401(k) Fee Analysis - Who Benefits?

Thanks to attorney Stephen Rosenberg for giving our 401(k) fee webinar a round of applause. In "401(k) Plan Fees and Breaches of Fiduciary Duty", Rosenberg writes "On the key issue of how to avoid incurring liability for breach of fiduciary duty as a result of the fees incurred by 401(k) plans and their impact on plan performance, the speakers emphasized a commitment to due diligence. In particular, the speakers favor a systemic and periodic review of the entire issue of the fees affecting the plan, and proper investigation and selection of funds and advisors with the issue of fees firmly in mind. In other words, don’t put the plan together without thinking about the issues of fees and ensuring that the applicable fees are consistent with industry benchmarks, and even after you do that, don’t just forget about the issue, but instead return to the topic regularly and make sure fees and performance remain appropriate."

Some other points are noteworthy, especially given questions that arose after the event.

1. A comprehensive fee analysis, done before manager selection and regularly thereafter, benefits multiple constituencies - plan sponsors, participants, shareholders, money managers and consultants.

2. While plan participants arguably have limited information, relative to what is available to plan sponsors, both groups should understand fee structures and the expected economic effect of different types of fees. Remember that all fees are not "created equal." For example, some fees may be front-ended or tied to performance and therefore differ as regards portfolio performance impact.

3. What looks like "higher" fees on the surface may not be necessarily "bad" (and this is a gross simplification). In part, it depends on what they represent. A plan participant could have more flexibility in one situation (i.e. fewer restrictions perhaps), thereby boosting base fees. It likewise depends on, apples-to-apples, how a particular fund's fee structure compares to an appropriate fee benchmark. Other issues might come into play. Bottom line - A thorough analysis is paramount.

4. Fees are influenced by many factors, including asset class, investment strategy, market structure, fund structure, performance, terms, regulation and competitiveness.

Regarding the process itself, the U.S. Department of Labor provides guidance in its online publication, "A Look At 401(k) Plan Fees."

Here are a few excerpts:

"Establish a prudent process for selecting investment alternatives and service providers

Ensure that fees paid to service providers and other expenses of the plan are reasonable in light of the level and quality of services provided

Select investment alternatives that are prudent and adequately diversified

Monitor investment alternatives and service providers once selected to see that they continue to be appropriate choices"

Other resources exist in the form of checklists such as those provided by the Foundation for Fiduciary Studies. Click here to access the "Self-Assessment of Fiduciary Excellence" for investment stewards, investment advisors and money managers, respectively.

More to come...

Labels: 401k Plans, Fees

posted by Susan Mangiero at 11/30/2006 12:10:00 AM | 0 comments | links to this post   

Compliance and Litigation Remain Hot Button Issues

According to Fulbright & Jaworski partner and global chair of the Litigation Department, Stephen C. Dillard, fear may be appropriate with respect to all things litigation. In "Litigation Nation" (Wall Street Journal, November 25, 2006), Dillard describes results from their third Litigation Trend Survey, emphasizing an increasing upward trend in lawsuits here and abroad. "Even we were surprised by the volume and scope of legal actions across all major industries and regardless of company size."

Besides finding that "Some 89% of companies report being hit with at least one new lawsuit in the past year," companies stateside "face an average of 305 lawsuits pending world-wide." At the same time, "companies with sales of $1 billion or more" face an average of 556 cases, "with 50 fresh suits emerging each year for nearly half of these firms."

The cost of litigation is far from trivial. The survey cites corporate legal expenditures averaging $12 million, up from $8 million last year and with some industries - engineering and insurance - spending over $35 million.

Given the nature of this blog, www.pensionriskmatters.com, what caught my eye were the assertions that "more than half of the in-house counsel cited employment as their top litigation concern" and that "disputes over wages and hours can be brought as class actions in many jurisdictions, creating more waves of litigation."

Other press accounts about corporate lawsuits are similarly engaging.

According to the Chief Legal Officer Survey 2006, compliance and litigation are huge concerns. Conducted by Altman Weil, Inc. and LexisNexis Martindale-Hubbell, respondents lament that time and money used to fight and/or prevent lawsuits could not be otherwise used to grow the company.

