In response to Jack Stoufer's May 30 letter to the editor regarding my April 4 Commentary Page article on issuing public pension obligation bonds, I acknowledge a basic misunderstanding. I incorrectly believed that pension obligation bonds were issued by the pension system, rather than the sponsoring state or municipality.
Correcting this error unveils a significant beneficiary profit at the expense of taxpayers, but changes little else. My commentary focuses on the pension fund balance sheet, which is also part of the sponsor's balance sheet. Taking this broader view, the sponsor is leveraging its investment in pension assets by issuing POBs, or pension obligation bonds. This leveraging will benefit taxpayers by lowering future appropriation only if pension returns exceed the borrowing rate.
The change I missed originally is a significant elevation in the status of the pension claim. Beneficiaries significantly profit at the expense of taxpayers, because the unfunded pension promise is replaced by secure cash when the state transfers its pension obligation from beneficiaries to bondholders. The problem is that no one is explaining it this way to taxpayers, who have much more control over pension contributions than debt repayments.
The analogy to refinancing a mortgage is inappropriate. The pension liability differs from a mortgage in several major ways. Most importantly, the pension obligation is not a fixed-rate obligation, but rather a promise to pay a specified benefit at a future date. To fund this benefit, the actuary establishes a budget that involves a variety of assumptions that include the actuarial interest rate. This budget is only loosely connected to the investment environment. If actuaries select a 7% interest assumption that conforms to today's interest environment, POBs will not be a consideration.
I'm grateful to Mr. Stoufer for pointing out my error on the issuer of POBs. The corrected reality is that beneficiaries clearly profit from POBs at the expense of taxpayers, whose future tax appropriations become more unpredictable and uncontrollable. My basic premise still stands. POBs are advocated by those who benefit from them - underwriters, investment managers, consultants and beneficiaries. From whence does this benefit derive? It's paid by taxpayers, who clearly lose as they are bilked into buying off on bogus arbitrage arguments.
Ronald J. Surz
In your April 4 technology section, page 30, you ran an article titled, "BARRA product has global outlook."
Style Advisor was the first returns-based style analyzer on the market, signing up its first client in the fall of 1992. Recently, the product was purchased from Balch Hardy Scheinman & Winston Inc. by Zephyr Associates Inc., of which I am president.
We currently have 30 plan sponsor and money manager subscribers. Aside from being able to do style and attribution analysis for international equity and fixed-income managers, the program contains a database of 215 international managers that can be used for various search purposes.
Style Advisor subscribers receive every month: 32 foreign equity indexes; 18 emerging market indexes; 36 foreign fixed-income indexes; 19 currency indexes; and eight country consumer price indexes. Plus, they have 33 domestic equity indexes and 78 domestic fixed-income indexes.
Zephyr Associates Inc.
Zephyr Cove, Nev.
We're writing on behalf of Alexander & Alexander Consulting Group to register our dismay at being omitted from your directory of defined contribution plan service providers (March 21 and April 4). It's extremely important to ACG that its defined contribution services be published.
The firm is located at One Piedmont Center, 3565 Piedmont Road N.E., Atlanta, Ga. The phone number is (404) 264-3141; and the fax number is (404) 240-6099.
Among its services, it provides periodic account valuation, including daily; a toll-free, telephone voice-response system; record-keeping/administration; and retirement planning education software.
On its 800 number, it offers: account balances; account transfers; 24-hour access; live operators; loan request/processing; performance data; fund information; retirement planning aid; changes to contribution allocations; withdrawal disbursement; enrollment and plan provision information.
It has 135 defined contribution clients, servicing more than 290,000 participants. Record-keeping and administrative services are supplied through an in-house department.
National practice director
defined contribution services
Alexander & Alexander
The phone number for Merus Capital Management was stated incorrectly in its profile on page 68 of the May 16 directory of money managers. Please correct this number to (415) 296-6400.
Client relations manager
Merus Capital Management
TSA Capital Management's phone number was reported incorrectly in its profile on page 90 of the May 16 directory of money managers. Our correct phone number is (213) 688-3015.
TSA Capital Management
CIGNA has recently reorganized and I want to note two divisions that weren't named but whose assets were included in CIGNA Investments Inc.'s profile on page 40 in the May 16 directory of money managers.
CIGNA Retirement & Investment Services: It provides products and professional services for defined benefit and defined contribution plans. Client contact is Fred Castellani at (800) 997-6633.
CIGNA Investment Management: It provides investment advisory services. Client contact is Daniel McDonough at (203) 726-4364.
In addition, there was an error in our response on how much we manage in 401(k)/457 assets. It is $16 billion, which raises CIGNA's ranking to fourth in your table on page 30 of the largest managers of 401(k)/457 assets.
James A. Mitchell Jr.
and Investment Services