time bonuses to their last year and reap a lifelong reward. Arizona required that early retirement programs be paid for up front.

And today in San Diego, a former chairman of the Securities and Exchange Commission, Arthur Levitt Jr., is scheduled to issue a long-awaited report on the years of pension lapses that got the city into its current predicament.

Mr. Levitt is not tipping his hand on his findings. But given the activist stance he took on cleaning up the municipal securities markets as S.E.C. chairman, it would be no surprise if he called for tighter control over a sector where the amounts of money are huge and the amount of oversight is small.

The city of San Diego hired Mr. Levitt’s three-man audit team in February 2005, after the city’s outside auditor, KPMG, would not sign off on its accounts.

He is working with the S.E.C.’s former chief accountant, Lynn E. Turner, and Troy Dahlberg, a managing director in the forensic accounting and litigation consulting practice of Kroll Inc., the investigative firm that is a unit of Marsh & McLennan Companies.

Public plans are not governed by the federal pension law, the Employee Retirement Income Security Act, that companies must follow. They are not covered by the Pension Benefit Guaranty Corporation, so if they come up short, they must turn to the taxpayers.

Instead, they are governed by boards that often include municipal labor leaders, whose duty to represent their workers’ interests can easily conflict with their fiduciary duty to represent the plan itself. And even the most exemplary pension boards can be overruled, in many cases, by politicians whose priorities may be incompatible with sound financial management.

“When the state runs into financial trouble, pension contributions are something that they can defer without, quote-unquote, hurting anybody,” said David Driscoll, an actuary with Buck Consultants who recently helped Vermont come up with a plan to revive its pension fund for teachers. Politicians shortchanged it every year for more than a decade.

“In fact, they are hurting people, and the people they are hurting are the taxpayers, who, whether they realize it or not, are going into a form of debt,” Mr. Driscoll added. “Those pension obligations don’t get cheaper over time. They get more expensive.’’

Eventually the cost gets too big to ignore, as it now has in New Jersey.

Corporate pension funds have plenty of problems of their own. But they are at least required to adhere to a uniform accounting standard, which provides information that investors can use to decide upon stocks to buy and sell. The standards, in turn, are policed by the S.E.C.

Taxpayers have no such help. For municipal plans, the accounting standards are much more flexible, a decision that was denounced, when it was issued in 1994, by the head of the very board that wrote it.

James F. Antonio, chairman at that time of the Governmental Accounting Standards Board, attached a detailed 10-page dissent to the new rule, saying that it “fails to meet the test of fiscal responsibility” because it permitted “an extraordinary number of accounting options” and some governments were bound to choose the weakest one. Mr. Antonio has since retired.

Even though the governmental accounting board has now begun the slow process of improving the standard, it is unlikely to come up with the level of detailed disclosure required of corporations. And the board, with a full-time staff of just 15, has no authority to enforce its rules.

San Diego violated the rules for a number of years, using accounting techniques that hid both its failure to put enough money behind its pension promises and the debt to its workers that was growing every year as a result.

Several times, the city asked the government accounting board to make a special exception and approve its unorthodox pension calculations, but the board rebuffed it.

But the accounting board was forced to look on in silence as San Diego issued reassuring financial statements, because its charter bars it from issuing public pronouncements on individual cities.

San Diego might have gone on unchallenged indefinitely if not for the decision of one of its pension trustees, Diann Shipione, to blow the whistle, eventually forcing the city to correct the financial disclosures it had made in connection with an impending bond sale. Only then was it possible to see in one place what had been going on with the pension fund. And only then did the S.E.C. get involved.

The Depression-era laws that created the commission gave it no direct jurisdiction over municipal securities; it can pursue municipal wrongdoing only when it finds fraud at work. Lack of complete and accurate disclosure can constitute fraud, but the S.E.C. has only infrequently shown interest in throwing its weight around in the area.

One of those rare instances happened when Mr. Levitt was chairman of the S.E.C., in 1994, after Orange County, Calif., abruptly declared bankruptcy and threatened to repudiate its debts. Mr. Levitt became, as he said at the time, “obsessed” with cleaning up the municipal securities markets.

He created an independent Office of Municipal Securities that reported directly to the chairman; he championed rules to eliminate the pay-to-play practices then commonplace in the municipal bond business; he forced better financial disclosure; and he began an unheard-of number of enforcement actions.

Since Mr. Levitt’s departure from the S.E.C. in 2001, much of what he built has been dismantled. The Office of Municipal Securities is down to a staff of two and is no longer independent. The wave of enforcement actions against cities has slowed to a trickle. The S.E.C. investigators who went to work in San Diego after the pension scandal erupted have never said what they found.

When the S.E.C. shifted its gaze away from municipal finance, Mr. Levitt now says, it left “a regulatory hole.” If the agency were equipped to monitor state and local governments the way it monitors corporate disclosures, he said, “it could provide an early warning of financial conditions threatening the solvency of any number of communities.”

So why is a major law firm now claiming that Resolution acted unlawfully and why is it advising policyholders to demand compensation? Many of the with-profits endowments and pensions taken out over the decades with a multitude of insurance companies have been offloaded by the original firms and are today managed by a handful of specialist companies, known in financial circles as 'consolidators'.

They are nicknamed zombie companies because the original brands - such as Royal & SunAlliance, Alba, NPI, London Life or Britannic - are defunct. The zombie firms manage the dwindling pool of money until all of the policies end or the savers die and make their money from fees and tapping into the capital.

The biggest zombie firm is Resolution, which with seven million policyholders now ranks as one of the country's biggest insurers - even though it has never sold a single policy and is barely four years old. Resolution was founded by insurance wizard Clive Cowdery, whose personal worth is estimated at about £100m.

Its customers are the former policyholders of Swiss Life, Britannic and Alba and the 1m policyholders who came from the various firms that made up Royal & SunAlliance. But it is with RSA policyholders that a problem has now arisen, according to Alan Owens, partner of the law firm Irwin Mitchell.

Owens claims that Resolution's treatment of the former RSA investors is unfair. When it took over the business, Resolution decided that instead of every policyholder being exposed to the same underlying investment mix of shares, property, cash and bonds, some policyholders should have more exposure to certain assets than others.

The idea is that the annual bonuses awarded in the past are guaranteed and have to be paid out when the policy is surrendered or goes to the full term. To make sure that those guarantees are met, Resolution invests policyholders' money in safe assets such as cash and bonds. But that means they might miss out on big bonuses in the future when stock markets boom, as they have for the past three years.

'By its own admission, Resolution gives different policyholders a different mix of assets without seeking explicit policyholder approval,' says Owens. 'This creates winners and losers.' His calculations suggest that some policyholders' funds could have performed 23% better had Resolution not adopted this strategy in 2005 after it took control of the RSA plans.

'These policyholders could easily suffer sizeable losses if the stock market continues to rise as it has,' he says. He draws a comparison with the case that virtually destroyed insurer Equitable Life seven years ago when policyholders successfully claimed that it was not fair for them to receive lower bonuses simply because their policies carried higher guarantees than others. Owens reckons the Equitable Life case, on which he worked defending certain groups of policyholders, has clear parallels with Resolution.

'How Resolution is exercising its discretion in the investment process could be unlawful, as was found to be the case with Equitable,' he says. 'We are seeking a legal opinion on the matter.'

Resolution staunchly defends its strategy. 'We satisfied our own legal advisers and the regulator that this process was the right one,' says Resolution's chief actuary, Ian Maidens. 'It was discussed fully. We believe that to date no policyholders have been disadvantaged and a significant number have benefited.'

The FSA would not comment on Resolution, but told Financial Mail: 'We would expect firms that are considering this approach to discuss it with us and to demonstrate that policyholders will be treated fairly. 'We would also expect them to get legal advice to confirm that that their actions were consistent with contractual obligations.'

The plea to former RSA savers

IF you are a former Royal and SunAlliance policyholder whose plan is now branded Phoenix, then law firm Irwin Mitchell would like to hear from you.

Those who could have a claim are savers with endowments or pensions which were being managed by Royal & SunAlliance before September 2004. Originally they may have been sold as London Assurance, Sun Alliance or Royal & SunAlliance
policies. They will now be branded either Phoenix Life or Phoenix and London, and are managed by Resolution plc. Other Resolution policyholders - such as those with policies originally from Alba, Swiss Life or Britannic - are not affected.

Former RSA policyholders should write to Unfair Resolution?, Room 356, Northcliffe House, 2 Derry Street, London W8 5TS. Include your name, address and phone number and say whether your policy is a pension or endowment. It is vital that you state when the policy commenced and how it was originally branded (e.g. Sun Alliance).

Your letters will be passed to Irwin Mitchell, which has undertaken not to use your details for any purpose other than to pursue the initial stages of a potential claim.

Policyholders will be under no obligation, though Irwin Mitchell may contact them for further information. Do not include queries about your policy as they cannot be answered.
 

