News Briefs

United hopes to reach consensus with unions over pension plan terminations

CHICAGO — If United Airlines reaches a pact with its unions, the airline will terminate its combined $6.96 billion defined benefit plans and replace them with defined contribution plans, said Jean Medina, United spokeswoman. She said the company needs to have the concessions in place by mid-January to obtain exit financing for its Chapter 11 bankruptcy proceedings and to establish a new business plan.

Attorneys for United Airlines said the carrier will try to come to agreement with its unions, according to a motion filed with the U.S. Bankruptcy Court in Chicago. United's parent company, UAL Corp., Elk Grove Township, Ill., is proposing that the unions remove any terms in their collective bargaining agreements that require the airline to maintain pension plans, the motion said.

United CEO Glenn Tilton said in a Nov. 4 recorded message to employees that the airline needs to "achieve additional savings totaling $2 billion annually, including the termination and replacement of our pensions." He said the savings would come equally from non-labor cost reductions, pension replacements and labor costs, and "when we have completed this restructuring, we will have cut our costs by $7 billion a year on average."

"The company's demands are disastrous," Greg Davidowitch, president of United's flight attendants' Master Executive Council, said in a Nov. 5 statement. The "demands from flight attendants are not fair, equitable, nor necessary for a successful reorganization."

Dave Kelly, spokesman for United's pilots' union, said the union would have no comment on the matter until its governing body meets Nov. 15-16.

Separately, UAL will ask a bankruptcy judge at a Nov. 19 hearing to further extend the time in which the company has the right to file a Chapter 11 reorganization plan without the threat of other parties filing competing plans. The company is seeking that exclusive right, which currently expires at the end of November, through Jan. 30.

CHARLOTTE, N.C.— Bank of America NA is under investigation by the IRS in connection with the transfer of assets to the bank's cash balance plan from its 401(k) plan, according to a company filing with the SEC. Bank of America's 1998 and 1999 tax returns are being audited by the Internal Revenue Service, which is reviewing whether the transfers were legal.

The probe involves some of the issues raised in a federal lawsuit filed on June 30 against Bank of America by some of its employees, which claims the bank encouraged employees to transfer more than $2.7 billion from the 401(k) plan into the bank's cash balance plan in 1998 and 2000. The lawsuit claims the asset transfers violated ERISA and that the bank used the inflows to inflate the company's overall income. A separate federal lawsuit filed on Sept. 29 claims FleetBoston Financial, acquired by Bank of America earlier this year, violated ERISA by converting its pension plan to a cash balance plan without telling participants about the impact of the change.

"We believe that our plans have been designed and administered in accordance with applicable law. While we do not comment on pending litigation, we intend to defend ourselves vigorously against the claims in these lawsuits," Bank of America spokeswoman Eloise Hale said in a statement.

Bank of America's cash balance plan has $7.67 billion in assets and its 401(k) plan has $5.65 billion in assets, and the FleetBoston defined benefit plan had $1.2 billion in assets, all as of Dec. 31, 2002, according to the Money Market Directory.

SACRAMENTO, Calif. — The merger of Anthem Inc. and WellPoint Health Networks Inc. received the approval of John Garamendi, commissioner of the California Department of Insurance. The pending merger had been opposed by the $170.7 billion California Public Employees' Retirement System, Sacramento; the $10.3 billion Illinois State Board of Investment, Chicago; and the $26.4 billion Los Angeles County Employees Retirement Association, Pasadena, Calif., citing excessive executive pay packages for WellPoint executives.

Mr. Garamendi initially had opposed the merger, but approved it after receiving concessions and funding commitments from both companies on health care in California, according to his statement.

The California Department of Insurance was the last of the regulators in 10 states and Puerto Rico that hadn't approved the deal, said Jim Kappel, Anthem spokesman.

WellPoint is based in Thousand Oaks, Calif.; Anthem, in Indianapolis. The resulting combination will be called WellPoint Inc and be based in Indianapolis, Mr. Kappel said.

BOSTON —Putnam Investments' assets under management declined by $4 billion in the third quarter to $209 billion, according to an SEC filing from parent Marsh & McLennan Cos. Inc. Another MMC unit, Mercer Inc., reported a $7 million decline in operating income to $106 million in the same quarter.

Overall, Marsh & McLennan reported $21 million in net income for the third quarter, compared with $389 million in the previous quarter. Barbara Perlmutter, spokeswoman, did not return calls seeking comment by press time.

