Inland's 401(k) planIt is difficult to find the point of Barry B. Burr's March 21 Opinion Page column. It seems Mr. Burr believes that any investment in guaranteed investment contracts is a mistake and that stock is the only appropriate investment for 401(k) funds regardless of participant's situation. This position is simply wrong.
As to his comments on the Inland 401(k) plan, if Mr. Burr were familiar with bundled 401(k) plan services he might have recognized that Inland did hire an investment education consultant when it hired Fidelity. Fidelity has helped Inland conduct numerous educational meetings with employees and retirees and provided customized educational materials to participants at the start of the relationship as well as on-going educational materials each quarter. Inland and Fidelity are committed to tailor additional education efforts to the specific needs of different employee groups.
We at Inland believe the purpose of educating participants on investment topics is to enable those participants to make knowledgeable investment decisions. The purpose is not to convince participants to allocate assets in a particular manner, as Mr. Burr suggests. Once a participant understands certain investment principles, he must be permitted to make his own decisions. Any effort to steer participants' asset allocation is inconsistent with Inland's commitment to provide participants greater control over their own 401(k) plan accounts.
It is surprising to read a column in Pensions & Investments so ill-informed and poorly reasoned. Mr. Burr should devote more than a 33% effort to his next column.
Annette M. Steinberg
Inland Steel Industries
Graef Crystal's March 21 commentary about Institutional Shareholder Services creates a misleading impression of the work we have done to help corporations understand the policies ISS uses in making proxy voting recommendations to institutional investors. ISS works with corporations for one reason: To create and sustain shareholder value. This has always been our goal. The goal remains consistent; however, the means of achieving it have evolved.
In response to interest many companies have expressed to understand our policies, we now offer a corporate governance audit service to corporations. A goal of the audits is to help companies understand the policies ISS uses in analyzing proxy proposals, particularly on executive compensation, where application of our policies involves the use of complex mathematical models.
Our intent is to educate corporations so they can apply what they learn in the design of pay plans and corporate governance initiatives. We believe this can and will often result in such proposals that are in shareholders' best interests. Indeed, since all ISS policies are designed solely to increase shareholder value, anyone following ISS's policies for proposals would almost certainly design and submit proposals that will benefit shareholders.
To ensure that no conflicts of interest emerge from our work with corporations, we have put in place a number of safeguards. Among the most important are:
We will advise corporations on our policies, but we will not preapprove proposals that may later appear in proxy statements, nor will we accept a corporate assignment once a company's proxy becomes public.
When we analyze proposals in a company's proxy statement, we apply rigorously ISS' standards. We will recommend against proposals that do not. We apply the same objective criteria to all companies.
James E. Heard
Institutional Shareholder Services Inc.
A Jan. 24 P&I article, page 73, quoted the Public Pension Governance and Performance study of the Wharton School that made two conclusions: In-state investment didn't boost returns, and the presence of retiree representatives on the boards of public funds resulted in "lower overall returns." In explaining the latter, the Wharton researcher, Olivia Mitchell, explained that "(m)ost lay people, whether they're employees or not, are very ill-equipped in understanding investments."
Ms. Mitchell's heavy pronouncements on in-state investments, based as they are on very slim evidence, do not add, unfortunately, to the public debate. It is totally irresponsible to look at one year's investment performance and conclude that a return eight one-hundredths of 1% lower than expected must condemn the practice of targeting a portion of one's portfolio to investment in you community. The study ignores completely the nature of public sector pension funds and the fact that in-state economic development and activity (and the resultant broadening of the tax base) are major determinants of the public employer's ability to make contributions to the fund on behalf of public employees.
In explaining her conclusions on in-state investments, Ms. Mitchell lumped this investment practice into the category of "social investing" - a term she clearly used in a critical manner. This leads me to wonder the following: If State A includes securities of businesses residing in that state and this is social investing, is it social investing when State B purchases the same basket of securities (originating in state A) for its portfolio? If it is not, what's the difference? The proper question is not whether it is social investing but whether the in-state investment is done at a level which endangers proper diversification.
I am, however, even more concerned over Ms. Mitchell's conclusions regarding the presence of retirees on pension boards. My concerns over one-year snapshots and slim findings, mentioned above, apply here as well. But even if these same results were duplicated over a longer time frame and did prove to be significant, it is troubling that Ms. Mitchell did not look at explanations other than that these individuals were "ill-equipped" to determine investment policy. In this portion of the analysis, what needs to be determined is whether the level of return was commensurate with the level of risk. If this was the case, an alternate explanation for the lower returns could be that, because retirees are well-equipped to judge their own level of risk tolerance, the fund adopted a more conservative investment posture - an investment practice that is perfectly acceptable and reflects more investment understanding than naivete.
I whole-heartedly support the study of public and private retirement systems to develop objective criteria on which to base public policy toward retirement issues. However, given the slimness of the "findings" of this study, the hasty conclusions drawn from them and the fact that the author originally made and published those conclusions based on numbers that were in error by a factor of one hundred (and I applaud the P&I reporter for initially discovering the errors), I'm afraid the study does not meet the standard.
Public Employee Department
The March 21 article on page 3, "Short Sale IRS Rule Due in '94," states that Collins Associates pays unrelated business taxable income, or UBTI, tax on returns from Collins market neutral funds, hedge funds and short-selling funds.
In fact, Collins' market neutral funds and hedge funds have been subject to tax; however, our short-selling funds do not incur acquisition indebtedness and, consequently, are not subject to nor have they paid any tax.
Donald W. Leahy
Newport Beach, Calif.