WASHINGTON - House Speaker Newt Gingrich and Majority Leader Richard Armey are backing a new bill that would hinder economically targeted investments, while the Department of Labor is arguing the Republican bill is based on bad information.
Through ETIs, "the Clinton administration is deliberately increasing risk to American pension funds and the people who rely on them," Mr. Gingrich said. "The Pension Protection Act will protect every American worker."
The bill, sponsored by Rep. Jim Saxton, R-N.J., says ETIs violate the 1974 Employee Retirement Income Security Act because they intend to provide benefits for entities in addition to plan participants. Sections 403 and 404 of the law stipulate investments should be made for the sole benefit of the plan participants, Mr. Saxton said.
In addition to banning private funds from making an investment that has a collateral benefit, the bill would nullify an interpretive bulletin on ETIs issued by the Labor Department last summer. It also would gut the Labor Department's travel budget to promote ETIs and shut down the Labor Department's ETI clearinghouse expected to start later this year. What's more, the bill would deny funding to any government agency that wanted to create a list or database to promote ETIs.
Wearing a red and white "Stop Clinton's pension grab" button at a press conference on Capitol Hill last week, Mr. Saxton accused the Clinton administration of using privately held pension funds to make risky social investments - "regardless of the potentially disastrous effect it could have on older Americans," he said.
Assistant Secretary of Labor Olena Berg said she was surprised at the level of misinformation House Republicans had on ETIs and added the ETI investment decision should be left to plan sponsors.
"No one is talking about mandating" ETIs, Ms. Berg said. "If a plan thinks it could get an attractive return (through an ETI investment), why shouldn't it be able to?"
Furthermore, private plan sponsors have every incentive to make good investments, Ms. Berg said. Every dollar a private plan loses on an investment must be made up in plan sponsor contributions.
She cited an April report by the General Accounting Office that studied more than 200 individual investments made through 14 different ETI programs conducted in seven states. The GAO found the investment returns on the ETIs were generally similar to benchmark investments with the same risk and maturity characteristics.
Mr. Saxton had several statistics citing instances in which public funds lost millions by investing in ETIs, including the State of Connecticut Trust Funds' $25 million loss in Colt Manufacturing Co. "The Clinton administration is encouraging activity that we think is destructive," he said.
So far, no private plan sponsors have backed Mr. Saxton's bill, a congressional staff member said.
Jim Kaitz, vice president of government relations for the Financial Executives Institute, Washington, called the bill a "non-event."
"We don't view this legislation as changing ERISA," he said.
What this bill would change, experts agreed, is the funding for the clearinghouse.
In October 1994, the Labor Department signed a $1.2 million, two-year contract with Hamilton Securities Group Inc., Washington, to create a clearinghouse of information on ETIs. It's expected the clearinghouse will be operating without the Labor Department's financial or technical assistance in about three years (Pensions & Investments, April 17).
Richard Ferlauto, associate director for the Center for Policy Alternatives, Washington, said the clearinghouse will be the first database plan sponsors would have that could track ETIs. No extensive ETI databases now exist.
"This bill prevents gathering important financial data," Mr. Ferlauto said. "My question is, what are they afraid of?"
But David Walker, a former assistant secretary of labor, questions using taxpayer dollars for the clearinghouse.
"I don't think taxpayers ought to fund the clearinghouse; it could be seen as the government" endorsing ETIs, said Mr. Walker, now a partner in the Atlanta office of Arthur Andersen & Co.. The first hearing on the bill is expected to be held by the Joint Economic Committee May 18.