WASHINGTON — Worldwide mutual fund assets fell 1% to $14.41 trillion in the second quarter, according to data from the Investment Company Institute. The decline was the result of negative stock market returns in about half of 40 reporting countries. Overall, net worldwide cash inflows slipped to $18 billion in the second quarter, from $246 billion in the first quarter, because of lower inflows into equity and balanced funds as well as outflows from bond and money market funds, according to a news release.

PITTSBURGH — The median third-quarter return for the Russell/Mellon Master Trust Universe was 0.31%, up from -0.09% in the second quarter. More than 60% of the 525 institutional funds in the universe produced positive returns. Public pension plans had a median return of 0.54%; union pension plans, 0.39%; charitable foundations, 0.27%; corporate plans, 0.25%; and endowment funds, 0.15%.

Strong international and domestic bond returns helped spur performance, according to the survey. The median performance of funds' domestic bond portfolios was 3.28%, while their international bond portfolios returned 4.82%. The median Lehman Aggregate Bond portfolio returned 3.2% in the same period.

The average asset allocation among the funds was 41% domestic equity; 25% domestic bonds; 19% international equity; 5% alternatives; 4% specialized investments such as oil and gas partnerships; 3% real estate; 2% international fixed income; and 1% cash.

CHARLOTTESVILLE, Va. — The CFA Institute announced it created the CFA Centre for Financial Market Integrity, a new research and policy center that will work on global capital market issues and promote professionalism and high ethical standards in the industry. Its first initiative, a proposed asset manager code of professional conduct, was released today in draft form. The executive director will be Kurt Schacht, who had been chief operating officer and general counsel at Wyser-Pratte Cos., responsible for all operating, legal and compliance matters for the $500 million hedge fund operation. It will be led by an advisory council chaired by John B. Neff, managing partner at Wellington who subadvised the Vanguard Windsor fund for 30 years. Council members include Gary Brinson, founder of Brinson Partners, and Alan J. Brown, group CIO and vice chairman of State Street Global Advisors.

TACOMA, Wash. — Russell Investment Group is narrowing its real estate consulting practice, limiting it to general consulting clients, those with discretionary separate accounts and support for Russell's domestic real estate funds, said Karl H. Smith, director of real estate for Russell. Ten clients will be affected by the change; their identities could not be learned. Russell real estate executives expect to offer a number of new real estate initiatives including a global real estate securities fund focusing on REIT-style investments outside the United States, Mr. Smith said. Russell had $3 billion in real estate discretionary, separate account and Russell funds as of Sept. 30, Mr. Smith said.

CHAPEL HILL, N.C. — UNC Management Co., which manages the $1.1 billion endowment of the University of North Carolina will trim the fund's 55% hedge fund allocation "slowly, deliberately and at the margins," said Michael Hennessy, vice president. "As opportunities wax and wane, we may trim the overall allocation, get out of some strategies that aren't working right now. Coming out of the down market, there may be some low-lying fruit that can be cut," Mr. Hennessy said. UNC's board did not make formal changes to the fund's asset allocation and UNC Management did not specify how much would be cut from hedge funds. Mr. Hennessy did not identify the hedge funds which have been or might be cut.

DALLAS — Voters on Nov. 2 approved a binding proposal to eliminate the $1.75 billion Dallas Employees Retirement Fund's unfunded liability, confirmed David Cook, city CFO. Under the plan, approved by 70% of voters, the employee contribution rate will increase in October to 9.27% from 6.5%, and the city's contribution rate will rise to 15.78% from 11%. The plan also splits the cost of any bonds issued to fund the pension system, with the city responsible for 63% of the costs and employees responsible for 37%. Mr. Cook said city will likely issue up to $535 million in pension obligation bonds. Mr. Cook said the city council had approved an underwriting syndicate for the bonds, which are expected to be issued in January; specific plans will be in place by the end of the year.

NEW YORK — Final approval was given Nov. 5 to a $2.58 billion class-action settlement of a lawsuit against Citigroup and its affiliates filed by WorldCom Inc. investors over securities losses. Judge Denise Cote of U.S. District Court in New York approved the settlement, according to a news release from Alan Hevesi, New York state comptroller and lead plaintiff.

"The WorldCom situation cost shareholders hundreds of millions of dollars," said Mr. Hevesi, sole trustee of the $115.7 billion New York State Common Retirement Fund, Albany. According to the fund's 2003 annual report, the fund lost an estimated $300 million invested in WorldCom. The original $2.65 billion settlement was reduced because of plaintiffs dropping out of the class.

"We are pleased the settlement process took this important step toward conclusion," Shannon Bell, Citigroup spokeswoman.