The Department of Labor's regional office in Boston is investigating how corporate pension plan fiduciaries value their alternative investments.
The result could be a huge increase in expense and work for plan fiduciaries.
Pension plans often rely on the financial statements of general partners to report the value of those investments in their Form 5500 annual filings with the DOL.
But in at least one letter to an unidentified pension plan, James Benages, director of the DOL's Boston regional office, contends that plan fiduciaries need to have a process in place to independently value the alternative assets.
In the July 1 letter, first reported on Pensions & Investments' website, Mr. Benages said the plan's “failure to have an established process by which the fair-market value of alternative investments can be determined” violates the Employee Retirement Income Security Act and, if not changed, could prompt a lawsuit against the plan.
“A process which merely uses the general partner's established value for all funds without additional analysis may not insure that the alternative assets are valued at fair market value,” the letter said.
The copy of the letter obtained by P&I had all information that could be used to identify the plan sponsor deleted.
Among other things, the DOL letter recommended that executives at the plan consider re-filing the 2007 5500 form “so that it accurately reflects the fair market value of these investments.”
“If you take proper corrective action, then the department will not bring a lawsuit with regard to these issues,” said the letter, signed by Mr. Benages.
In a telephone interview, Mr. Benages said he would not comment on the ongoing investigation, or what spurred it. “It's a normal investigation,” he said, but added, “A number of plans are affected.”