Executives at defined benefit and defined contribution plans are grappling with investment, logistical and benefits problems in the aftermath of the Sept. 11 terrorist attacks.
Among the post-tragedy issues:
* Officials at some funds - including the New Hampshire Retirement System, Kaman Corp., Wichita Retirement Funds and Benefits Connection Group - are clients of Fred Alger Management Inc. and must deal with the loss of president, chief executive officer and chief investment officer David Alger and about 35 of the firm's 200 employees. The missing are mainly research staff and portfolio managers.
* Employees of the $4 billion New York City Deferred Compensation Plan and the asset management unit at the New York City comptroller's office, which oversees $80 billion in defined benefit assets for the five New York City retirement funds, couldn't use their offices beca use of their proximity to the World Trade Center. Dean Weltman, counsel to New York City plan, said his fund's 80 employees relocated twice and now are working in two temporary offices. At the same time, they are dealing with benefit payments to families of fire, police and rescue workers killed in the World Trade Center attacks.
* Some participants in the $2.6 billion defined contribution plan at International Paper Co., Purchase, N.Y., reacted by moving assets into company stock from other equity options, said Robert Hunkeler, vice president of trust investments. A smaller group moved assets into stable value and bonds from equities, he noted.
* At Compuware Corp., Farmington Hills, Mich., there's been "a definite movement from equity to fixed income" in the company's $325 million 401(k) plan, said Joe Schuster, manager of qualified plans. They did not move money out of company stock: "Participants weigh company stock differently," Mr. Schuster said.
* On Sept. 17, the day the markets reopened, Hewitt Associates' 401(k) index recorded the highest investment transfer activity since its inception in August 1997 - nine times the normal level.
The index, which tracks the daily transfer activity of nearly $71 billion in 401(k) assets, recorded daily net transfer activity of 0.58% of total balances, or $400 million transferred. Those who transferred assets moved to stable value or guaranteed investment contracts from equities.
"We saw movement corresponding to the level of market decline," said Lori Lucas, consultant with Hewitt Associates LLC, Lincolnshire, Ill.
By Tuesday, transfer activity was down to normal levels, but it increased again as the market declined on Wednesday, Ms. Lucas said.
"This was unusual because 401(k) plan participants are normally hands off," she said.
`We're getting clobbered'
Meanwhile, pension fund executives were reeling from the drubbing their funds took in the stock market the week of Sept. 17.
Frank Foy, chief investment officer at the $6.5 billion New Mexico Educational Retirement Board, Santa Fe, summed up the prevailing sentiment: "We're getting clobbered. Stocks are down, and so are interest rates, which hurts, too."
Mr. Foy's staff rebalanced the pension fund and added $20 million to its internally managed S&P 500 index fund.
Many other pension funds are rebalancing as well. The $9 billion Illinois State Board of Investment, Springfield, planned to rebalance the pension fund, bringing it closer to its policy target by adding 2% to 3% of assets to international equities, said Ronald Schmitz, chief investment officer. The $85 billion Florida State board of Administration, Tallahassee, invested more than $500 million in equities "to return the fund to its policy targets in as orderly a fashion as possible," said Coleman Stipanovich, deputy executive director. "We will probably add more."
Others bought equities when the market tanked. The $35 billion Ohio State Teachers Fund, Columbus, bought $100 million in equities, evenly divided between internally managed domestic and international index funds, said Herb Dyer, executive director.
The five New York City retirement funds invested $800 million in their passively managed Russell 3000 index fund. The New York State Common Retirement Fund, Albany, with $112 billion in assets, invested more than $250 million in U.S. equities right after the stock markets reopened, as part of a plan to invest a total of $1 billion in the asset class.
The $22 billion Retirement Systems of Alabama, Montgomery, also added to equities, putting around $100 million into internally managed active equity funds benchmarked to the S&P 500 and S&P 400, said Darren Schulz, chief investment officer. "We cherry-picked names and added to companies in the financial services sector, as well as oversold names in the casualty and property insurance business." Funding came from cash.
The disaster also led to a change in travel policies at some corporate funds.
General Motors Corp., New York, banned international travel for the time being, and the asset management unit has been looking at ways of teleconferencing to avoid congestion and security issues. "We have an office in London, which can deal with essential international trips," said Allen Reed, chief executive officer of General Motors Asset Management, which oversees $105 billion in assets.
Some managers are simply postponing meetings. At the Ludwig Institute of Cancer Research, New York, with $1 billion in pension assets, a due-diligence trip to London was canceled, and the board meeting, scheduled for October in San Diego, was postponed because several members were to come from Switzerland and London. "It didn't seem prudent to hold it then, with the tighter security restrictions," said Albert Hsu, director of investments.
Briggs & Stratton Corp., Milwaukee, said it would permit staff to travel only by train and car, said Mike Juneau, chief investment officer of the $963 million pension fund.
Other pension fund executives are dealing with the tragic loss of life at Fred Alger Management.
David Alger had been scheduled to fly to Concord the afternoon of the disaster to make his annual presentation before the board. The board held its meeting in the morning, but once the trustees learned of the hijacking, the afternoon presentations and receptions were canceled.
Ed Theobald, chairman of the $4.5 billion New Hampshire Retirement System, Concord, said he was devastated. "Historically, he (David) had been a great manager for us," he said. The firm manages $200 million in a large-cap growth fund for the system.
"He used to make great presentations, and he did very well for us," Mr. Theobald said. The system will reassess its relationship with the firm at its Oct. 9 meeting, he said.
"We really liked the firm, and the last thing we want to do is cut them short, given the great rapport we have had. They were our best-performing growth manager over a long period of time," he said.
Not planning to change
Another client, the $750 million Wichita (Kan.) Retirement Funds, has no plans to change managers, said Bob Lancaster, chief investment officer. "We have confidence in Fred," David Alger's brother, who originally ran the firm and has returned from retirement to run it again. Alger now manages $31 million in large-cap growth for Wichita.
Russell Jones, treasurer at Kaman Corp., Bloomfield, Conn, with $400 million in pension assets, said he was horrified at David Alger's death and has written to Fred Alger. "I wrote him that David's passing wouldn't have any effect on Kaman's relationship with Alger.
"The firm has depth, strength and consistency. We originally dealt with Fred before he retired, and now we'll deal with him again," Mr. Jones said, adding he kept David Alger's book "Raging Bull" on his bookshelf.
The $390 million 401(k) plan of Benefits Connection Group Inc., Washington, also employs Alger as a money manager. David S. Lauer, chief operating officer and executive vice president, said the company is monitoring the situation carefully.
"We've been getting information from Alger on a daily basis and receiving updates on how they are dealing with the losses by bringing back some of the old cronies. It would be premature to make any changes," he said.
The tragedy at the Alger firm raised "one of the most difficult questions that an investment consultant can address," said Jon C. Chambers, principal, Schultz Collins Lawson Chambers Inc., San Francisco.
When making a manager change, the firm usually recommends placing the manager on probation and reviewing the fund selection to ensure the new manager will not impose an unintended new style or approach on the fund, said Mr. Chambers. His firm advises defined contribution plan sponsors, some whose plans include Alger funds. These investment policy standards should be followed for consistency, but "this is a special situation," he said.
Since most of the 35 missing employees at Alger were research staff or on the portfolio management team, this was an especially severe blow.
"On the positive side, Fred Alger has moved aggressively to resume his leadership activities in the firm, to appoint senior staff to other crucial roles, and to actively recruit additional qualified management talent," Mr. Chambers said. "Given Mr. Alger's many successes over the past decades, it seems reasonable to give him some time to rebuild the firm."