Randy Barber shrouds his dislike for employee stock ownership plans ("ESOP's role in pension law up for debate," page 25, Aug. 22) when he calls for removing ESOPs from the ERISA framework. Swimming against history's tide is hard, so I give Randy Barber credit for chutzpah in making a last ditch effort to kill one of America's most successful programs.
I was pleased to read Assistant Secretary Olena Berg's balanced response to his call but thought your readers needed to view this issue in the context of history.
In 1985, the House Ways and Means Committee reviewed tax reform proposals to remove ESOPs from ERISA. It rejected such a move. At the time, and even later during the debates about ESOPs during the LBO frenzy of the late 1980s, the ESOP Association indicated a willingness to discuss objective steps to reconcile some of the seeming conflicts between ESOPs and retirement policy, if the basic employee protections of ERISA, such as vesting, discrimination rules, prudence rules, etc. were maintained.
In response, the Ways and Means Committee adopted the Anthony amendment (named for former Congressman Beryl Anthony) which actually imposed new rules on ESOPs, such as mandatory diversification for certain participants, that made them more like other ERISA plans.
Simply put, Assistant Secretary Berg takes a position that removing ESOPs from ERISA would not be bad if we preserve the essence of ESOPs - their impact on productivity, their ability to make the blue-collar employees wealthy, etc. Randy Barber, however, wants to kill ESOPs, and because of this he appears to block from memory the congressional history stated above.
J. Michael Keeling
The ESOP Association
The Securities and Exchange Commission issued an order sanctioning an investment adviser and several of the firm's key executives in connection with the adviser's advertising practices relating to misleading performance information (page 1, Aug. 8).
Isn't it conceivable that the SEC might be inclined to sanction an adviser for misrepresenting their status relative to Association for Investment Management & Research's performance standards (i.e., by claiming compliance when, in fact, they are not meeting these standards)?
Firms having any doubts about compliance should consider this when saying they meet AIMR's standards: Some firms sincerely think they're in compliance but aren't. Some firms, I suspect, know that they are not in compliance but claim compliance anyway. Some firms may be claiming compliance because they believe their portfolio accounting systems is "in compliance" with the standards. Software is a tool to help firms become compliant; the software itself cannot be compliant. If a money manager claims compliance based on the vendor's representation, would the vendor be liable for any sanctions the firm receives?
Because firms may be mistakenly claiming compliance, AIMR should put greater emphasis on verification. AIMR probably won't require verification, but fund sponsors and consultants who distribute RFPs can. Without verification by an independent third party, there is no guarantee that a firm's claim of compliance is accurate.
In most cases, Level I verification is adequate because it addresses the compliance issues, while Level II is more of an audit of the actual numbers.
I'm not making this recommendation for the hope of additional business because our firm no longer offers verification services. I feel that the standards are very important and the firms should not only comply but have the benefit of an outside party's review to insure complete compliance.
The Spaulding Group Inc.
I found the article "Mutual funds are misclassified," page 2, in the Oct. 17 issue to be most misleading. Only after continuing on page 67 does the reader determine the entire analysis is based solely on return criteria and not the asset mix of the portfolio.
Without turning to that back page, a reader might give the study validity. But if you merely compute, normalize and arbitrarily establish categories within ranges of returns, you are merely grouping funds by return which does not require a doctorate in economics, business or even common sense.
Mr. Witkowski's classification by return bears no relevance to a manager's ability to glean the best return within a particular risk category, and thereby would itself be seriously misleading to a potential investor.
R. Herbert Hampton
Vice president finance
Golden Cycle Gold Corp.
Colorado Springs, Colo.