On behalf of the American Council of Life Insurance, I am writing to correct the gross mischaracterizations ("Bill seeks clarification," page 1, Nov. 13) that the bill introduced by Sen. Nancy Kassebaum "is intended to reverse a 1993 Supreme Court decision in John Hancock Mutual Life Insurance Co. vs. Harris Trust and Savings Bank" and "require the Labor Department to clarify that pension fund assets held in insurance companies' general accounts are exempt from federal pension law."
On the contrary, the bill actually requires the Labor Department, by Dec. 31, 1996, to issue rules governing how insurance companies deal with pension plans in the future as a result of the Harris decision. Failure to comply with these rules, after a transition period to give the industry time to restructure its products and practices and gain state approval, will subject any company to all of the sanctions imposed by ERISA on those who violate the fiduciary responsibility and prohibited transaction rules.
It is true the bill prevents the Harris Trust decision from being applied retroactively (although it does not require the Labor Department to issue guidance retroactively to Jan. 1, 1975). This is because for 20 years the insurance industry relied on the Labor Department's and Internal Revenue Service's interpretation that certain assets held in an insurer's general account were not subject to ERISA. During this period, there has not been an instance where it has been established that plan participants and beneficiaries have been harmed by virtue of a plan having purchased a group annuity contract from an insurance company. The DOL has never brought a lawsuit or taken any other action that questioned the way in which insurers conducted their business.
The Harris Trust decision has created an untenable situation for workers and retirees who depend on their benefits which are funded through insurance company general account products. The costs of lawsuits and prohibited transaction excise taxes with respect to past actions - actions that insurers are powerless to change and that have never harmed participants - will necessarily be borne by policyholders, including employee benefit plans and their participants and beneficiaries.
The legislation, introduced by Sen. Kassebaum and co-sponsored by Sens. Jeffords and Dodd, is appropriate, timely, in the best interests of plan participants and beneficiaries, and should be enacted as quickly as possible.
Stephen W. Kraus
Chief Counsel, Pensions
American Council of Life Insurance
I am writing in reference to the Oct. 30, page 53 news item regarding Catholic Healthcare. The article refers to Ashland Capital. Please note our corporate name is Ashland Management Inc.
Murri P. Hester
Ashland Management Inc.
On the chart on page 28 of the Oct. 30 edition of Pensions & Investments, "Global custodians ranked by new U.S. tax-exempt business," Bankers Trust's misreported its assets. Bankers Trust should have been listed at $10.5 billion in new assets, not $105 billion.
Andrew T. Pfeifer
Bankers Trust Co.
I am writing in response to the Sept. 4 commentary by Todd Tibbetts on securities lending. Although I do applaud Mr. Tibbetts for more closely examining securities lending, I strongly disagree with his opening salvo that "there is something rotten in the state of securities lending."
Securities lending is an investment activity, plain and simple. Far too many pension plan sponsors and other institutional investors have viewed securities lending as a routine administrative function easily grafted onto their custodial relationships.
"Administrative prowess" may be required, but the far more critical element in successful, low risk securities lending is the competence of the investment management component integrated into this service.
Almost without exception, the institution with the combined role of custodian/securities lender has the largest amount of funds under management for any one plan sponsor. Few of these investors devote the time necessary to closely examine such a significant investment management relationship.
It is hardly surprising then that plumbing the depths of securities lending to determine attribution for these earnings or looking at the potential for inappropriate incentives within the traditional lending fee structures never even gets on the "to do" list. Despite this lack of scrutiny, securities lending is hardly "rotten." Rather, some long-held perceptions about securities lending may be based on incorrect assumptions. A fresh, in-depth look at these perceptions can often lead to better understanding.
William F. Pridmore
W.F. Pridmore Ltd.