New York Times reporter Paul B. Brown describes the concept of litigation funding companies in "What's Offline: Next, a Lawsuit Futures Exchange?" Citing Joshua Lipton in "Litigation 2006," Brown informs that hedge funds are researching the possibilities of investing now in anticipation of enjoying hefty case outcomes later on. That same supplement to the American Lawyer & Corporate Counsel includes a piece by Alison Frankel that offers insight about the globalization of litigation.

Lest you need more of a reminder that a sea change is upon us, consider the U.S. Appeals Court decision that found a fiduciary personally liable for nearly $180,000 due to losses realized by the International Brotherhood of Industrial Workers Health and Welfare Fund. In "Ruling highlights fiduciary need for hindsight", Reid and Riege attorneys David M.S. Shaiken and Eileen M. Marks describe the serious fallout from Chao v. Merino, 452 F.3d 174 (2d Cir. 2006), stating that the individual in question "was permanently prohibited from serving as a fiduciary or service provider to any employee benefit plan."

Other excerpts from the November 2006 Employee Benefit News article merit attention.

1. "The Court of Appeals' holding underscores how important it is for new plan fiduciaries to inform themselves thoroughly about a plan's operations, consultants and service providers with whom the plan has contracted. New fiduciaries should raise with co-fiduciaries any concerns about existing relationships after conducting their review.

2. The mere fact that an imprudent relationship predates a fiduciary's tenure does not shield the fiduciary from liability. The duties to be informed about plan business and to act prudently include a duty to be informed about, raise objections to, and protect the fund from any imprudent relationships that are in place with consultants and service providers when a fiduciary's term begins.

3. Plan fiduciaries may wish to review their and their plan's insurance coverage. ERISA plan fiduciary liability insurance covers claims against current and former plan trustees and, if they are named in the policy, plan administrators who have fiduciary duties. In case of a claim of breach of fiduciary duty, within the insurance policy's limits the insurer provides and pays for defense counsel, and indemnifies the plan fiduciary from liability, provided that the claim is not excluded from the policy's coverage."

Given the tsunami of litigation (with all indications that more is on its way), pension fiduciaries need to assess their personal and professional risk.

It's scary stuff indeed. Email us if you want to know more about our fiduciary and board training programs. If you are an attorney, ask to receive our complimentary pension governance kit.

Labels: Compliance, Fiduciary Breach, Governance, Litigation

posted by Susan Mangiero at 11/27/2006 12:16:00 AM | 1 comments | links to this post   

Pensions for Pets?

With an estimated $40 billion at stake, pets are a big business. According to the American Pet Products Manufacturers Association, 63 percent of U.S. households own a pet with more than 90 million cats, 73 million dogs and 139 million freshwater fish claiming a place in more than 69 million homes.

While many of us work hard to prepare for life after work, serious pet owners are just as concerned that Fido and Puss have enough biscuits and balls in their golden years.

The Humane Society of the United States offers a free kit, Providing for Your Pet's Future Without You, including a "six-page fact sheet, wallet alert cards, emergency decals for windows and doors, and caregiver information forms." Click here for more information.

USA Today reports that many states have relaxed rules to set up trusts for pets, with an average bequest of $25,000. (See "Animal owners set up trust funds for their pets" by Richard Willing, August 15, 2002.)

So to those friends and family members who dote on their cats, dogs, rabbits, hamsters, birds and fish, retirement planning takes on a whole new meaning.

Arf!

Labels: Humor

posted by Susan Mangiero at 11/25/2006 09:40:00 PM | 0 comments | links to this post   

Pension Disclosure and SEC Sanction

According to its website, the SEC sanctioned the City of San Diego "for committing securities fraud by failing to disclose to the investing public important information about its pension and retiree health care obligations in the sale of its municipal bonds in 2002 and 2003."

The SEC-issued Order "finds that the city failed to disclose that the city's unfunded liability to its pension plan was projected to dramatically increase, growing from $284 million at the beginning of fiscal year 2002 to an estimated $2 billion by 2009, and that the city's liability for retiree health care was another estimated $1.1 billion.

According to the Order, the city also failed to disclose that it had been intentionally under-funding its pension obligations so that it could increase pension benefits but defer the costs, and that it would face severe difficulty funding its future pension and retiree health care obligations unless new revenues were obtained, pension and health care benefits were reduced, or city services were cut. The Order further finds that the city knew or was reckless in not knowing that its disclosures were materially misleading."

