Private Retirement Funds Need Stronger Protection : Pensions: Weaknesses in current federal law expose the $1.7 trillion system to financial abuse and incompetence.
Private pension trust funds, which now total $1.7 trillion, are the largest single source of investment capital in the United States. They also constitute the biggest target for financial abuse. The pension cookie jar is as large as the Rose Bowl and, in some cases, it is easier to get into.
In a recent series by The Times on the pension system, there were plenty of examples of how individual retirees were victimized by greedy, self-serving pension administrators. The stories also pointed out that the system fails to recognize problems early enough to recapture stolen or poorly administered retirement funds.
By law, the federal government has ultimate responsibility for the private pension system. Congress thus has a critical role to play in investigating the problems and making the necessary changes.
Before Congress voted, in 1974, to regulate private pension programs by enacting the Employee Retirement Income Security Act, only about 3% of all workers received the benefits promised them by their retirement plans, according to the Department of Labor. To protect pension benefits, the law requires sound investments, prohibits use of funds for any purpose except worker security and provides insurance for pensioners if their corporate plans cannot cover the monthly checks they have earned. Today, more than 70 million workers are protected.
The Employee Retirement Income Security Act is not a cure-all, however. Last June, the Labor Department’s inspector general--the government watchdog for pensions and labor programs--found major weaknesses in it. I believe there are a number of things we should do to strengthen the law.
First, it is clear that we must have an enforcement policy that encourages aggressive pursuit of criminal and civil violations of the law. These range from outright theft and embezzlement to transactions in which pension funds are “loaned” to trust officers and their families. Several hundred cases of pension fraud are prosecuted each year, but there are many more we need to bring to justice.
Second, we need to recruit more federal pension auditors. These accounting police ensure that private pensions are not raided through criminal actions or plain old-fashioned poor business judgment by plan administrators. At present, there are only 187 auditors overseeing 840,000 private pension plans. By contrast, when the savings and loan crisis was developing, there were 10 times as many auditors available to review the problems.
Third, because pension reviews are conducted by independent accountants who send their work to the federal government for review, we must enable them to get a clearer picture of a pension plan’s health. During our August hearing, we found that independent accountants are not permitted to examine investments that are regulated by other federal agencies. This means that they are barred from reviewing about half of all pension plan investments. Also, independent accountants, who check to see that the books are balanced, are not required to determine if funds are being deployed legally. Both must change.
The alarm on potential problems in the security of the nation’s private pension plans has been sounded. Weaknesses in the law must be corrected. Congress has an oversight job to do--just as it has done to expose the recent scandal in the Department of Housing and Urban Development. The difference is that Congress is starting before the problem gets out of hand.