READER COMMENTS (4)

Heres hoping that Irwin is the 'White Knight' that can challenge these people who seem to be beyond the reach of the FSA, the Ombudsman, the Government et al. My letter is in the post, good luck.
 - Mel Moss, Lancashire

At last the activities of Resolution are coming under legal scrutiny. Only by collective action will a company the size of Resolution have to take some notice. They have thus far escaped any negative publicity. Our policy details will certainly be forwarded.
 - Mr A George, Cheshire

We have found your article very informative and will be sending our policy details without delay. We are currently pursuing an endowment mis-selling case against Phoenix and feel that the Financial Ombudsman Service also needs to get wise to this company. They are a very difficult company to deal with.
 - Mrs Karen Preston, Leicester

It's difficult to see where this might go - and part of me feels that this is an opportunistic legal firm looking to make a name and some money. Maybe I'm just too cynical!
 - Ian, Norwich

THE MEMBER STATES ARE NOT REQUIRED TO THEMSELVES FINANCE
RIGHTS TO OLD-AGE BENEFITS UNDER SUPPLEMENTARY PENSION SCHEMES
IN THE EVENT OF THE EMPLOYER'S INSOLVENCY

Nevertheless, a level of protection of those rights such as that afforded by the United Kingdom system is inadequate

In accordance with a directive on the protection of workers in the event of the employer's insolvency*, the Member States are to ensure that the necessary measures are taken to protect the interests of employees and former employees in the event of the employer's insolvency in respect of rights conferring on them immediate or prospective entitlement to old-age benefits under supplementary occupational pension schemes.

Ms Robins and 835 other claimants are former employees of the company ASW Limited, which went into liquidation in April 2003. They were members of final-salary pension schemes funded by ASW.

The schemes were terminated in July 2002 and are in the process of being wound up. According to actuarial valuations, there will be insufficient assets to cover all the benefits of all members, and the benefits of non-pensioners will therefore be reduced.

Under the legislation in force in the United Kingdom, the claimants will not receive all the benefits to which they were entitled. Two of the claimants will receive only 20% and 49% respectively of those benefits.

Taking the view that the United Kingdom legislation did not provide them with the level of protection called for by the directive, the claimants brought an action against the Government of the United Kingdom for compensation for the loss suffered. Hearing the case, the High Court has referred three questions to the Court for a preliminary ruling: (i) are the Member States required to fund themselves the rights to old-age benefits and if so to fund them in full? (ii) is the United Kingdom legislation compatible with the directive? and (iii) what is the liability of the Member State in the case of incorrect transposition of the directive?

The funding of rights to benefits by the Member States themselves
The Court finds that the directive does not oblige the Member States themselves to fund the rights to old-age benefits. Inasmuch as it states in a general manner that the Member States 'shall ensure that the necessary measures are taken', the directive leaves the Member States some latitude as to the means to be adopted to ensure protection. A Member State may therefore impose, for example, an obligation on employers to insure or provide for the setting up of a guarantee institution in respect of which it will lay down the detailed rules for funding, rather than provide for funding by the public authorities.

Furthermore, the Court considers that the directive cannot be interpreted as demanding a full guarantee of the rights in question. In so far as it does no more than prescribe in general terms the adoption of the measures necessary to 'protect the interests' of the persons concerned, the directive gives the Member States, in relation to the level of protection, considerable latitude which excludes an obligation to guarantee in full.

Compatibility of the United Kingdom legislation with the directive
The Court notes that in 2004, according to figures communicated by the United Kingdom, about 65 000 members of pension schemes suffered the loss of more than 20% of expected benefits and some 35 000 of those suffered losses exceeding 50% of those benefits.

Even if no provision of the directive contains elements which make it possible to establish with any precision the minimum level of protection required, a system that may, in certain cases, lead to a guarantee of benefits limited to 20 or 49% of the expected entitlement, that is to say, of less than half of that entitlement, cannot be considered to fall within the definition of the word 'protect' used in the directive. A system of protection such as the United Kingdom system is therefore incompatible with Community law.

Liability of the Member State in the case of incorrect transposition
The Court considers that, given the general nature of the wording of the directive and the considerable discretion left to the Member States, the liability of a Member State by reason of incorrect transposition of that directive is conditional on a finding of manifest and serious disregard by that State for the limits set on its discretion.

In order to determine whether that condition is satisfied, the national court must take account of all the factors which characterise the situation put before it. In the present case, those factors include the lack of clarity and precision of the directive with regard to the level of protection required, and a Commission report of 1995 concerning the transposition of the directive by the Member States, in which the Commission had concluded that 'the abovementioned rules [adopted by the United Kingdom] appear to meet the requirements [of the Directive]', which may have reinforced the United Kingdom's position with regard to the transposition of the directive into domestic law.

* Council Directive 80/987/EEC of 20 October 1980 on the approximation of the laws of the Member States relating to the protection of employees in the event of the insolvency of their employer (OJ 1980 L 283, p. 23).

In 2005, New Jersey put either $551 million, $56 million or nothing into its pension fund for teachers. All three figures appeared in various state documents — though the state now says that the actual amount was zero.

The phantom contribution is just one indication that New Jersey has been diverting billions of dollars from its pension fund for state and local workers into other government purposes over the last 15 years, using a variety of unorthodox transactions authorized by the Legislature and by governors from both political parties.

The state has long acknowledged that it has been putting less money into the pension fund than it should. But an analysis of its records by The New York Times shows that in many cases, New Jersey has overstated even what it has claimed to be contributing, sometimes by hundreds of millions of dollars.

The discrepancies raise questions about how much money is really in the New Jersey pension fund, which industry statistics show to be the ninth largest in the nation’s public sector, with reported assets of $79 billion.

State officials say the fund is in dire shape, with a serious deficit. It has enough to pay retirees for several years, but without big contributions, paid for by cuts elsewhere in the state’s programs, higher taxes or another source, the fund could soon be caught in a downward spiral that could devastate the state’s fiscal health. Under its Constitution, New Jersey cannot reduce earned pension benefits.

The Times’s examination of New Jersey’s pension fund showed that officials have taken questionable steps again and again. The state recorded investment gains immediately when the markets were up, for instance, then delayed recording losses when the markets were down. It reported money to pay for health care costs as contributions to the pension fund, though that money would soon flow out of the fund. It claimed it had “excess” assets that allowed it to divert required pension contributions to other uses, like providing financial assistance to poor school districts.

Frederick J. Beaver, director of the Division of Pensions and Benefits in the New Jersey Treasury Department, pointed out that other places had taken similar steps occasionally when dealing with a budget crunch, but acknowledged that New Jersey was unusual. “The problem we had was doing it on a repeat basis,” he said.

An in-depth look at the reporting discrepancies for the teachers’ fund, which covers about 155,000 current teachers and 65,000 retirees, shows how the system ran awry over many years, using many questionable practices.

New Jersey recorded the $551 million contribution for the 2005 fiscal year in a bond offering statement at the end of last year. The $56 million figure appeared in an audited financial statement for the fund.

Treasury officials said that everything had been done legally. But they confirmed in a recent interview that the correct amount for that year’s pension contribution was zero, which appeared in an actuarial report. They explained that the conflicting figures elsewhere had been inflated by other items, like health care contributions.

If New Jersey violated federal securities, tax or other rules, it could be forced to make up some of the contributions. The Internal Revenue Service has very specific rules against mixing pension money with money for other uses, like health care. Federal securities law also requires bond issuers to provide complete and accurate financial information.

The New Jersey Education Association has sued the state for failing to put enough money into the teachers’ pension fund. The lawsuit does not describe all the accounting maneuvers, but a State Superior Court judge has held that the case, now scheduled for trial in May, can proceed.

State law requires New Jersey’s seven pension plans, large and small, for various types of public employees, to be funded according to actuarial standards. Over the last decade, though, the Legislature has passed, and various governors have signed, a series of amendments to statutes that allow smaller contributions or none. These were justified by various maneuvers and approved with little scrutiny. In interviews, officials of the Treasury said the changes were made at the behest of the Legislature, while legislators faulted the Treasury.

Donald T. DiFrancesco, the acting governor in 2001, when the Legislature approved an expensive pension increase for teachers and other state employees, said he recalled that “people thought it was good public policy,” devised to attract the best people. He said he did not think the measure was considered financially unsound and did not recall anyone challenging it or calling it improper.

The state’s practices have nevertheless left its retirement system in a much more perilous condition than is widely understood.

“If people ran their households like this, they’d be in bankruptcy,” said Lynn E. Turner, a former chief accountant for the Securities and Exchange Commission. “If businesses did, the best example is the old steel mills when they got so far behind and didn’t fund their pensions as they should have. It tipped them into bankruptcy.”

A Governor Seeks Changes

Since taking office in January 2006, Gov. Jon S. Corzine, a former chairman of Goldman Sachs, has been warning that the pension fund is in worse shape than people may realize. “It’s impossible for us to stay on the course that we are on today, and deliver what people are asking for,” he said in an interview late last year. “The money will not be there.”

Governor Corzine has succeeded in getting the Legislature to contribute more to the pension fund, though not enough to meet its future obligations. There appears to be too little money to both restore the pension fund and fulfill the popular promise of property-tax relief without cutting services to an unacceptable level.

Governor Corzine has also pressed to raise the retirement age, increase employee contributions and to institute other changes to stem the growth of future costs. Now his administration is studying novel steps, like the sale of the New Jersey Turnpike.