The Order makes for fascinating reading. For one thing, an eight percent assumed rate of return on investments was used "without regard to its actual historical rate of return." Some increased benefits were treated as contingent liabilities that were not reflected in certain liability calculations.

Some general observations ensue.

1. Assuming no fraud, a plan's actuarial report should be read in conjunction with any other disclosures about a plan. To the extent that there are differences, responsible fiduciaries must ask hard questions in order to reconcile the "tale of two pensions."

2. This is unlikely to be the last event of its kind. Does this put additional pressure on rating agencies and other watchdog groups to identify potential red flags before the fact, to the extent possible?

3. What is the future of public plan pension and health care benefits? Courtesy of Sean McShea, president of Ryan Labs, a recent Economist article about Other Post-Employment Benefits ("OPEB") augurs poorly for taxpayers in states adversely affected by a new government accounting decree. "Going into effect on December 15, the rule requires municipal government employers to "treat their health-care promises to workers the same way they already handle their pension obligations: by reporting on the total size of their future commitment, instead of just this year's cost." (See "The known unknowns, Economist, November 16, 2006)

4. The size of the liability is important as is the rate of growth in the liability, netted against the expected change in asset performance.

5. Plans in crisis will be tempted to reach for higher expected returns. Identifying and evaluating incremental risk is essential. A bad choice could exacerbate an already grave situation.

With Thanksgiving in the U.S. only a few days away, we'll have to think long and hard about why we are grateful in benefits land.

Labels: Debt Rating, Public Pension, Securities Fraud

posted by Susan Mangiero at 11/21/2006 02:28:00 AM | 0 comments | links to this post   

401(k) Fee Webinar on November 28

In the aftermath of the Pension Protection Act of 2006, 401(k) plan sponsors are required to carefully select "fiduciary advisors", identify appropriate default investment choices for participants and comply with more rigorous federal reporting procedures. All of this could spell trouble for retirement plan fiduciaries who fail to realize that regulation, public awareness and employee angst put them in the spotlight as never before. This is especially apropos with respect to plan fees.

In a flurry of lawsuits involving nearly a dozen U.S. corporations, allegations of fiduciary breach regarding “excessive” compensation are making headlines. At the same time, the U.S. Department of Labor urges decision-makers to take care in assessing the reasonableness of fees and to uncover hidden costs.

Join us on November 28, 2006 from 11:00 a.m. to noon (EST) for an informative and timely webinar about 401(k) plan fees - what they are, how they can affect reported performance and the fiduciary practices that address investment management fees. Click here to register. There is a small charge to cover production expenses.

Featured Panel:

Edward M. Lynch, Jr.
Accredited Investment Fiduciary Analyst
SVP - Dietz & Lynch Financial Strategies Group of Wachovia Securities LLC

J. Richard Lynch
Accredited Investment Fiduciary Analyst
Executive Director - Foundation for Fiduciary Studies

Dr. Susan M. Mangiero
CFA, FRM, AVA and Accredited Investment Fiduciary Analyst
Managing Member - BVA, LLC and Founder - Pension Governance, LLC posted by Susan Mangiero at 11/20/2006 12:02:00 AM | 0 comments | links to this post   

Milton Friedman, Free Markets and Ethics in Business

While November 16, 2006 marks the passing of famed economist, Dr. Milton Friedman, his ideas will no doubt live on for years to come. Economists in the U.S. and abroad embrace his work for its clarity, originality and impact. Recipient of the 1976 Nobel Prize for Economic Science, Friedman was a staunch advocate of free markets, something that put him at odds with the big government crowd. Author of Capitalism and Freedom and co-author (with his wife Rose) of Free to Choose (book and television show), Friedman wrote about the "tyranny of controls" in 1979, adding that "restrictions on economic freedom inevitably affect freedom in general, even such areas as freedom of speech and press." Taking a page from Adam Smith's Wealth of Nations, this well-respected Ph.D. wrote that "it is in the self-interest of the businessman to serve the consumer" and by doing so, everyone wins.

