Rep. Boehner on his bill
I would like to correct several inaccuracies in Vineeta Anand's March 4 Page One story ("Fidelity yanks support for Boehner's advice bill") about the Retirement Security Advice Act legislation (H.R. 2269) I wrote to encourage employers to offer their workers access to investment advice. H.R. 2269 passed the House last year with significant bipartisan support.
The story's assertion that the bill "would not protect employers from being sued by participants for financial losses they suffer because of advice they receive" is false. The Retirement Security Advice Act clarifies that employers are not liable for the individual advice given by professional advisers to individual participants.
Under H.R. 2269, employers will remain liable for the prudent selection and periodic review of any investment adviser that provides advice to employees. This provision would allow a worker to sue an employer only in situations where the employer provided unqualified investment advisers to the workers or if the employer failed to monitor the program.
Second, the story asserts that H.R. 2269 would allow workers to sue employers for bad advice. Not true. Only the investment adviser would be liable for the actual advice rendered. The bill is explicit on that point.
Third, it included a gratuitous and misleading characterization about H.R. 2269 without any apparent effort to balance the piece with a comment from someone who could present facts to dispute the charge, including my office or any of the bill's many proponents in the employee benefits community. It is inappropriate and disingenuous to compare Enron's financial statements and Arthur Andersen's auditing practices to a bill encouraging employers to offer their workers access to quality investment advice. One of the key problems with Enron was the lack of disclosure of its financial transactions. Had there been full disclosure to shareholders and employees, the huge loss of retirement savings might have been reduced or even avoided.
The Retirement Security Advice Act protects workers against potential conflicts of interests by including important disclosure safeguards and new fiduciary protections to ensure workers receive advice solely in their best interests. Under the bill, the company that hires the advisory firm cannot have a financial interest in the adviser, and the advice given cannot benefit the employer. The financial adviser serves the employee - and has a legal duty to the employee - not the company. These are significant protections.
Lastly, it bears noting that even the main premise of the article itself was inaccurate. While the strongest support for the bipartisan Retirement Security Advice Act comes from employees and employers, who are anxious to find ways to bolster our nation's pension system and improve worker retirement security, the bill also is supported by many other organizations within the employee benefit community - including Fidelity Investments.
Your readers deserve fair and balanced reporting concerning events in Washington that may impact their savings and investments. Ms. Anand's article was neither fair, nor balanced.
Rep. John A. Boehner, R-Ohio
Committee on Education & the Workforce
House of Representatives
Ennis' portfolio structure
In response to the Oct. 29, page 4 article, "Ennis challenges standard equity portfolio structure," by Joel Chernoff: We agree wholeheartedly with Richard Ennis' presumption that successfully investing in small-cap stocks is not as easy as "shooting fish in a barrel."
As the return distributions for small-cap managers will attest, simply investing in small-cap stocks is no guarantee of outperformance. However, given the inefficiencies in the small-cap market, the odds of sustained index-beating performance are tilted in our favor when compared to our large-cap brethren. To even things out though, we face the costs of developing and maintaining the capability to generate original research, liquidity challenges in trading and a smaller revenue base to absorb our cost structure because of capacity-constrained products.
While we respect the intellectual argument of whole-stock portfolios and passive small-stock investing, there will always be active specialty managers. I have a wonderful primary care physician, but when I have a specific need outside his area of competence, I call a specialist. So if you have a cold or runny nose, take two indexes and call Richard in the morning. If you are suffering from a serious case of alpha deficiency, give me or one of my active small-cap compatriots a call and we'll see what we can do.
Robert W. Mathal
Charlotte Capital LLC
401(k) company stock
Regarding 401(k) issues raised by Enron: The inability of 401(k) participants to diversify out of company stock should come as no surprise to anyone aware of how little the majority of 401(k) participants really understand about investments. For example, a John Hancock Financial Services survey recently reported that 41% of individuals thought money market funds invested in stocks, and more than half believed that increases in interest rates are followed by increases in bond prices. How reasonable then is it to expect that these individuals implement a prudent diversification strategy?
The disgrace is that this rampant ignorance exists in spite of the millions of dollars spent by 401(k) plan sponsors on "participant education" without corresponding efforts to provide these individuals with the tools to actually make their investment decisions. This is not unlike someone going for a drivers license test after completing a drivers education course but never having actually sat behind the steering wheel of a real automobile. It is surely time for the industry to acknowledge the failure of the education-only strategy and to find ways to let individuals easily and quickly get access to the tools that can accurately inform them on their investment strategies.
For a fraction of the cost of education programs, plan participants can be given low-cost Internet-based investment advice. However, there has been no greater impediment to the provision of this valuable advice than the fear of lawsuits against employers from employees who fail to achieve their investment goals. Fortunately, there are legislative forces at work designed to remove this obstacle. If allowed to pass, the Boehner bill will achieve more than any more money being thrown down the sinkhole of education.
NTGI client contact
In the 2001 Databook (P&I, Dec. 24), three tables contained outdated contact information for Northern Trust Global Investments. I understand these tables were reprints from earlier issues, and while our assets for the particular dates clearly wouldn't change, some of the other information did.
The correct contact for Northern Trust Global Investments in all of the tables should have been Jim Barrett, at (312) 557-1420. The person listed as our contact in the Top 200 Managers of Pensions Assets (page 27), Top 50 Managers of International/Global Assets (page 39), and Top 50 Managers of Indexed Assets (page 53) actually left our organization several months ago.
senior vice president
and director of marketing
Northern Trust Global Investments
Pentegra's total assets
Our survey response for the Jan. 21 Pensions & Investments should have shown a total of $2.429 billion in employee benefit assets, as of Sept. 30, consisting of the Financial Institutions Retirement Fund, a defined benefit fund, at $1.589 billion, and the Financial Institutions Thrift Plan, a 401(k) fund, at $840 million.
The Pentegra Group
White Plains, N.Y.
Pensions & Investments welcomes Letters to the Editor and submissions of commentaries for the Other Views page. Letters and other submissions may be sent by mail to Barry B. Burr, Pensions & Investments, 360 N. Michigan Ave., Chicago, IL 60601; by fax, to (312) 649-5228; or by e-mail to [email protected]