Such strategies carry risks of their own. If the Corzine administration sells a big asset without first correcting the system’s entrenched problems, the new money could disappear into other government operations, too.

“When you sell the assets of the state, you’d better not use them for current spending. You’re eating your seed corn,” said Douglas A. Love, a member of the system’s investment oversight board. Mr. Love recently completed a calculation showing that the fund had not measured its future liabilities properly and estimated it had a $56 billion deficit, much higher than the $18 billion that the state had reported. Of course, the deficit could be greater if the assets have been inflated.

Increasing Federal Scrutiny

New Jersey’s situation may be extreme, but some other state and city governments will come under pressure in the coming years as longtime public workers retire in large numbers and the true cost of their benefit plans becomes more apparent.

The handling of public pension money has not drawn much scrutiny in the past but that is beginning to change. Members of the United States Senate have asked the Government Accountability Office for a review of public pension operations and whether new rules are needed.

The chairman of the Securities and Exchange Commission, Christopher Cox, recently said he wants to step up enforcement in the municipal bond markets and to improve financial reporting. He said he had come to this conclusion after a scandal in San Diego, where officials put false information about the pension fund into bond offering statements. After an investigation, the S.E.C. found it amounted to securities fraud.

The Internal Revenue Service may also be flexing some muscles. It intervened in San Diego after learning that the city was using its pension fund to pay other expenses, like retiree health care costs. The money in pension funds gets preferred tax treatment and must be spent solely on pensions.

Andy Zuckerman, the I.R.S.’s director for employee plans, rulings and agreements, said he could not discuss New Jersey’s situation because of rules on tax confidentiality. But in general, when local laws conflicted with the rules in the tax code, “the federal law applies, period.”

When asked about the discrepancies in the records for New Jersey’s pension plans, Treasury officials who met with two reporters at a conference room at an office building in Trenton last month acknowledged some unusual practices.

“We were not the ultimate decision-makers,” said John D. Megariotis, the deputy director of the Division of Pensions and Benefits. “We were the bean-counters.”

Mr. Megariotis was asked about the reference to the $551 million contribution to the teachers’ pension fund. He said that most of that amount had been the state’s payments for health care benefits.

The items were combined, he said, because New Jersey’s health plan for retired teachers lies within their pension fund. It is not clear whether New Jersey’s practices satisfy I.R.S. rules on the commingling of such assets.

Mr. Beaver, the division’s director since 2003, asked Mr. Megariotis why he had accounted for health care costs that way.

“Those are not my numbers,” Mr. Megariotis, a certified public accountant, responded emphatically. He added that New Jersey would not do it again. Both officials said the numbers had been approved by outside counsel.

As for the $56 million pension contribution listed in the audited financial statements, Mr. Beaver said he preferred the state’s actuarial reports — the ones showing a contribution of zero.

Seizing on $5.3 Billion

To explain the $56 million, though, Mr. Beaver and Mr. Megariotis recounted a bit of history. In 2001, the Legislature voted to increase teachers’ pensions by 9 percent, raising the plan’s total cost by an estimated $3.1 billion. Because New Jersey’s Constitution forbids creating debts without creating a funding source, the lawmakers needed to pay for it. They looked back to June 30, 1999, the height of the bull market.

Records showed that the pension investments were worth $5.3 billion more on that day than the plan’s actuary showed, because actuaries phase in gains and losses slowly to avoid sudden swings in market value. The lawmakers seized on this paper gain of $5.3 billion, and voted to channel it as an actual windfall into a new reserve in the pension fund, to pay for the new benefits.

I.R.S. officials said that a company would not be permitted to do this with a pension fund.

By the time the Legislature did this in 2001, of course, the stock market had tumbled and much of the $5.3 billion had melted away. That appeared not to have concerned the Legislature. An election was looming, and the teachers’ union was complaining bitterly about past failures to put money into their pension fund.

John O. Bennett, the Republican who was co-president of the State Senate in 2001, said the DiFrancesco administration had pushed for the increase and said there would be money to cover it.

“Now history has shown that that hasn’t been the case,” said Mr. Bennett, who abstained from voting on the bill because it also increased the pensions of legislators.

Mr. Beaver, of the Treasury, said he thought the Legislature “went back and rewrote history” when it passed the 2001 bill.

This unusual arrangement did not last long. Two years later, the state needed to make a big contribution to the pension fund as those earlier market declines showed up in its overall value.

Lacking the resources, the state laid claim to the special reserve. The assets were recycled back into the main body of the pension fund — and labeled a state contribution. That was $56 million in one year, Mr. Beaver said pointing to the state’s audited financial report. The state did this three years in a row, until fiscal 2007, when the reserve was empty.

Independent experts said they could not understand how New Jersey could designate this a pension contribution. “It’s a real misnomer,” said Mr. Turner, the former S.E.C. official. “The reality is, there was no new money.”

Because steps like these were taken over many years, it is difficult to judge the accumulated damage to the New Jersey system, experts said.

“It would be a really shocking picture, to show it all in one place, all the money that’s been taken out of the retirement system at precisely the times when the benefits were increased,” said Douglas R. Forrester, who ran New Jersey’s pension fund years ago, in the administration of Thomas H. Kean. In 2005, Mr. Forrester, a Republican, ran for governor against Mr. Corzine.

The state has about $31 billion of long-term debt outstanding, most of it in bonds. But Mr. Forrester said he thought that if all the unfunded debts of the state retirement system were correctly measured and added to that, “you’d get a number that’s about $175 billion.” “I don’t see how we’re going to get out of this,” he said.

David W. Chen and Jo Craven McGinty contributed reporting.

Investors in one London-based hedge fund last week asked lawyers to prepare an injunction against the fund, which has been selling off assets because it cannot borrow  any more money.

The group is said to believe that the fire sale would unfairly benefit other investors who are entitled to redeem their stakes at an earlier stage. They claim that, should  the money be distributed now, there will be fewer proceeds to be shared out if, as expected, the fund goes bankrupt.

Separately, legal sources said that in the past two weeks they had been approached by up to 10 hedge fund investors considering a range of lawsuits against funds over misleading prospectuses and mis-selling.

The possibility of legal action underlines investor anger at some funds that have failed to live up to sales pitches promising that they were protected, or hedged, from market volatility. In fact, hedge funds as an asset class have lost more than 5 per cent of their value since the market turned sour several weeks ago and a small  proportion are close to bankruptcy.

Hedge funds lose you more money than the FTSE100

Across the Atlantic, a surge in hedge fund litigation has already begun, with the case against Sentinel - which is alleged to have used clients' assets improperly to borrow more money - leading the way.

Larry Engel, a partner at Morrison & Foerster, the US law firm, expects a wave of hedge fund litigation to spread to Britain. "This is inevitable. In America, the first person you call when there's a problem is your lawyer," he said.

The firm sent a memo to its clients last week saying that out of 9,000 hedge funds worldwide, at least 2,000 were vulnerable to "runs on the bank", where investors fight to get their money out of struggling funds, forcing them into a downward spiral and ultimately insolvency.

Two prominent British funds hit the buffers last week after the commercial paper market seized up. This market acts like a corporate IOU system, allowing some specialist hedge funds to borrow money through so-called structured investment vehicles or SIVs.

But following the credit crunch, no one wants to lend money - because they don't have it to spare or are worried that they won't get it back.

The Mainsail II fund, run by Solent, the £4.4bn hedge fund, and Synapse Investment Management, both of which rely heavily on the commercial paper market for funding, were forced to admit that they had run into difficulties.

Solent said its Mainsail fund had drawn on emergency bank loans and been forced to sell assets. Synapse, which is part-owned by German bank Sachsen LB, was unable to meet margin calls from its bank, Barclays, which may seize some of its assets. Sachsen has also held talks with Barclays and Synapse about injecting money into the  struggling fund.

Sachsen and Solent are linked by Barclays' investment banking arm, Barclays Capital, which set up funds for them. Edward Cahill, Barcap's head of European collateralised debt obligations, who helped design the SIV-lite debt structure used by many of the London funds in trouble, resigned last week.

Experts say it is highly unusual for all styles of hedge fund investing to be hit at once, but predict that some will recover quickly once the turmoil passes. John Godden, the chief executive of IGS, the London hedge fund consultancy, said: "When you get a liquidity crunch like this, there is no hiding place: everyone gets hit."

Many public pension funds in recent years have become eager to invest in hedge funds. Now, some are getting cold feet.

Pension-fund managers from Louisiana to Ohio are saying they may slow their push into these funds after the recent losses suffered at big hedge funds -- including ones run by Goldman Sachs Group Inc. and AQR Capital Management -- have reinforced some of the risks.

Indeed, one critic suggests that pensions would be foolish to keep pursuing hedge funds. "It's like planning a vacation to an exotic land, and finding out that there's an outbreak of bubonic plague," says Frederick Rowe, chairman of the Texas Pension Review Board, which provides oversight of Texas public pension funds.

It's a significant reversal in thinking. Less than a year ago, more than 42% of public pension funds said they were planning "significant increases" to their existing hedge-fund investments, according to the consulting firm Greenwich Associates. At least 20 public pension funds are taking steps toward investing in hedge funds for  the first time, based on research prepared by Financial Investment News.