Post-mortem tributes that review Friedman's work as part of a general discussion about free markets versus regulation come at a time when laws such as the Sarbanes-Oxley Act of 2002 are being critically examined. In early September of this year, the Committee on Capital Markets Regulation, "a newly formed independent group of U.S. business, financial, investor and corporate governance, legal, accounting and academic leaders" announced its intent to study ways to "improve the competitiveness of the U.S. public capital markets."

A critical question? How much regulation is enough?

In "Businesses Seek New Protection on Legal Front," journalist Stephen Labaton (New York Times, October 29, 2006) writes that the Committee on Capital Markets Regulation and a parallel group "aim to limit the liability of accounting firms for the work they do on behalf of clients, to force prosecutors to target individual wrongdoers rather than entire companies, and to scale back shareholder lawsuits."

Dr. Friedman was not only prescient but correct to observe that "there is no such thing as a free lunch." Someone, somewhere, somehow pays.

What is an appropriate cost to pay for a relaxation of current rules? More self-policing at the industry level? At the individual company level? At the shareholder level?

With regard to pension funds, should we abandon ERISA and ask company sponsors to provide more transparency and financial backing on their own? How do we reward companies that do that already and without prodding from government watchdogs? Will the aftermath of the Pension Protection Act of 2006 reflect the law of unintended consequences, i.e. outcomes that are antithetical to the original intent of legislators?

Only time will tell but, until then, thank you Dr. Friedman. Your legacy of thought-provoking ideas is a rich one indeed. posted by Susan Mangiero at 11/19/2006 12:02:00 AM | 0 comments | links to this post   

Please Excuse Us - Blog Functionality is Being Improved

Hi everyone,

Please bear with us. We are working to make our blog as user friendly as possible. We'll be back in action this weekend. Thank you for your patience. posted by Susan Mangiero at 11/17/2006 12:08:00 AM | 0 comments | links to this post   

Pension Fiduciary Liability - Busy Times Ahead

The life of a pension fiduciary is no bowl of cherries. As I wrote on May 16 of this year, I parenthetically asked why anyone would want to be a fiduciary. Their job is critical to the process but less than easy.

"Often the pay is bad and the hours are long. (Individuals seldom receive any additional compensation at the same time that they are asked to assume significant responsibilities that put them directly in the 'line of fiduciary fire.') One might say it's like being asked to constantly eat your peas without any hope of ever getting dessert." (Click here if you want to read the entire post entitled "Who Wants to be a Fiduciary Anyhow?")

In "Liability of plan fiduciaries a still-growing concern", journalist Marion Davis (Providence Business News, November 11, 2006) writes that, post-Enron, employers are more aware of their fiduciary duties to "manage the plan honestly" and to "manage it reasonably well and provide accurate and complete information to participants."

She cites attorney Richard D. Hoffman with Nixon Peabody as saying that "he has seen a growing number of employers buy insurance to protect themselves from ERISA claims" at the same time that the "number of claims has increased as well" and "plantiffs have become more sophisticated."

Issues such as fees are just the tip of the iceberg. The Pension Protection Act of 2006 adddresses valuation and a cornucopia of investment-related issues such as qualified alternatives for 401(K) plan participants. The article quotes attorney David C. Morganelli with Partridge, Snow & Hahn as recognizing a heightened awareness of what is at stake, adding that "lawyers such as himself have been answering an increasing number of questions about obligations and liabilities under that law and under ERISA."

In January 2007, our sister company, Pension Governance, LLC, will be unveiling a searchable pension litigation database, along with regular updates about trends and highlighted cases as pertains to financial issues. We started on the database over ten months ago and quickly realized that the volume of cases to be analyzed and catalogued dwarfed our original expectations.

The good news is that there are many things that can be done upfront to mitigate fiduciary risk. The questions for pension fiduciaries are threefold. Are they fully aware of all relevant risks? Do they know what has to be done? Are they ready to move forward?

We'd love to give you our take. Email us if you want to be notified of the pension litigation database launch and/or would like to get our thoughts about the challenges that loom ahead.

