Regulations and fees dominated the news headlines during 2015

Rules and regulations dominated Pensions & Investments headlines in 2015.

P&I's list of the top 10 stories of the year leads off with the U.S. Department of Labor attempting to produce a new fiduciary standard for anyone giving retirement investment advice to defined contribution plan participants.

Other top themes were the pressure on plan executives to disclose private equity fees, the broadening of defined contribution plan sponsors' responsibilities in a landmark fiduciary breach case and the continued impact of the underfunding of pension plans.

The DOL's efforts to create a fiduciary standard ranked as the top story of 2015, according to P&I's editors. The department spent much of the year attempting to establish what the DOL calls the “conflict of interest rule for investment advice.”

The proposed changes primarily would affect what organizations such as the Committee on Investment of Employee Benefit Assets, Bethesda, Md., see as aggressive marketing of individual retirement accounts to 401(k) plan participants when they leave their employer.

“CIEBA believes that participants deserve unbiased advice,” said Deborah Forbes, executive director of the group that represents large plan sponsors, in a March interview.

The proposed rule has caused great controversy and discussion among corporate plan executives and on Capitol Hill. The most recent action came in December, when several members of Congress introduced legislation that would require congressional approval before the rule is finalized, and would create an alternative fiduciary standard.

“The Department of Labor's rule proposal — if adopted in its current form — would do great harm,” said Paul Schott Stevens, the Investment Company Institute president and CEO, in a statement after passage of H.R. 1090, the Retail Investor Protection Act. “H.R. 1090 reflects a common-sense goal of ensuring that federal agencies work to adopt a harmonized fiduciary duty for all investors, and that they do so in a manner that does not jeopardize investor access to personalized and cost-effective investment advice.”

The story will continue into 2016 as some Washington observers see the DOL prevailing in the spring with a final standard, thanks to backing from the White House.

Picked as the second biggest story of 2015 is the pressure enacted upon plan sponsors, particularly the $288.1 billion California Public Employees' Retirement System, Sacramento, to disclose private equity fees.

The most recent fee discussion was sparked as a result of executives at CalPERS acknowledging they did not know what the giant pension fund was paying in total to its private equity managers, and how costly it was to manage its most expensive asset class.

The importance of private equity fee disclosure to CalPERS came about after a plan announced in June by Chief Investment Officer Theodore Eliopoulos that was aimed at lowering fees, risk and complexity by reducing the number of external managers to about 100 from 212.

In November, CalPERS finally was able to report it had paid $3.4 billion in carried interest performance fees to private equity managers since 1990.

However, CalPERS' admission earlier in the year gave the issue greater visibility.

California Treasurer John Chiang said in a statement following CalPERS' fee disclosure that “(T)oo much compensation information remains missing, and no amount of profit-sharing returns should cause us to turn a blind eye to demanding full transparency and accountability from firms which call themselves our "partners.'”

Other pension funds felt the heat.

A week before the CalPERS disclosure, the New Jersey State Investment Council, which oversees the investment management of the $79 billion New Jersey Pension Fund, Trenton, voted to report five years of private-equity fees and performance data.

The third top story of the year was the U.S. Supreme Court's May ruling that DC plan executives have a continuing responsibility to monitor investments despite the six-year time limit for lawsuits alleging breaches of fiduciary duty.

Tibble et al. vs. Edison International et al. had been filed by Edison 401(k) plan participants in 2007, claiming breach of fiduciary duty by the plan and its executives in choosing certain retail-priced investments over less-expensive institutionally priced versions of the same investments.

The high court's ruling reversed a 2013 dismissal of the lawsuit by the 9th U.S. Circuit Court of Appeals because the three retail mutual funds were introduced by the plan in 1999, beyond the six-year limit.

The ruling, while creating some questions regarding the specific fiduciary duty of DC plan sponsors on monitoring investments, brought to light how important it is for executives to have a greater knowledge of their investment options.

“Amateur hour is over,” said James P. McElligott Jr., a Richmond, Va.-based partner for McGuire Woods LLP in a May interview. “The court is saying you need to look at investments in a serious way (and) investment committees need to know their investments.”

Ranked fourth on the editors' list of top stories of 2015 was the rescue efforts for the $17.8 billion Teamsters Central States, Southeast & Southwest Areas Pension Fund, Rosemont, Ill., which is projected to become insolvent in 2026.

Now in a Treasury Department comment period until Feb. 1, the benefit reduction proposal by the plan comes as a result of lost employer contributions from the hundreds of companies that have gone out of business, resulting in $2 billion more in benefit payments paid out each year than the pension fund receives.

It is the highest-profile proposal since the passing of the Multiemployer Pension Reform Act of 2014, which permits trustees of deeply underfunded pension funds that face insolvency within 15 years to cut benefits, even for current retirees.

The fifth story was the huge effect on investors of collapsing energy prices. The price of oil had dropped to $35.66 per barrel as P&I went to press, from a high of $107.26 a barrel in June 2014. The drop in energy prices had a significant impact on investors as alternative investment returns fell, and energy also contributed to higher bond yield. Money managers also felt the impact as some oil-based sovereign wealth fund clients pulled back assets.

The rest of P&I's top 10 stories are:

nThe London Stock Exchange's attempts to sell the money management and consulting arms of Russell Investments. The LSE announced in February it would only keep Russell Investments' index business following its purchase of the firm in December 2014. Announcing in April that it had several “indications of interest” from possible buyers, LSE then saw that field dry up as rumored bidders Towers Watson & Co. and CITIC dropped out. In October, LSE announced a deal with private equity firm TA Associates and Reverence Capital Partners.

nThe continuing aftereffects of the October 2014 departure of co-founder and CIO William H. Gross from Pacific Investment Management Co., including Mr. Gross' lawsuit against PIMCO in October;

nJapan's public pension funds following the lead of the world's largest pension fund, the ¥141 trillion ($1.16 trillion) Government Pension Investment Fund, in globalizing their portfolios;

nCalPERS' announcement in November that it plans to shift investments away from equities and gradually reduce the pension fund's assumed rate of return to 6.5% from 7.5%, a reduction that could take as long as 20 years; and

nUnited States Steel Corp.'s August announcement it would freeze its $6.3 billion pension plan. U.S. Steel was one of the first modern corporate pension plans, established by Andrew Carnegie in 1901. n