The Ohio School Employees Retirement System, for one, says it can invest up to 10% of its $11.7 billion in assets in hedge funds and that it has already hired a  consultant to find some funds. "But recent events have given us some more things to think about," says Jim Winfree, executive director. "We are going extremely  slowly."

It may be too early to see any pension funds redeeming their hedge-fund holdings, and some of the hardest-hit hedge funds have already shown signs of rebounding. But pension managers say the erratic moves in recent weeks are reason enough to worry most pension-fund boards.

Any pullback by pension funds would be a blow to many hedge funds, which are increasingly relying on these funds as a way to raise large amounts of capital.

For their part, pension plans -- which were among the investors burned by the bear market of 2000-2002 -- took note that many hedge funds provided some protection back then. As a result, in the past few years, many have started shifting into hedge funds and other alternative investments as a way to shield against a similar  downturn in the future.

Yet Kevin Lynch, a managing director at the consulting firm RogersCasey in Darien, Conn., says he noticed a palpable difference recently when discussing hedge funds with pension-fund managers "They're all kind of spooked," he says.

Allan Bentkowski, investment manager for the $700 million Tucson Supplemental Retirement System, said representatives from J.P. Morgan Chase & Co. visited their Arizona offices last year to discuss the merits of hedge funds. But after recent volatility, "the board has no inclination at this point."

At the Teachers' Retirement System of Louisiana, Phil Griffiths, the deputy chief investment officer, says he invested $25 million in a hedge fund last year and has the ability to move another $125 million of his $15.4 billion in assets into hedge funds.

But before he invests in any more hedge funds, he is waiting until at least the end of next month to see how some of the funds performed and whether they were hit with redemptions.

"If the funds didn't fare well, we'd see that as a negative," Mr. Griffith says. "Those results will probably prompt us to go one way or the other."

Other pension funds say plans to begin investing in hedge funds could be delayed. The Ohio Police and Fire Pension Fund says it has already selected two hedge funds to manage a combined $300 million in a strategy known as global macro, in which funds invest in a variety of assets around the world. But it has paused before formally  committing that money.

"We are checking in with our global macro managers far more frequently than normal," says William Estabrook, executive director at the $12.6 billion fund.

This doesn't mean all pension funds have turned more cautious. Many say they are long-term investors and that despite some losses, hedge-fund investments over time will lift returns and diversify a portfolio because they usually don't move in lockstep with stocks and bonds.

The board of the California Public Employees' Retirement System, with $243 billion in assets, recently said the pension fund could raise its hedge-fund investments to $12 billion from $5 billion.

The San Diego County Employees Retirement Association, which has 12 separate hedge-fund investments, lost $80 million when Amaranth Advisors collapsed in 2006,  though the fund still returned 16% for the year ended in June. The San Diego fund also held positions in funds from AQR and D.E. Shaw & Co. that hit rocky patches in  recent weeks.

Still, "we are looking at adding hedge-fund managers," says Brian White, the chief executive officer. "This reinforces the rule that diversification is good."

Dan Gallagher, chief investment officer at the Los Angeles City Employees' Retirement System, suggests the hedge-fund losses have only made him more skeptical. "I'm not a major hedge-fund proponent," he says. "And the perception among some of our trustees is that hedge funds are very volatile and that there is risk there."

Anybody who knows anything about governments realizes that when one person controls a large pot of money, there is bound to be trouble. So it should come as no surprise that New York’s attorney general, Andrew Cuomo, has begun a major investigation into the way the state’s $154 billion pension fund was managed by former Comptroller Alan Hevesi.

Mr. Hevesi resigned in December after pleading guilty to a minor felony involving the use of state cars and workers by his ailing wife. Now Mr. Cuomo and the Albany County district attorney are looking at how Mr. Hevesi and his staff chose the brokers or placement agents who earn millions of dollars by arranging deals between investment companies and the fund.

What fuels suspicions is that a vital piece of evidence has gone missing: a list of those who were given placement fees. Investigators have reportedly been told that there is only one known copy, and that nobody seems to have it.

This probably would not have happened if New York had a modern system for investing, with a board making certain nobody was playing favorites. But the state entrusts the $154 billion fund to one person — the state comptroller — who can choose any agent, any firm, any investment. That means one New York politician has the power to make people very, very rich.

A fund as important as this one should be run by a board or boards like those of California and New York City and most other governments with pensions. The problem is that some of Albany’s leaders like the system just the way it is. Comptroller Thomas DiNapoli, Mr. Hevesi’s successor, wants to remain the sole trustee despite having almost no experience in investing. More important, the Assembly speaker, Sheldon Silver, who essentially chose Mr. DiNapoli for his job, is also resisting. Their arguments that the comptroller needs to be able to move quickly to grab the best investments are not credible. The more likely explanation is that anyone who wields so much financial power can pry ever more campaign contributions out of the state’s highest rollers.

Although we have some concern about Mr. Cuomo’s use of the broad powers of the Martin Act to pursue the Hevesi team, the attorney general is doing the right thing, trying to uncover what looks like a secretive insider’s scheme.

With so much money, so few rules, so little transparency and one person in charge, the comptroller’s business needs a basic overhaul. The present comptroller needs to make contracts open and routine, and he should promise not to take campaign contributions from investment suitors. And the Legislature should get to work on bringing New York’s pension fund into a new century.

    While our nation has experienced other financial crises, the current one is the first to occur when so many Americans bear so much responsibility for their own retirement savings. Never before have those savings been as exposed to the markets, as workers are now experiencing acutely. While stocks will eventually recover, we should take time to rethink how Americans achieve lifetime financial security -- and the mechanisms in place to help them do it.
    Traditional pension benefits can no longer be relied upon when global competition and rapid technological change challenge the ability of even the greatest companies to make good on future commitments. Moreover, Americans switch employers and even careers several times over the course of their working lives.
    Yet the 401(k)s and other accounts that have replaced those pensions are not producing sufficient retirement savings. According to the McKinsey Global Institute, two-thirds of Americans between the ages of 54 and 63 have not saved enough for retirement. It's not that 401(k)s are bad, it's just that they were conceived as supplementary retirement vehicles, not as a holistic retirement system.
    A new approach, combining the best of traditional pensions and new savings vehicles, is needed. Here are the elements:
    - Automate participation and savings. Automatically enrolling employees in plans, then hiking savings with pay raises, overcomes the inertia that results in nearly a quarter of workers eligible for an employer-sponsored retirement plan not signing up. Automatic enrollment plans should mandate employer and employee contributions, and the percentage amounts of each. That's the approach some higher-education retirement plans follow. It may be one reason why 35% of faculty feel very confident in their retirement income prospects, compared with 25% of working Americans, according to the TIAA-CREF Institute.
    - Give workers the information they need. Most of us need advice that is objective -- from an adviser who receives no sales commission and thus has no incentive to push particular products -- and tailored to our individual goals. Retirement plans must include such advice for everyone who signs up.
    - Guarantee an income floor. Many retirement accounts focus on accumulation, but fail to include a payout mechanism to ensure retirees will not outlive their savings. Retirement plans should provide that by automatically converting all or a portion of the account balance to a low-cost annuity at retirement.
    - Encourage health-related savings. According to the Employee Benefit Research Institute, a couple that retires today will need from $200,000 to $635,000 to pay out-of-pocket health-care costs (above Medicare). Few private-sector employers offer workers an account to save for such costs. Last year's agreement among the Big Three automakers and the United Auto Workers to establish tax-free trusts for worker health is an approach gaining favor among academic institutions. Now Congress needs to enable people with these accounts to leave any unused balance to heirs. This will encourage people to hold on to their savings until the last years of their lives, when health-care money is most needed.
    - Diversify risk. If you had all your retirement in stocks, your account lost about 40% in recent weeks. If you had a mix of stocks and fixed-income holdings, you're down about 20%. Individuals need to properly diversify, and rebalance their accounts regularly to maintain a prudent mix of assets.
    Taken together, these measures offer a way to convert our patchwork of individually owned accounts into a stronger retirement system. All are achievable, provided that policy makers, public officials and companies seize the opportunity this crisis presents to help ensure that workers will have the retirement savings they'll need.

Mr. Ferguson, a former vice chairman of the Federal Reserve, is president and CEO of TIAA-CREF, which manages retirement savings for 3.6 million individuals and 15,000 institutions. He is also a member of President-elect Obama's Transition Economic Advisory Board.

comment (submitted 13 Nov, last updated 15 Nov)
wsj.com    15 November 2008, 07:42 am

Roger Ferguson may be up to something. And if some of his proposals ("It's Time to Rethink Our Retirement Plans", WSJ, 13 Nov 08) suggest an attentive and fruitful study of the 60 year old Swiss AVS pension system, so be it - our forefathers were also happy to draw inspiration and adapt the suitable parts from the US Constitution.

Nonetheless, I submit a reservation for consideration: due to the current financial crisis, the AVS's $30 bn equilibrium fund suffered losses of some $4 bn. Not devastating in a system where the monthly pension payments, essentially, are funded by the workers' and the employers' monthly contributions. But a painful, if late, yet no less instructive demonstration of chicken coming back to roost. For it was the Swiss lawmaker, in the early eighties, who was steamrolled by commission-hungry and/or myopic "experts", fiduciaries and pension fund managers into adopting pension fund investment rules which were promptly copied all over the world, and which are seen to have started the avalanche that now resulted in the on-going world-wide financial tsunami (www.solami.com/brink.htm).