Editor's Note:
Please be reminded that we do not provide accounting, investment or legal advice. We provide independent research and analysis to pension fiduciaries and/or their attorneys in the areas of financial risk, derivatives, valuation, fee economics, disclosure best practices, questions of suitability and prudential process as relates to financial/economic issues. In addition, we offer training and consultation to boards, investment committees, trustees, regulators and pension-focused money managers in the areas of financial risk and valuation. posted by Susan Mangiero at 11/13/2006 12:02:00 AM | 0 comments | links to this post   

Hedge Fund Disclosure - Round Three

On November 8, 2006, I spoke again about the issue of hedge fund transparency and disclosure as relates to ERISA fiduciaries. Part of a three-person panel focused on hedge fund risk management (co-sponsored by BVA, LLC, ING Investment Management and law firm Alston Bird LLP), my comments were directed to an audience of about ninety people, representing hedge funds and service providers.

Since my remarks were picked up by several publications, and because this issue has now become a cause celebre of sorts, I'd like to clarify a few things. (Click here to read "The Law Giveth, The Law Can Taketh Away", 11/10/06, Institutional Investor.com and here to read "Amaranth, New Law Puts Onus on Pension Trustees" by Chidem Kurdas, New York Bureau Chief, 11/08/06, Hedgeworld.com. Registration may be required.)

In case you missed my earlier two posts on the topic of information and economic value, click here and here.

1. No investment is "good" or "bad" on its face. An investor must carry out a careful analysis of characteristics that are thought to contribute to the expected risk-return tradeoff. Moreover, an investor must consider its objectives and constraints.

2. Current law requires ERISA fiduciaries to make informed decisions. (Other criteria apply and fiduciaries are urged to seek legal counsel to better understand their responsibilities.)

3. Notwithstanding current law, common sense mandates a modicum of information and analysis before plunking down money. Why would someone invest in something resembling a black box, especially when they are acting as stewards of other people's money?

4. Some fund managers can choose to provide limited information to potential investors, to the extent permitted by prevailing law. ERISA fiduciaries may be subsequently forced to look at other funds that provide whatever information is deemed necessary to discharge their duties. (Click here for an interesting debate about information and its economic value.)

5. The Pension Protection Act of 2006 sheds arguably more light on what a fiduciary must do with respect to proper investment decision-making. However, it is not a standalone document and references opinions that will ultimately have to come from the U.S. Department of Labor and elsewhere.

6. The point about due diligence was emphasized by attorney Nir Yarden with Bryan Cave LLP as part of a recent Financial Research Associates conference about liability-driven investing. Yarden urged fiduciaries, including consultants and money managers, to thoroughly consider their exposure under ERISA, adding that "it won't take another blow-up to get people in trouble. Fiduciaries do not have the luxury of walking away from their statutory responsibilities. ERISA may apply even in the event of sub-performance."

7. Having a healthy debate about information requirements is a good thing. Please send or post comments. (If you have any difficulty posting to the blog, please email right away.) posted by Susan Mangiero at 11/12/2006 05:57:00 PM | 0 comments | links to this post   

U.S. DOL Greenlights Liability-Driven Investing as Possible Solution

With so many companies in the red when it comes to defined benefit plans, a green light from the U.S. Department of Labor to consider liabilities when making investing decisions is a big deal.

That's why over one hundred pension fiduciaries have signed up for a Financial Research Associates, LLC conference about liability-driven investing. Chaired by Dr. Susan M. Mangiero, CFA and Accredited Investment Fiduciary Analyst, the event promises to be timely and informative. Following the conference is a workshop entitled "Derivatives in an LDI Framework".

Led by Dr. Mangiero, founder of Pension Governance, LLC and Managing Member with BVA, LLC and Mr. Gavin Watson, Business Manager with the RiskMetrics Group, workshop attendees will hear about the following topics.

1. Identifying Liability-Driven Objectives and Alternative Solutions

2. Derivative Instrument Strategies

3. Modeling and Valuation Issues

Despite the many challenges of managing pension risk, fiduciaries now have some concrete solution possibilities to consider.

Editor's Note:
I'll return in a few days with much more (!) to say about LDI. posted by Susan Mangiero at 11/07/2006 12:02:00 AM | 0 comments | links to this post   

401(k) Fee Redux

In "Workers' suit highlights secrecy over 401(k) fees" (Baltimore Sun, November 5, 2006), journalist Eileen Ambrose looks at the effect of nearly a dozen plan-related lawsuits filed against large U.S. companies. Her conclusion? "Regardless of the merits of the lawsuits, consumer advocates and benefits experts say that increased attention to fees is a good thing."

