I must speak out on your June 24 editorial "Joint-trustee redux," which totally fails to evaluate the advantages of joint trusteeship in corporate pension plans. Previously, I worked in two corporate Fortune 200 pension plan administrations and I believe your editorial, while quite arrogant and reflective of upper-management thinking, totally fails to show the potential advantages of joint trustee relationship.
The primary purpose of corporate defined benefit pension plans is to help provide financial assistance for retired employees. How better for trustees to tailor the plan's benefits and investment structure to employees' retirement needs than to have employees serve as plan trustees? How better can corporate trustees gauge the importance of issues like benefit portability for their workforce than to have elected members of the workforce as trustees? Otherwise, trustees will spend substantial sums hiring outside consulting firms to inform them about the needs and desires of their own workforce. The key point is for the corporation to get the utmost value from each pension dollar expended. How better to find the best value than to use input from employees who depend on the pension plan dollars to provide a major portion of their retirement income?
Employees who have a great deal of their future retirement security at risk will take a greater interest in the efficient operation of the plan and its assets when compared with current trustees. Many current trustees are participants in executive retirement plans and draw only a minor portion of their total retirement income from the corporation's primary defined benefit plan.
Your editorial also uses the same tired, worn-out excuses that senior management has relied on for decades to argue against more employee involvement in corporate operations. The same complaints about lack of employee contributions, conservative investment policies, and disguised union organization efforts have been proclaimed for so long they now draw little attention. Why not discuss the advantages of new ideas employee trustees could bring to the "business as usual" atmosphere prevailing in many corporate plans?
Please understand, I am not proposing corporate plans be dominated by members of the employee workforce. In many cases, employees do not have the necessary pension training, education and experience to serve as a majority of the trustee members, but neither do most management trustees.
Pensions and Investments' credibility could be better maintained if you would show both sides of this issue and not just advocate pension reforms like increasing the maximum contribution on defined contribution plans. Anyone in the pension industry knows the average employee is not financially capable of contributing more than $30,000 per year to such a plan. The chief beneficiaries of that change would be the same executive management that wants to maintain the status quo. Please make a better effort to be fair in your coverage and not brown-nose management.
James O. Wood, Esq. CEBS, SPHR
Baton Rouge, La.
The June 10 Others' Views article on "disappearing ETIs" by D. Jeanne Patterson contains a reference to the Washington State Investment Board, which has an allocation of 10% to alternative investments (mostly leveraged buy-out funds and venture capital). The juxtaposition of general ETI activity and specific alternative investments by our board (and some other state and endowment funds) was confusing. The Washington State Investment Board has not had, and is not newly adopting, an ETI program. We have had alternative investments since 1981, and this does not include ETIs.
The author apparently wants to cite increases in alternative investments as perhaps a new home of investments that otherwise would have been in ETI programs. Interestingly, alternative investments usually are chosen for the possibility of higher rates of return. ETI programs usually are chosen for providing a collateral economic benefit (or for geographic targeting) with risk-adjusted market returns.
I just wanted to clarify that this reference to our 10% allocation in alternative investments, somehow relating to ETI programs, does not apply in the case of the state of Washington.
James F. Parker
Washington State Investment Board
I agree with James F. Parker; alternative investments aren't ETIs. But we know many alternative investments provide a collateral economic benefit just as ETIs do (making funds available that might not be otherwise). They also provide risk-adjusted market returns, although, as he notes, the returns (and risks) are relatively high. Yet, we couldn't say Washington's investments are ETIs without studying the portfolio carefully and arriving at some economic conclusions. The Washington State Investment Board obviously knows best whether it is targeting.
I agree, too, the article's definitions were confusing. The Sachs/Russell study defines the composition of alternative investments, whereas the Brancato Report identifies the components of ETIs. ETIs include a large share of investments related to housing/real estate; alternative investments do not.
It's good to hear from Mr. Parker. He confirms my impression that alternative investments present a clear investment objective that many pension systems prefer over ETIs.
D. Jeanne Patterson
School of Public and Environmental Affairs
We have read the May 13, page one article by Steve Hemmerick and Terry Williams, "4 CalPERS realty firms on thin ice." I think two of three firms placed on the watch list may have suffered as a result of a mischaracterization in one paragraph where it says, "Managers on the termination or watch list run 41% of the fund's...real estate portfolio." And later the article says, "No reason was given for putting the three managers on a watch list."
In fact, the study states two of the firms were placed on the watch list "due to recent mergers/acquisitions, but have acceptable performance." Both of those firms, AMRESCO Advisors Inc. and GE Capital Real Estate Investment, were in the process of being acquired in November when the material for the study was gathered. We feel it is appropriate for the staff and consultant to review the impact of those mergers to determine "whether the resources that these advisers will dedicate to the CalPERS account will be sufficient to meet the CalPERS requirement."
The two firms were ranked in the top one-third of all the advisers mentioned and rated. As each is now a part of a bigger financial service firm, there are good reasons why strong performers with enhanced capabilities will be retained by CalPERS.
Gary R. Schwandt
Executive Managing Director