Indeed pension fund managers everywhere thus found themselves formally authorized and encouraged to look for the-sky-is-the-limit "market-level returns" rather than low-risk family-father investments. To look for big companies as a measure for greater security (sic! e.g. ENRON). And even explicitly to venture into the unfathomably sophisticated derivatives & "securization" casino, i.e. the back-office of the stock-market which is supposed to serve and not to undermine the real economy.

Thus, with Ferguson's comprehensive pension plans, the new US Administration may find it possible and indicated under the circumstances to reverse gear by setting investment standards for pension funds which respect time-tested principles, organic limits and Calvin's trade-off of the lifting of the blanket prohibition of taking interest with the enforcement of a ban of usuric interest rates. It may thus help bring us back from the abyss - essentially created by the ill-advised de-mooring of the US currency whose inflationary and other adverse effects on the real economy can no longer be controlled by accounting gimmicks, such as the tell-tale suppression of the crucial M3 figures by the FED sind March 2006 (.../M3.htm). It may take the lead back onto the road of covering the long-term needs of the real citizens and the real economy - instead of accomodating apprentice-sorcerers, greed gurus and other myopic and ill-advised short-termists who recklessly pursue the illusion of financial perpetuum mobiles. And in doing so, pursuing the difficult course suggested by more visionary Swiss lawmakers towards re-moored and thus universally stabilizing and discipling real-value currencies (.../083718.htm) it may even help and prod their colleagues - whose predecessors are seen to have originated some current aberrations - to admit the co-responsibility for those original Swiss errors as a precondition for correcting them, and for others to promptly follow suit.- Iconoclast

Zwischen 80 und 100 Milliarden Franken Verluste werden die schweizerischen BVG-Einrichtungen per Ende Jahr aufweisen. Hunderte Kassen werden eine namhafte Kapitalunterdeckung melden müssen. Viele der Lohnprozente zahlenden Arbeitgeber und Arbeitnehmer werden in den nächsten Jahren zur Kasse gebeten. Viele dieser Wertberichtigungen sind blosse Buchverluste, etwa bei Aktien, die sich in den nächsten Jahren wohl wieder korrigieren.

Doch ein geschätzter zweistelliger Milliardenbetrag besteht aus echten Verlusten im Versichertenvermögen. Sie stammen vorwiegend aus Anlagen in Hedge-Funds und strukturierten Produkten (deren Summe Ende 2007 bereits 40 Milliarden in den Kassenvermögen ausmachte) sowie aus verlustreichen Absolute-Return-Fonds der Grossbanken und der Collateralized Debt Obligations (CDO), die beide schon mit ihrem Namen einen Etikettenschwindel darstellten.

Gewichtige Umlagerungen

Es ist ein Witz der Geschichte, dass ausgerechnet am 19. September 2008 - mitten in der Finanzkrise - die Anlagerichtlinien für die Pensionskassen gelockert worden sind. Mit der Änderung der wichtigen Pensionskassen-Verordnung (BVV2, mit Inkraftsetzung am 1. Januar 2009 und Vollzug bis Ende 2010) hat der Bundesrat ausgerechnet die Anlagen in Hedge-Funds und strukturierte (sprich spekulative) Produkte auf 15 Prozent erhöht und gleichzeitig die Anlagen in Liegenschaften von 55 auf 30 Prozent und jene in Hypothekardarlehen von 75 auf 50 Prozent gesenkt. Das bedeutet im Extremfall, dass Pensionskassen ihre sicheren Anlagen in Liegenschaften oder Hypothekardarlehen auf weniger sichere wie Aktien und strukturierte Produkte umlagern müssen - angesichts der Erfahrungen mit der Finanzmarktkrise eine ökonomische Schandtat.

Diese Deregulierung führt zu Anlageformen mit mehr Risiken, mehr Spekulation und weniger Bonität. Denn die Hypothekardarlehen und Kapitalanlagen in Liegenschaften haben sich seit mehr als einem Jahrzehnt als sicherer und im Langfristvergleich ertragreicher erwiesen als Aktien oder sogenannt alternative Anlagen wie Hedge-Funds.

Der Entscheid im Hinterzimmer

Profiteure der geplanten Verschiebung des Anlagemusters sind die Grossbanken, die Hedge-Funds und die Anlageberatungsfirmen. Formeller Antragsteller der Lockerung im Bundesrat war zwar Bundespräsident Pascal Couchepin. Es gab vorgängig weder eine Vernehmlassung noch eine Orientierung der parlamentarischen Kommissionen. Treibende Kraft dahinter war aber ein ominöses Gremium, das sich «Ausschuss Anlagefragen» nennt und aus Mitgliedern der BVG-Kommission und externen Vertretern des Finanzplatzes besteht.

In diesem elfköpfigen Ausschuss wurde die neue Anlagestrategie ausgeheckt und in der BVG-Kommission buchstäblich durchgedrückt. Fragt man heute Kommissionsmitglieder, die nicht im Ausschuss sind, wollen sie beim Entscheid unisono ein «schlechtes Gefühl» bei der Sache gehabt und eine «fachliche Überforderung» gespürt haben.

Der elfköpfige «Ausschuss Anlagefragen» wurde von der Finanzszene dominiert. Er bestand aus fünf Vertretern von Banken und Versicherungen (UBS, Pictet, CS, Swiss Re, Axa-Winterthur) sowie zwei Vertretern von Anlageberatern (PPCmetrics, KPMG). Die Vertreter des Staates (zwei) und der Sozialpartner (je einer) waren in der Minderheit.

Präsidiert wurde der «Ausschuss Anlagefragen» von Dominique Ammann von der Anlageberatungsfirma PPCmetrics, die im Pensionskassengeschäft mitmischt. Ammann und seine Firma profitieren direkt von den neuen Anlagerichtlinien. Denn die Veränderung im Anlagemix und die Übertragung von mehr Verantwortung auf die Stiftungsorgane der Pensionskassen erfordert nach Ansicht unabhängiger Experten einen enormen zusätzlichen Bedarf an externer Beratung.

Profiteure sind die Banken und Beratungsfirmen

Genau dies macht sich die Beratungsfirma des Ausschusspräsidenten zu Nutze: Auf ihrer Website wirbt PPCmetrics unter dem Titel «Revision Anlagevorschriften BVV2» mit grossen Lettern: «Die PPCmetrics unterstützt Sie bei der Einhaltung der neuen BVV2-Anlagevorschriften». Was nicht steht: Solche Pensionskassen-Beratungen kosten erfahrungsgemäss 400 Franken pro Stunde. Unabhängig von PPCmetrics gilt, dass Berater nicht deklarieren müssen, was sie an Provisionen und Kickbacks von den Banken erhalten.

Was lässt sich nach diesem Deregulierungscoup noch tun? Die nationalrätliche Kommission SGK, die erst kürzlich auf dieses Fait-accompli aufmerksam wurde, hat Anfang November vom Bundesrat einen Bericht verlangt. Die ständerätliche Kommission hat bald eine ähnliche Gelegenheit. Die Strategie müsste sein: die BVV2-Revision auf den 1. Januar 2009 nicht in Kraft setzen, das Parlament einschalten, eine breite Vernehmlassung durchführen und danach - wenn nötig - eine abgestützte Revision durchführen.

Unsere 600 Milliarden Franken Pensionskassenvermögen sind durch ein gesetzlich verordnetes Zwangssparen zusammengekommen. Deshalb ist es eine öffentliche Pflicht, den Pensionskassen mit ihren paritätischen, meist unprofessionellen Miliz-Stiftungsräten enge Grenzen im Sinne einer konservativen Anlagestrategie zu setzen. Die Pensionskassenvermögen sind die langfristigsten Anlagen überhaupt; sie haben in strukturierten und spekulativen Produkten, in ungesicherten Dollaranlagen und in aktiv verwalteten Anlagefonds nichts zu suchen. Ausser den Banken und Anlageberatern profitiert niemand davon.

Rudolf Strahm war vier Jahre lang Preisüberwacher und langjähriger SP-Nationalrat.

Kommentare

Hansjörg Gosteli
08:29 Uhr Als Verwalter zweier Teilautonomen PK's bin ich von den Anlagerichtlinien BVV2 direkt betroffen. Sollte die Umsetzung eins zu ein erfolgen müssten wir (und alle kleinere PK's) unsere Liegenschaften auf den Markt werfen und irgenwelche Produkte von Banken kaufen von denen niemand weiss wie sie funktionieren. In einer Zeit der globalen Krise Öl ins Feuer schütten ist ja kaum der richtige Ansatz.

Peter Wahlen
18.11.2008, 22:20 Uhr Der Artikel zeigt schwere sachliche Defizite von Herrn Strahm. Wie schon die alten BVV2-Richtlinien stellen auch die neuen nur Guidelines dar. Mit einem schlüssigen Bericht kann von den Limiten, wie bisher schon, abgewichen werden. PKs mit einem guten, diversifizierten Immobilienportfolio können auch mehr als 30% halten! PKs mit einem schlechten Immo-Portfolio müssen zum Glück neu diversifizieren!