Unfortunately, getting good information about fees is not a walk in the park since no one document tells a complete story. "Workers with sharp eyes and a calculator can generally figure out what they pay by going through the prospectus and quarterly statement, but they will have little luck uncovering the soft-dollar arrangements that could affect their nest eggs." Then there is the fact that there are many kinds of fees, with disparate effects on economic performance.

Edward M. Lynch Jr., a benefits expert with Dietz & Lynch Financial Strategies Group, a retirement plan consulting firm in Massachusetts, offers that no standard exists. Some mutual funds may charge a small or no administrative fee, planning instead to earn management fees. Other arrangements such as revenue-sharing do not show up on Form 5500 and are not always disclosed to plan participants. According to Lynch, "Revenue sharing could be a good thing if it is fully disclosed and reduces costs for workers." Otherwise, "it can be a problem if it influences the decisions on which mutual funds end up in the 401(k)."

Ambrose points out that, absent lawsuits, reform is on its way with the U.S. Department of Labor recommending improved disclosure about fees and the relationship between plan decision-makers and service providers. (In case you missed my blog about Form 5500 revisions and information resources, click here.)

Regarding employees, I am quoted as saying the following. "Ask about fees that you pay, even indirectly, for administration and record keeping" as well as the employer's selection process. "How often does that process get vetted" and on what basis?

With so much attention being paid to the topic of 401(k) fees, this may be the beginning of the end for performance reporting as it exists today. posted by Susan Mangiero at 11/06/2006 12:02:00 AM | 0 comments | links to this post   

Will Private Equity Stay Private? U.S. Dept. of Justice Makes Inquiries

In "U.S. Department of Justice Comes Knocking, Raising Specter of Private Equity Antitrust Concerns," law firm Goodwin Procter, LLP writes that "the DOJ has sent out requests to some of the industry's largest and most well-known firms, asking that these firms provide information and documents relating to company auctions since 2003."

Reported earlier by the Wall Street Journal ("Private-Equity Firms Face Anticompetitive Probe" by Dennis K. Berman and Henny Sender - October 10, 2006) and Red Herring.com, the DOJ is interested in knowing how firms transact and the extent to which competition in bidding occurs.

At the same time, Investment Dealers' Digest reports on the imminent launch of a new trade association, the Private Equity Council ("PE Trade Group Nearing Launch Amid Intensifying Scrutiny" by Ken MacFadyen - October 30, 2006). Slated as its new head, Mr. Harry Clark "insists that the group's genesis was in no way a response to the Justice Department's inquiry and he notes its role will not be in reacting to such events."

At a time when pension funds are increasingly looking at alternative investments such as hedge funds and private equity opportunities, an issue that resurfaces time and time again is transparency. In August 2005, the State of Illinois enacted legislation to protect "the commercially sensitive information of companies that receive private equity funding from public pension funds." One of five other states at the time, the then-cited goal was to "provide transparency in public investments in private equity without damaging portfolio companies' ability to compete."

You may recall an earlier post about hedge fund competitiveness and transparency. (Click here to read "Pensions, Hedge Funds and Disclosure" about Mr. Phillip Goldstein's letter to the U.S. SEC in which he requests exemption from the filing of Form 13F. In that post, I talked about the relationship between information and fiduciary responsibility.

No doubt the issues of transparency and market structure will continue to grab headlines. It's far from trivial.

Editor's Note:
Mr. Goldstein sent a copy of the letter to share with readers. Click below.
(GoldsteinLetter.pdf) posted by Susan Mangiero at 11/05/2006 12:02:00 AM | 0 comments | links to this post   

Memo About Weight Got This Policeman Fired

Courtesy of law professor Paul Secunda, click here for a legal take on trying to get staff in shape. (In the interest of full disclosure, I could lose ten or fifteen pounds myself, and yes, I'm trying).

Related to today's post about healthcare costs, Professor Secunda raises an interesting question. What can an employer do to improve healthfulness in the workplace without getting in trouble? posted by Susan Mangiero at 11/03/2006 01:24:00 AM | 1 comments | links to this post   

Mice, Red Wine and Escalating Health Care Costs

New York Times reporter Nicholas Wade describes research by the Harvard Medical School and the National Institute of Aging that could be a boon for vintners worldwide. Using experimental mice, scientists allege possible benefits of a "natural substance found in red wine, known as resveratrol". One group of furry creatures, fed a high-fat diet, accompanied with daily doses of resveratrol, gained weight but did not experience signs of medical problems and, "even more striking, the substance sharply extended the mice's lifetimes."

