Corporate pension funds are run by greedy executives putting the retirement benefits of millions of employees at risk, a new book charges.
The book - by former Ameritech pension executive James A. Kujaca - suggests enough of the executives and staff people are committing abuses to endanger the financial health of pension funds.
"The Trillion Dollar Promise: An Inside Look at Corporate Pension Money, How It's Managed, and for Whose Benefit," does not name any people committing abuses or any company, although it does refer to news stories in which companies were named. It is published by Richard D. Irwin, a Times Mirror Higher Education Group Inc. company.
Although he had been director-equities at Ameritech, Chicago, and worked at its predecessor, Illinois Bell, Mr. Kujaca doesn't mention that - or Ameritech - in his book.
The author speaks of corporate pension funds as "the target of self-serving company employees who are out to enrich themselves."
"The pension fund becomes the chief investment officer's personal wealth foundation," Mr. Kujaca writes. And he notes top pension fund executives dispense pension expense money "like 'Santa Claus.'"
"Passing out lucrative contracts" "is one of the ways a chief investment officer can accumulate IOUs. It's called back-scratching."
The book says pension executives often hire particular money managers or use brokerage firms in return for personal favors, ranging from tickets to entertainment events to first-class travel. Mr. Kujaca says pension executives also get insider trading tips, participation in initial public offerings and venture capital and real estate, and lucrative jobs offers in the sell-side of the business or jobs for spouses.
Money managers, brokers or consultants are not named. But the book says they often give favors to get business.
Among the corporate pension fund abuses he describes in the book, Mr. Kujaca says:
Chief investment officers invest pension fund money with celebrities or wealthy business people as a means of networking "to gain an entry into the high-net-worth marketplace," providing lucrative marketing and business opportunities for the executives in pursuing their own commercial interests outside the pension fund.
Executives will arrange trips to visit their pension fund managers or real estate located in the area when major entertainment or sporting events, like the Masters golf tournament, are occurring, expensing it to the pension fund as a legitimate pension matter.
Senior management overseeing pension executives could "have their own hands in the pension fund cookie jar," using the "assets and resources of the pension fund" to advance non-pension goals. For example, they can become "a trustee of a mutual fund that is managed by a broker who does millions of dollars of business with the pension fund, using the pension fund's clout to get a retiring executive a job."
Abuses aren't easily found out, the book says.
For example, "(D)irected brokerage is sometimes an off-budget item for the chief investment officer," the book says. "That is, it might not even appear in the list of expenses paid by the pension fund."
"An investment policy committee that lacks street smarts often does not even know about, much less monitor, these directed brokerage payments. This represents a very convenient way to hide one's activities if the chief investment officer chooses."
Mr. Kujaca also believes corporate downsizing and the drive to increase corporate profits have forced senior management and pension executives to cut pension expenses to the point that the interests of beneficiaries are not paramount.
"Since senior executives are in charge of hiring and firing pension fund employees, rest assured they can get just about anything they want - even if it takes several reorganizations and 'careful' selection of a new chief investment officer to get it," the book says. "With the 'proper' personnel in place, any amount of data can be generated to 'justify' any senior executive decision with no fear of detection."
The author uses the book to seek reforms in corporate pension fund oversight. He calls for more disclosure of pension fund investment information, more independent auditing and more protection of whistleblowers.
In an interview, Mr. Kujaca said he wrote the book to advance his reforms. He said he didn't name any people because he wanted the focus to be on the reforms he proposes and not on fingerpointing.
When asked about any possible abuses at Ameritech, Mr. Kujaca redirected the question to say he wants the focus of the charges in the book to be on the reforms for the pension system and not on any particular company.
He said he retired from Ameritech and is trying to establish his own money management firm in the Chicago area.
The book says senior management and trustees are either an accomplice in the wrongdoing or not informed enough about the intricacies of pension management to discern when wrongdoing occurs.
"When combined with a lack of proper controls, this becomes a perfect environment for fraud and wrongdoing to run rampant," the book says.
"The investment policy committee could easily be turned into a rubber stamp."
John B. Carroll, president of GTE Investment Management, Stamford, Conn., had not heard of the book, or had a chance to read it, but he commented based on a general description of it.
"These are very scurrilous charges," he said. "I would hope he would have specific instances for each one.
"It's unfair to a lot of people who spend a lot of committed time in the business.
"His assumption is that corporate sponsors have no audits, or internal requirements for approving expenses. That just isn't true."
Mr. Carroll acknowledges there are abuses that occur in the pension system, as in any system. "To say it happens with any frequency, I don't know how he can make these statements."
"That's not my experience and I know a lot of people in the business."
Other current and former executives at corporate pension funds declined to comment because they hadn't heard of the book and hadn't read it. One declined to comment for fear of giving the book credibility before having a chance to read it and form a view on the allegations.