Hans Strahm
18.11.2008, 21:19 Uhr Die Lektüre des Artikels lässt darauf schliessen, dass der Autor: 1. Die Immobilienkrise der 80er/90er Jahre in der CH vergessen hat. 2. Sich der gegenwärtigen Vermögensallokation der Schweizer Pensionskassen nicht ganz im Klaren ist. 3. Die neuen BVV-Vorschriften nicht im Detail gelesen hat. 4. Wer fachlich überfordert ist gehört nicht in eine Kommission oder sollte sich vorgängig beraten lassen.

R M
18.11.2008, 19:51 Uhr Wann eigentlich hören die Banksters endlich auf mit diesen dreisten Selbstbereicherungs Coups? Wie deutlich muss dem Finanzdepartement das Wort 'Langzeitverantwurtung' ausbuchstabiert werden?

Tom Arn
18.11.2008, 18:54 Uhr Lieber Herr Strahm - ich gehe davon aus, dass die Verluste noch deutlich höher ausfallen könnten, als Sie meinen. Viele PKs haben es in den letzten, supergoldenen Jahren nicht geschafft aus der Unterdeckung rauszukommen. Einfacher wirds nimmer. Das waren die fettesten aller fetten Jahre. Nun kommt die Dürre: Glauben Sie, dass diese Versager, ja Versager, nun die richtigen Rezepte hätten??

Toni Egger
18.11.2008, 14:18 Uhr Es zeigt sich wieder einmal, wie sich die FDP Politiker, Banken- und Versicherungs-Vertreter an den PK Guthaben bedienen wollen. Die Pensionierten und Versicherten sollten sich dagegen wehren, vorallem sollte endlich die verschiedenen Entscheidungs Gremien aus 60 % der Versicherten bestehen und vorallem haben Banken- und Versicherungs-Vertreter ausser als Berater überhaupt nichts darin zu suchen

When General Motors left Washington empty-handed last week, among the lingering questions was whether its huge  pension fund could topple and crush the government’s pension insurance program.

When any pension fund fails, usually as part of a bankruptcy, the government takes over its assets as well as its  payments to retirees. In G.M.’s case, its plan would dwarf the nation’s pension insurance fund.

Still, G.M. appears to have enough money in the pension fund to pay its more than 400,000 retirees their benefits for  many years — even with the markets swooning around it. That is largely because of the conservative way G.M. has  managed the fund recently, and it explains why G.M. has not joined the long list of companies pressing Congress for  pension relief.

But this glimmer of hope in a bleak auto landscape could change drastically, particularly if G.M. struggles along for a  few more years, only to go bankrupt. The company’s blue-collar work force is still building up new benefits with every  additional hour worked, and the pension fund will have to grow smartly to keep up with those costs.

If G.M. continues paying people to retire early, the costs will grow even more, because the plan will have to pay  retirees for more years than it budgeted. And G.M. is not contributing additional money to the plan right now.

Already, G.M. says it will be paying retirees about $7 billion a year for the next 10 years. The fund’s assets were  worth $104 billion at the end of 2007, more than enough to cover its obligations of $85 billion. Since then, the assets  have declined and the obligations have grown, each by undisclosed amounts. The company says it does not plan to  add any money to the fund for the next three or four years.

Even if G.M. were forced into bankruptcy, the government might insist that it keep the fund, and cover any shortfalls  with its own money.

“We would maintain that it can afford to keep its plan intact,” said Charles E. F. Millard, director of the Pension  Benefit Guaranty Corporation, the federal agency that takes over failed plans. “Based on past history, we think that  argument has a reasonable chance of success.”

Whatever its ultimate fate, the G.M. fund may illustrate, against the odds, that it is still possible to offer traditional,  defined-benefit pensions even in a historic bear market.

The other American automakers, Chrysler and the Ford Motor Company, also operate pension funds. Ford said that  its fund, which is about half the size of G.M.’s, had a small surplus at the end of 2007. Since then, however, it is  thought to have suffered a bigger percentage of losses than G.M.’s fund, because it uses a different investment  strategy.

Little is known about the Chrysler pension fund today because the company stopped making mandatory pension  disclosures when it was taken private in August 2007.

Along with pensions, G.M. has promised to provide health care to retirees, but those medical benefits are not  guaranteed by the federal government. The total cost of these benefits in today’s dollars was estimated at $60 billion at  the end of 2007, and G.M. had set aside only about $16 billion to cover the cost.

That year, G.M. and the United Automobile Workers agreed to let G.M. cap its health obligations to retirees by  creating a separate entity to manage the retiree health plan, and making a big payment. The automaker has said it will  make the payment in January 2010, and its retiree health obligations will end then. In the meantime, G.M. has issued  securities to cover part of the cost and is holding them in a subsidiary created for that purpose.

The G.M. pension is viable today because of the company’s response to the firestorm at the beginning of this decade,  said Nancy C. Everett, chief executive of G.M. Asset Management. The unit manages the company’s domestic and  foreign pension funds, as well as other big pools of company money.

In the two years after the tech crash of 2000, most American pension funds suffered their worst squeeze ever.  Although the stock market swings are even more severe now, pension funds have been buffered somewhat by relief  provisions written into the pension law signed in 2006.

At the time of the tech crash, most pension funds had invested heavily in stocks, and stocks lost billions of dollars in  value. At the same time, interest rates fell to unusually low levels, causing a painful mismatch, because low rates make  retirees’ benefits more expensive for pension funds to pay. G.M.’s pension fund finished 2002 with a shortfall of  almost $20 billion, by far the biggest of any American company.

“That was the genesis of General Motors thinking differently about how to manage the fund,” said Ms. Everett, who  was running the Virginia state employees’ pension fund at the time. She joined G.M. in 2005.

Until then, most pension officials thought stocks were their best choice, because stocks were expected to generate  more over the long run than bonds. And pension funds were thought to have a long time horizon.

Stocks have also been a favorite pension investment because of a much-criticized accounting rule that rewards the  corporate bottom line when pension managers invest more aggressively.

The big mismatch of 2002 showed pension officials that stocks could produce more volatility than a mature pension  fund like G.M.’s could bear. The company could not wait for stock prices to come back up eventually, because it had  400,000 retirees waiting to be paid about $7 billion every year.

With that in mind, G.M. sold more than $14 billion of bonds in 2003 and put the proceeds into its pension fund,  making up for the preceding years’ losses. It also put in the proceeds of the sale of its Hughes Electronics subsidiary,  for a total contribution of more than $18 billion. That was far more than the minimum required that year.

The big contributions got rid of the fund’s shortfall. (They also gave G.M.’s bottom line a lift, thanks to the accounting  rule.)

Then, over several years, G.M. overhauled its investment portfolio, replacing billions of dollars worth of stocks with  bonds, and adding derivatives to make the duration of the bonds better match the schedule of payments to retirees.

Bond prices can swing too, but G.M. plans to hold the bonds for their interest, not sell them. Ms. Everett said the  company believed the interest payments would be more than enough to produce the $7 billion owed to retirees every  year.

Currently, 26 percent of G.M.’s pension fund is invested in stocks — well below the typical pension fund’s allocation.  David Zion, an analyst at Credit Suisse who tracks corporate pension funds closely, estimates that G.M.’s pension  assets have declined by about 15 percent so far this year, compared with a 24 percent decline for the typical pension  fund at America’s 500 largest companies. It will be several more months before the size of the losses is known for  sure, because companies disclose precise pension numbers just once a year.

When asked why G.M. did not eliminate stocks from its pension fund completely, Ms. Everett cited the controversial  accounting rule.

“There’s two sides to this issue,” she said. “One is making sure your pension fund is adequately funded, and the other  is that pension income does come into play when you’re looking at the company’s income statement.” No company is  eager to eliminate pension income if competitors still have theirs.

The Financial Accounting Standards Board has been working on revisions to keep pension activity from affecting the  corporate bottom line, but it is not finished yet.

G.M. has a free pass on the funding rules for the next few years. It holds a so-called credit balance — a running tally  of the contributions made in past years that were larger than the law required. In 2006, G.M.’s credit balance was  worth $44 billion. The company is using that balance to offset contributions it would otherwise have to make. Over  time, the size of the credit balance will fall.

Ms. Everett said modeling exercises showed that a 26 percent allocation to equities was the likeliest way to produce  adequate investment returns while also preserving the pension fund’s surplus. She said managing the surplus was her  top priority. If G.M. had to make a pension contribution, it would not have the cash on hand to do it. The company has  said it will run out of cash early next year.

Meanwhile, the cost of restructuring the company could put a heavy burden on the pension fund. G.M.’s contract with  the U.A.W. offers special benefits to workers whose plants are shut down or who are forced to retire early. Invoking  these special benefits could make the plan’s obligations soar.

L’indépendance des caisses de pension, qui est une valeur essentielle du système suisse de la prévoyance, sortirait renforcée d’une réelle remise en question

Au 31 décembre 2008, 30 à 80% des caisses de pension suisses – suivant les sources d’information – affichaient un découvert actuariel. Sans plus attendre, le législateur les a toutes mises en congé de maladie. Selon la loi, en effet, un degré de couverture inférieur à 90% cache une grave infection. Ce diagnostic rien moins que hâtif menace effectivement, en raison du traitement inadapté qu’il appelle, de rendre malades, c’est-à-dire improductives, un grand nombre de caisses de retraite.

