Steamfitters sue Austin Capital over Madoff

Steamfitters Local 449 filed suit June 11 against Austin Capital Management, claiming the firm breached its fiduciary duty under ERISA by investing in a feeder fund managed by Bernard L. Madoff Investment Securities.

The suit, filed in U.S. District Court in Pittsburgh on behalf of the union's $95.7 million pension fund, seeks class-action status. Also named as defendants are several Austin Capital executives; Austin's parent company, Victory Capital Management and its parent, KeyCorp, according to court filings.

Beginning in 2006, the Steamfitters' fund invested a total of $7.9 million in Austin's Safe Harbor Fund, which invested as much as 7.5% of its assets in the Rye Select Broad Market Fund managed by Madoff, according to court documents. The suit seeks restitution of losses and legal costs.

Austin Capital Management's funds were closed in April. Executives of the firm and Victory Capital and KeyCorp executives could not be reached by press time for comment.

Half of the employees at companies that have suspended matching contributions to 401(k) plans also are covered by an open defined benefit pension plan, according to an EBRI report.

Also, 16% are employed by companies that are obligated to fund a frozen DB plan, and 8% work for companies with both an open and closed DB plan that require funding, the report said.

“Most of these workers are with firms that have both types of retirement plans,” the report's authors — Dallas Salisbury, EBRI president and CEO, and Elisabeth Buser, program associate and director of new media — said in the report. “Because of the current economic conditions, many of these employers must make what are unexpected contributions to the defined benefit plan as a result of asset losses and liability growth, but they can eliminate what are discretionary matching contributions to a 401(k)-type plan.”

The PBGC will receive $9.5 million for the three terminated pension plans of Aloha Airlines, in a settlement over the plans' investment losses on company stock, according to a Department of Labor news release.

The settlement resulted from an investigation conducted by the Employee Benefits Security Administration, which reached an agreement with the former airline's holding company as well as Bank of Hawaii and First Hawaiian Bank. The PBGC took over the plans in April 2006.

Aloha and Bank of Hawaii, as the plans' fiduciaries, were accused of breaching their fiduciary duties under ERISA by allowing the plans to buy newly issued stock of the airline's holding company in September 2000 for more than its fair market value.

As the plans' manager, First Hawaiian Bank knowingly participated in the fiduciary breaches by facilitating the stock transaction, violating its duties as a co-fiduciary, the release said.

Aloha Airlines filed for Chapter 11 bankruptcy protection in December 2004 and notified employees in October 2005 that it would seek court approval to terminate its pension plans.

Laurence Siegel will retire this summer as director of research, investment division, at the $9.3 billion Ford Foundation. He will continue as research director at the CFA Institute. Foundation officials plan to name a successor shortly, Eric W. Doppstadt, vice president and CIO, wrote in an e-mail.

The $4.2 billion Wyoming Retirement System hired PIMCO and AllianceBernstein to run a combined $60 million in TALF programs, said Thomas Williams, executive director.

PIMCO will receive $50 million; AllianceBernstein, $10 million.

Also, PIMCO will run $150 million in a tactical cash allocation “to give them flexibility while we identify long-term opportunities,” Mr. Williams said.

A total of $4.3 trillion was in U.S. corporate defined benefit and defined contribution plans as of March 31, down 7.1% from the end of the fourth quarter, according to the Federal Reserve's Flow of Funds report.

State and local government retirement funds had $2.2 trillion as of March 31, down 6.5% from Dec. 31, while assets in the federal government's retirement funds totaled $1.2 trillion, down 2.4%.

Total assets invested in stocks in corporate DB and DC plans were $1.5 trillion, down 12%.

Henry Swieca, co-founder, managing member and CIO of Highbridge Capital Management, will leave later this year after JPMorgan Asset Management completes its acquisition of the firm on July 1, said Mary Sedarat, a JPMorgan spokeswoman.

Mr. Swieca could not be reached to comment on his plans. His duties have been assumed by a seven-person investment committee; he will not be replaced, Ms. Sedarat said.

Co-founder Glenn Dubin will remain as managing member and CEO, Ms. Sedarat said.

Legislation to enhance fee disclosure requirements for defined contribution plans was introduced by Rep. Richard Neal, D-Mass.

The Defined Contribution Plan Fee Transparency Act of 2009 would require plan officials to disclose more information than they already provide to participants about the fees associated with each of the plan's investment options. Disclosure would be required at enrollment and every quarter.

Plans also would have to compare their investment options' returns to a benchmark and explain the differences between active and passive investment options.

The bill is similar to one Mr. Neal introduced in 2007 that died in committee and to legislation introduced earlier this year by Reps. George Miller, D-Calif., and Rob Andrews, D-N.J.

NSW Local Government Superannuation Scheme pulled its entire A$425 million (US$341 million) hedge funds-of-funds allocation and invested half of the redeemed capital in high-grade Australian credit, according to Investment & Technology newspaper.

The A$5.6 billion plan terminated hedge funds-of-funds managers BlackRock, Warrakirri and FRM Investment Management in recent months, disappointed by the funds' correlation with listed markets.

About half of the money has been invested in a Macquarie Bank high-grade Australian credit portfolio.

“We went into that asset class thinking that hedge funds would be uncorrelated to sharemarkets. Not only the returns, but also the correlations, are not what they were promised to be,” said Peter Lambert, scheme CEO.

He said the fund of funds' lack of transparency was another concern.

The PBGC took over Milacron's pension plan. The company is in Chapter 11 bankruptcy protection, according to Business Insurance, a sister publication of Pensions & Investments.

The Milacron plan is about 45% funded, with assets of $260 million and liabilities of $573 million, according to the PBGC. The agency said it expects to cover $285 million of the $313 million funding shortfall. The plan was frozen on Dec. 31, 2007.

Hedge fund manager D.E. Shaw laid off 25 administrative and recruitment staffers, about 1.5% of its 1,700-person work force, confirmed a company spokesman who asked not to be identified.

Ten other employees were reassigned to different positions within the firm, which managed about $30 billion as of June 1. No investment professionals or other front-office personnel were cut; no additional layoffs are planned.