Plan to Regulate Pension Funds Isn’t Adequate

It’s nice to know that Labor Secretary Elizabeth Hanford Dole is proposing legislation to intensify the battle against corruption in the nation’s $2.7-trillion pension system. At least one person in the Bush Administration is aware of the serious problems facing the system.

Unfortunately, her proposals will do little to correct the abuse and fraud that experts estimate costs the system more than $4 billion a year. Her ideas don’t even address many of the major problems facing workers who rely so heavily on their employers’ pension plans, along with Social Security, for their retirement years.

Most of her suggestions are expected to win the approval of Congress, which also is finally showing some interest in protecting the pension funds that are now almost as large as the gross national product of Japan.

Dole only has about 260 investigators and auditors to make sure all of the nation’s 900,000 pension plans are managed in the best interests of the millions of workers covered by them. Her crew is about the size of the police force for a relatively small city. That tiny force of pension fund protectors also must look out for abuse in 4.5 million health and welfare plans. It’s a ridiculously small staff, considering how many ways the funds can be plundered.

A St. Louis kickback scheme provides just one example. A prominent attorney, Donald Anton, used his connections with administrators of the $300-million St. Louis police and firefighters’ fund to steer money to some friendly investment counselors who then ran their stock and bond purchases through a friendly broker.

The broker charged double the normal commission rate and funneled 70% of the excess commissions back to Anton and his friends. Over three years they skimmed thousands of dollars from the fund before they were caught and convicted of fraud after the IRS by chance stumbled onto the scheme.

Despite the massive investigatory problem, Dole wants only 100 more staffers. But she has an idea for augmenting the enforcement staff: enlisting the help of workers all across the country.

To get them, she wants whistle-blowers who report pension fund abuse to receive a bounty of 10% of any amount collected in court from the white-collar looters.

Dole also wants to encourage workers to sue their pension fund trustees when trouble is spotted. She would do that by forcing convicted trustees to personally pay the fees of lawyers and expert witnesses hired by workers who file suits.

In sum, she wants to enlist what theoretically could become an army of worker vigilantes and their lawyers. The problem with the idea is that few workers are financially astute enough or have enough access to their complicated pension fund operations to blow any whistles.

Dole’s effort to largely privatize the department’s enforcement system might function better if pension fund officials were required to disclose more about their investment operations than they must do now.

But in recent years, our employer-oriented Presidents--Ronald Reagan and George Bush--wanted to reduce the “burden” on employers by cutting their paper work, and so they decreased--not increased--the amount of required pension fund information.

More information could make it easier for workers to recognize wrongdoing, especially if they then can get assistance from their unions or other sources to help root out corruption.

One skeptical Labor Department insider is Ray Maria. As the department’s acting inspector general, he is appointed directly by the President and is independent of the secretary. Maria says Dole’s ideas are inadequate and that she moved only after his repeated warnings that enforcement of federal pension laws is terribly lax.

Usually, those caught with their fingers in a pension fund pie are simply told to put the money back and steal no more. Clearly, that’s not enough.

Congress last year mandated the department to collect a civil penalty of 20% of the money illegally taken from a fund. The department promises that it will start enforcing that law soon.

But Maria says another important way to slow the incidence of abuse is to file criminal charges against those who violate pension laws. The department’s own enforcement arm rarely does that.

He bitterly complains that his own highly trained prosecutorial staff is prevented from seeking criminal charges by both the Labor and Justice departments, which prefer to try to coax employers and fund trustees into complying with the law voluntarily.

“If we are allowed to move aggressively with criminal prosecutions, it would serve as a strong deterrent to potential pension fund corrupters,” Maria maintains.

However, more than just added enforcement is needed. Congress also ought to outlaw so-called reversions, a euphemistic way of describing corporate raids on pension funds.

The reversion trick is accomplished when a company terminates a pension plan and either sets up another, less costly one, or buys insured annuities to give its retired workers some minimal benefits.

The company then labels the money left in the old pension fund as “surplus” and pockets it rather than using it for the workers for whom it was saved and invested in the first place.

Companies have grabbed more than $20 billion so far from funds set up for more than 2 million workers. There is still an estimated $600 billion of “surplus” money made by investing the workers’ reserve funds. That shouldn’t be touched by employers, since it might well be needed in case investment values take a nose-dive.

If retirees’ full pensions can be guaranteed against recession losses, the “surplus” should be used to increase pensions or to help pay the skyrocketing costs of health care.

Howard Metzenbaum (D-Ohio) and Nancy L. Kassebaum (R-Kan.) have proposed a law to help achieve that laudable goal: They would require companies to certify that workers, not companies or fund officials, benefit from all reversions.

Unless abuses of the pension fund system get as bad as those in the savings and loan industry, Congress and the Administration will probably make only a feeble start to protect the trillions of dollars in those funds.