Il s’ensuit que la prévoyance professionnelle est de moins en moins à même d’assumer son mandat dans le système social suisse. Selon ce modèle, la prévoyance retraite repose sur un savant dosage des performances respectives de l’Etat, des entreprises et des particuliers. Il existe parmi eux, du fait de méthodes de financement différentes, une sorte d’équilibre naturel entre les risques biométriques et les risques économiques. Le régime de la prévoyance vieillesse étatique mise sur le contrat entre les générations, la génération montante finançant les rentes de la génération précédente. Ce régime est en mauvaise santé. La prévoyance professionnelle devrait au contraire avoir un effet équilibrant. Elle repose sur le système dit de la capitalisation, dans lequel chaque assuré perçoit une rente qu’il a financée lui-même en puisant dans le fruit de son travail.

Pour préserver le pouvoir d’achat des cotisations au 2e pilier, les caisses de pension doivent opérer au moindre coût et, dans un environnement mondialisé, suivre la filière de création de valeur économique à long terme de la planète. Les caisses en mauvaise santé sont celles qui peinent à atteindre cet objectif minimal. Le mal s’installe lorsque la substance des placements est irrémédiablement détruite, ce qui peut survenir par un recours à des véhicules d’investissement peu rentables ou spéculatifs, par suite de la faillite de débiteurs, de charges excessives ou d’actes délictueux. A l’heure actuelle, les caisses de pension courent un danger accru de perte de substance en raison de changements dans leur stratégie de placement.

Le deuxième pilier souffre depuis 1985 d’une diminution rampante des prestations. Depuis l’instauration de la LPP, les rentes minimales prescrites par l’Etat ont baissé d’environ 30% malgré l’évolution ascendante de l’économie. De nouvelles réductions sont à venir. Les partisans de cette saignée comptent entre autres sur la règle naïve et simpliste des 100/90% évoquée plus haut. ­Celle-ci engendre des erreurs d’appréciation et se traduit par des mesures inadéquates, contre-productives, qui servent surtout les intérêts des innombrables «donneurs de leçons». Ce qui ressemble à une perception des responsabilités dictée par un sens particulier du devoir n’est en réalité qu’un sentiment de sécurité à courte vue, acquis chèrement, dans la précipitation, et en définitive au détriment des consommateurs finaux.

La LPP a ouvert toute grande la boîte de Pandore. Les régulateurs et les organes de gestion des institutions de prévoyance ont perdu le sens de la mesure dans la jungle des lois et des réglementations. Pour se décharger et se donner bonne conscience, ils s’entourent de plus en plus de fonctionnaires, de juristes, de managers, de conseillers en placements, d’analystes, de «designers» de produits, de banquiers, d’assureurs, de formateurs et autres experts. La plupart pourraient bien disparaître que les caisses de pension ne s’en porteraient pas plus mal. L’économie de coûts ainsi réalisée suffirait à rompre la tendance négative. En Suisse, ce ne sont pas les caisses de pension qui sont malades, mais le système dans lequel on les a embrigadées. Le modèle de la prévoyance professionnelle réclame de toute urgence un changement de cap et une approche nouvelle s’il entend sauver l’estime dont il jouit dans le monde entier.

Sur la foi de l’ancien art. 34?quater (nouvel art. 111) de la Constitution fédérale, toute réglementation dans ce sens devrait s’appliquer dans l’optique des détenteurs de parts des institutions de prévoyance. A supposer que les partenaires sociaux fixent individuellement les cotisations, l’autonomie dont jouiraient les assurés dans l’aménagement de leurs prestations et l’organisation de l’institution de prévoyance serait leur principal atout. La réglementation ne concernerait plus alors que la gestion, l’administration et le contrôle des actifs de prévoyance, en se concentrant sur la définition des prestations minimales ainsi que sur la garantie des droits personnels à la constitution d’actifs et d’une stabilité à long terme de l’évolution de ces actifs.

La gestion paritaire des institutions de prévoyance par les employeurs et leurs salariés est un tabou dépassé mais lourd de conséquences, qui ne répond plus depuis longtemps à l’évolution du système de la prévoyance. N’est-il pas honteux que le législateur n’ait eu d’autre idée, à propos d’une équipe de direction censée gérer plusieurs milliards, que d’y installer moitié-moitié des représentants du patronat et des salariés pas même formés à cette tâche? Ne faudrait-il pas que des décisions, somme toute cruciales, soient précédées d’une analyse du potentiel de conflits et des rapports de force réels qui règnent au sein des caisses de pension? Après bientôt 20 ans d’expérience pratique de la gestion paritaire, il y aurait largement de quoi alimenter une analyse fondée de ses incidences. Quelles sont les conséquences de la parité, ses bienfaits ou ses méfaits? Personne, aujourd’hui, ne peut répondre à cette question sans sonder les liens de causalité.

Tout d’abord, les caisses de pension auront bientôt substitué totalement à la primauté des prestations, qui pèse sur la solidarité, la primauté des cotisations, qui consacre le principe de l’individualité. Ensuite, les employeurs comptent sur la mobilité de leurs salariés et calculent leurs charges de personnel en fonction de l’indemnisation globale du travail effectué. Enfin, rappelons que c’est le premier pilier qui a été conçu pour assurer la répartition dans le jeu de la prévoyance. Le deuxième pilier mise en revanche sur le système individuel de la capitalisation. L’illusion de répartition qui lui colle aux basques pourrait être facilement dissipée en renonçant aux cotisations des employeurs.

En contrepartie, l’indépendance des caisses de pension, qui est une valeur essentielle du système suisse de la prévoyance, sortirait renforcée de cette remise en question. En effet, si l’on voulait bien régler le financement des institutions de prévoyance de manière causale, par des cotisations à la source justifiant réellement les prestations et complétées par des contributions volontaires des salariés, la régulation de la prévoyance professionnelle pourrait s’aligner sur les principes de l’économie de marché. L’ordo-libéralisme d’essence allemande – exonération fiscale, libre concurrence, liberté de choix, libre circulation, séparation des fonctions – est un moyen d’aménager le système de prévoyance avec beaucoup plus d’efficacité. Du même coup, la surveillance pourrait retrouver son rôle premier sans intervenir dans des questions opérationnelles et techniques qui sont le propre des caisses de pension.

Lateinisch „sanare“ heisst Krankes gesund machen. Eine Sanierung ist die Überführung eines nicht nachhaltigen Zustands in sein Gegenteil. Für Pensionskassen bedeutet dies das Zurückfinden auf einen Existenz sichernden Gewinnpfad, falls der langfristige Trend in eine andere Richtung zeigt. Ein Sanierungsfall würde vorliegen, wenn die künftig zufliessenden Beiträge und erwirtschafteten Erträge nicht genügen, um anfallende Kosten sowie fällige und versprochene Leistungen zu bestreiten.

Die betriebliche Vorsorge kann darum ihrem Auftrag im schweizerischen Sozialsystem immer weniger gerecht werden. In diesem Modell beruht die Altersvorsorge auf einem ausgewogenen Mix zwischen staatlichen, betrieblichen und privaten Leistungen. Unter den Risikoträgern besteht wegen unterschiedlicher Finanzierungsmethoden ein natürlicher Ausgleich zwischen biometrischen und wirtschaftlichen Risiken. Die kränkelnde staatliche Altersvorsorge beruht auf dem Generationenvertrag, wo die nachfolgende Generation die Renten der vorausgegangenen Generation finanziert. Die berufliche Vorsorge müsste dagegen ausgleichend wirken. Sie beruht auf dem Kapitaldeckungsverfahren, wo jeder Versicherte eine Rente bezieht, die er selbst aus seiner Arbeitsentschädigung finanziert hat.

Um die Kaufkraft der Beiträge an die 2. Säule zu erhalten, müssen Pensionskassen kostengünstig arbeiten und sich in einem globalisierten Umfeld am langfristigen ökonomischen Welt-Wertschöpfungspfad orientieren. Krank sind diejenigen, die diese minimale Zielsetzung nicht erreichen können. Der Krankheitsfall tritt ein, wenn Anlagesubstanz unwiederbringlich zerstört wird. Dies kann durch Bankrott von Schuldnern, ertragsarme oder spekulative Anlagevehikel, überhöhte Kosten oder deliktisches Verhalten geschehen. Momentan besteht die erhöhte Gefahr, dass durch Änderungen von Anlagestrategien Anlagesubstanz vernichtet wird.

Die zweite Säule krankt seit 1985 unter einer schleichenden Leistungsreduktion. Seit Einführung des BVG haben sich die vom Staat vorgegebenen Minimalrenten, trotz ansteigender Wirtschaft, um rund 30% rückläufig entwickelt. Weitere Leistungsreduktionen sind angesagt. Die Befürworter dieses Aderlasses zählen unter anderem auf die errwähnte, einfältige 100/90-Prozentregel. Sie begünstigt Fehlbeurteilungen und hat unzweckmässige, kontraproduktive Massnahmen zur Folge, die vor allem den zahlreichen Ratgebern dienen. Was wie besonders pflichtbewusste Wahrnehmung von Verantwortung aussieht, ist tatsächlich ein zulasten der Endverbraucher übereilt und teuer erkauftes, kurzfristig orientiertes Sicherheitsempfinden.

