WASHINGTON -- Even as Federal Reserve Board Chairman Alan Greenspan voices reservations about investing Social Security trust fund assets in the stock market, a hefty exposure to stocks is allowing the central bank to skip making pension contributions.
Although Mr. Greenspan's views on the stock market -- at least as a suitable investment for a government social program -- are at odds with the central bank pension fund's investment strategy, he does not sit on the fund's board. The investment committee comprises four senior bank officers and a member of the board of governors, and is headed by a president of a federal reserve bank.
With more than half of its assets in domestic equities, the $5.9 billion defined benefit plan has enjoyed a contribution holiday since 1986. And Jeff Shovlin, associate secretary of the Federal Reserve Employee Benefit System, anticipates that holiday will continue "for some years" -- unless the stock market nosedives.
The defined benefit pension plan had 56% of its assets in U.S. stocks last year and the remainder in domestic bonds. It earned around 19% in 1998, and 22.4% in 1997. It is 50% overfunded.
The pension fund's assets are managed by eight money managers: Fayez Sarofim & Co.; Wellington Management Co.; Lincoln Capital Management Co.; Miller Anderson & Sherrerd LLP; Loomis, Sayles & Co. LP; Sanford C. Bernstein & Co. Inc.; Mitchell Hutchins Asset Management; and Aeltus Investment Management Inc.
New employees affected
The Federal Reserve's pension plan has come under the spotlight because lawmakers are expected to examine its investment performance at a hearing this week on legislation aimed at making it easier for employees of the Federal Reserve Board of Governors who joined after Jan. 1, 1984, to take their retirement savings with them if they move to other federal government jobs.
Now, employees who joined the Federal Reserve Board after that date who switch to other federal jobs do not get pension credit for their service after 1988 at the central bank.
There are currently about 50 former Federal Reserve Board of Governors employees working in other federal government jobs who would benefit from the legislation. Additionally, the legislation would affect all new employees and the 951 existing employees of the Board of Governors of the Federal Reserve System in Washington hired after Jan. 1, 1984.
Although the legislation would benefit a relatively small number of people, they tend to be highly skilled and in demand at other federal agencies, especially the Treasury Department.
While the thrust of the hearing is on the portability legislation, lawmakers also will compare the impact of the Federal Reserve's pension plan stock market investments and resulting double-digit returns with the Federal Employees' Retirement System, the defined benefit plan that covers most other federal government employees, but is restricted to investments in Treasury securities.
However, Republican lawmakers are not expected to propose legislation to invest some of the federal employees' system's assets in stocks because of anticipated resistance from Democratic lawmakers, according to a staffer for the House Subcommittee on Civil Service, which is expected to hold hearings on the portability provision Feb. 25.
Rep. Joe Scarborough, R-Fla., chairman of the House Government Reform and Oversight Subcommittee, was expected to introduce a bill early this week that would allow this portability; the legislation is expected to get easy approval.
Portability at issue
While the portability legislation is not controversial and has bipartisan support, an attempt to enact it last year as part of a bigger civil service reform package failed when that package never got off the ground for unrelated reasons.
Federal Reserve Board employees who joined before Jan. 1, 1984, receive benefits under a structure that mirrors the Civil Service Retirement and Disability Fund for federal employees, and lets them get credit for their Federal Reserve employment if they move to other federal jobs. That benefit structure covers only 631 employees.
Congress closed the Civil Service fund to new participants at the end of 1983, and federal workers hired since then generally are covered by the Federal Employees' Retirement System.
Federal Reserve Board employees also may participate in the Fed's $2.33 billion defined contribution retirement plan, and may move their retirement dollars into the parallel Thrift Savings Plan for federal government employees if they switch to other government jobs.