Mit dem BVG wurde dem Peter-Prinzip Tür und Tor geöffnet. Die Regulatoren und die Führungsorgane der Vorsorgeeinrichtungen haben im Paragraphendschungel das Augenmass verloren. Zur eigenen Entlastung und persönlichen Absicherung werden immer mehr Staatsangestellte, Juristen, Manager, Anlageberater, Analysten, Produktgestalter, Banker, Versicherer, Ausbilder und Experten herangezogen. Man kann die meisten wegdenken, ohne dass einzelne Pensionskassen Schaden nehmen. Allein mit den dadurch eingesparten Kosten könnte der negative Trend gebrochen werden. In der Schweiz sind nicht die Pensionskassen krank, sondern das System, in das sie eingebettet wurden. Das Modell betriebliche Vorsorge bedarf dringend Korrekturen und neuer Ansätze, wenn seine weltweite Wertschätzung Bestand haben soll.

Ausgehend vom Verfassungsauftrag in Art. 34quater müssen entsprechende Regelungen immer aus Sicht der Anteilseigner der Vorsorgeeinrichtungen erfolgen. Unterstellt man die praktisch gegebene, individuelle Festlegung der Beiträge durch die Sozialpartner, bilden die Autonomie der Vorsorgenehmer in der Gestaltung ihrer Leistungen und der Organisation der Vorsorgeeinrichtung ihre zentralen Stärken. Von der Regulierung betroffen sind noch Führung, Verwaltung und Kontrolle der Vorsorgevermögen mit Schwerpunkten bei der Definition von Minimalleistungen, der Sicherung der persönlichen Ansprüche an der Vermögensbildung sowie der Gewährleistung und Absicherung einer langfristigen Stabilität der Vermögensentwicklung.

Die paritätische Führung der Vorsorgeeinrichtungen durch Arbeitgeber und ihre Mitarbeiter ist ein überholtes aber folgenreiches Tabu, das den Entwicklungen des Vorsorgewesens schon lange nicht mehr gerecht wird. Ist es nicht beschämend, wenn dem Gesetzgeber zur Führungscrew von Milliardenunternehmen nichts anderes einfällt, als dass sie hälftig mit noch auszubildenden Arbeitnehmer- und Arbeitgebervertretern zu bestellen sei? Müsste solch weitreichenden Entscheiden nicht eine Analyse des Konfliktpotentials und der effektiven Machtverhältnisse in Pensionskassen vorangehen? Nach bald 20 Jahren Praxis mit paritätischen Führungsorganen wäre genügend Material für eine fundierte Wirkungsanalyse vorhanden. Was Parität bewirkt und wo sie nützlich oder schädlich ist, kann heute niemand schlüssig beantworten. Mögliche Zusammenhänge sind zu hinterfragen.

Erstens haben Pensionskassen die solidaritätslastigen Leistungsprimate bald vollständig durch individualitätsbezogene Beitragsprimate substituiert. Zweitens zählen Arbeitgeber auf die Mobilität ihrer Mitarbeiter und kalkulieren ihre Personalkosten aufgrund der Gesamtentschädigung von Arbeitspensen. Drittens ist für Umverteilungen in der Vorsorge die erste Säule gedacht. Die zweite Säule baut hingegen heute auf dem individuellen Kapitaldeckungsverfahren auf. Die ihr anhaftende Umverteilungs-Illusion kann durch einen Verzicht auf Arbeitgeberbeiträge leicht beseitigt werden.

Im Gegenzug würde damit die Unabhängigkeit der Pensionskassen, ein zentraler Wert des Schweizerischen Vorsorgewesen, gestärkt. Würde nämlich die Finanzierung der Vorsorgeeinrichtungen kausal mit leistungsgerechten Quellenbeiträgen geregelt, die vom Mitarbeiter freiwillig ergänzt werden können, kann sich die Regulierung der beruflichen Vorsorge an marktwirtschaftlichen Grundsätzen orientieren. Ordoliberale Regeln wie Steuerbefreiung, Wettbewerb, Wahlfreiheit in Verbindung mit der Freizügigkeit und Entflechtung von Funktionen helfen die betriebliche Vorsorge viel effizienter gestalten. Gleichzeitig könnte sich die Aufsicht wieder auf ihre wesentliche Aufgaben, ohne Eingriffe in verteilungs- und operationstechnische Belange der Pensionskassen, konzentrieren.

Aug. 11 (Bloomberg) -- Laurence Kotlikoff, an economics professor at Boston University, talks about the state of the U.S. economy. Kotlikoff speaks with Erik Schatzker on Bloomberg Television's InsideTrack." (Source: Bloomberg)

Let’s get real. The U.S. is bankrupt. Neither spending more nor taxing less will help the country pay its bills. What it can and must do is radically simplify its tax, health-care, retirement and financial systems, each of which is a complete mess. But this is the good news. It means they can each be redesigned to achieve their legitimate purposes at much lower cost and, in the process, revitalize the economy.

Last month, the International Monetary Fund released its annual review of U.S. economic policy. Its summary contained these bland words about U.S. fiscal policy: “Directors welcomed the authorities’ commitment to fiscal stabilization, but noted that a larger than budgeted adjustment would be required to stabilize debt-to-GDP.”

But delve deeper, and you will find that the IMF has effectively pronounced the U.S. bankrupt. Section 6 of the July 2010 Selected Issues Paper says: “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”

The fiscal gap is the value today (the present value) of the difference between projected spending (including servicing official debt) and projected revenue in all future years.

Double Our Taxes
To put 14 percent of gross domestic product in perspective, current federal revenue totals 14.9 percent of GDP. So the IMF is saying that closing the U.S. fiscal gap, from the revenue side, requires, roughly speaking, an immediate and permanent doubling of our personal-income, corporate and federal taxes as well as the payroll levy set down in the Federal Insurance Contribution Act.

Such a tax hike would leave the U.S. running a surplus equal to 5 percent of GDP this year, rather than a 9 percent deficit. So the IMF is really saying the U.S. needs to run a huge surplus now and for many years to come to pay for the spending that is scheduled. It’s also saying the longer the country waits to make tough fiscal adjustments, the more painful they will be.

Is the IMF bonkers?
No. It has done its homework. So has the Congressional Budget Office whose Long-Term Budget Outlook, released in June, shows an even larger problem.

‘Unofficial’ Liabilities
Based on the CBO’s data, I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt. This gargantuan discrepancy between our “official” debt and our actual net indebtedness isn’t surprising. It reflects what economists call the labeling problem. Congress has been very careful over the years to label most of its liabilities “unofficial” to keep them off the books and far in the future.

For example, our Social Security FICA contributions are called taxes and our future Social Security benefits are called transfer payments. The government could equally well have labeled our contributions “loans” and called our future benefits “repayment of these loans less an old age tax,” with the old age tax making up for any difference between the benefits promised and principal plus interest on the contributions.

The fiscal gap isn’t affected by fiscal labeling. It’s the only theoretically correct measure of our long-run fiscal condition because it considers all spending, no matter how labeled, and incorporates long-term and short-term policy.

$4 Trillion Bill
How can the fiscal gap be so enormous? Simple. We have 78 million baby boomers who, when fully retired, will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. The annual costs of these entitlements will total about $4 trillion in today’s dollars. Yes, our economy will be bigger in 20 years, but not big enough to handle this size load year after year.

This is what happens when you run a massive Ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old while promising the young their eventual turn at passing the generational buck.

Herb Stein, chairman of the Council of Economic Advisers under U.S. President Richard Nixon, coined an oft-repeated phrase: “Something that can’t go on, will stop.” True enough. Uncle Sam’s Ponzi scheme will stop. But it will stop too late.

And it will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.

Worse Than Greece
Most likely we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates and consumer prices. This is an awful, downhill road to follow, but it’s the one we are on. And bond traders will kick us miles down our road once they wake up and realize the U.S. is in worse fiscal shape than Greece.

Some doctrinaire Keynesian economists would say any stimulus over the next few years won’t affect our ability to deal with deficits in the long run.

This is wrong as a simple matter of arithmetic. The fiscal gap is the government’s credit-card bill and each year’s 14 percent of GDP is the interest on that bill. If it doesn’t pay this year’s interest, it will be added to the balance.

Demand-siders say forgoing this year’s 14 percent fiscal tightening, and spending even more, will pay for itself, in present value, by expanding the economy and tax revenue.

My reaction? Get real, or go hang out with equally deluded supply-siders. Our country is broke and can no longer afford no- pain, all-gain “solutions.”

(Laurence J. Kotlikoff is a professor of economics at Boston University and author of “Jimmy Stewart Is Dead: Ending the World’s Ongoing Financial Plague with Limited Purpose Banking.” The opinions expressed are his own.)  To contact the writer of this column: Laurence Kotlikoff at kotlikoff@bu.edu
To contact the editor responsible for this column: James Greiff at jgreiff@bloomberg.net