Wade describes a second gateway to expanded years - put the cupcakes away. Research done since 1935 shows that "mice fed a calorically restricted diet - one with all necessary vitamins and nutrients but 40 percent fewer calories - live up to 50 percent longer than mice on ordinary diets."

Elsewhere, Medicinenet.com quotes Mark Mattson, Ph.D and chief of the Laboratory of Neurosciences at the National Institute on Aging as likewise extolling the benefits of this approach.

"First, it reduces free radical production, or the production of highly damaging forms of oxygen, and the second is that calorie restriction increases the resistance of cells to stress. We think that both of these are important in protecting against a number of different diseases that have a negative impact on life span, such as cardiovascular diseases and cancer."

If you're panting to try cold kale soup and other goodies (similar to what my husband eats), click here to visit the site of the Calorie Restricted Society for more information.

Lest you are asking what this has to do with benefits, many experts now describe pension "problems" as tiny compared to a looming health care crisis - one that could wreak financial havoc across companies, big and small. So while the prospect of living longer is an amazing gift for many, there is a real cost of providing medical services to retirees. In some cases, post-employment exceeds work span by a significant amount.

At my request, Mr. Robert James Cimasi, president of Health Capital Consultants and author of The U.S. Healthcare Certificate of Need Sourcebook and countless articles and speeches, describes the situation this way.

"The US Healthcare Delivery System is facing what is perhaps its greatest challenge in the expected demand for increased health services from the aging of the baby-boom generation, the fastest-growing segment of the population. With the over 65 years old portion of the US population expected to increase from 20 million in 1970 to 69.4 million in 2030, the entire system by which healthcare services are dispensed in the U.S. is subject to radical change in the next two decades. As healthcare costs continue to rise faster than inflation in the overall economy, driven by advances in technology and treatment (as well as the growing baby-boomer population), pressures to reduce costs will result in a changed paradigm for healthcare delivery, most likely leading to some form of healthcare rationing. The potential result is that the quality of care received will depend increasingly on the individual's ability to pay.

One example of this trend is the accelerating movement from the traditional U.S. health coverage system of 'defined benefits' (where employers provide a package of defined benefits to their employees) to a system of 'defined contributions' (where employers contribute a set amount and then require employees to decide how much of their health benefit dollars to spend by selecting from a range of benefit plans), which is being driven by employers seeking to limit their exposure to what has become double-digit health insurance premium rate increases. These arrangements represent a fundamental shifting of the financial risk of health coverage from the employer to employees, whereby employers can limit their contributions, while employees must contribute increasing amounts of their own money to pay for health insurance cost increases in attempting to maintain the same level and quality of health care for themselves and their families.

This 'sea-change' in the U.S. Healthcare Delivery System presents both challenges and opportunities for the investment community, based to a great degree on the scope of their understanding of the risks related to these fundamental underlying factors."

For additional information, visit the HCC website library.

Other online resources that may be of interest are listed below.

1. National Center for Policy Analysis Health Care Economics

2. About.com Health Care Economics

3. Council on Health Care Economics and Policy

4. U.S. National Library of Medicine Health Care Economics posted by Susan Mangiero at 11/03/2006 12:04:00 AM | 0 comments | links to this post   

Upcoming Hedge Fund Events

A new study by the Bank of New York and Casey, Quirk & Associates predicts a trend upwards in hedge fund investments by pension funds. Entitled "Institutional Demand for Hedge Funds 2: A Global Perspective," the authors predict that hedge funds are here to stay.

What does this imply for pension fiduciaries? Quite simply, a lot. Understanding how a hedge fund (or fund of funds) manages its risk and values its holdings is paramount.

If you are interested in learning more, these events may be of interest.

1. Risk Management for Hedge Funds: Best Practices in a Changing Environment - November 8, 2006
(This complimentary NYC breakfast meeting is near capacity. If you cannot attend because of space, click here to request that materials be sent to you.)

2. Hedge Fund Valuation Toolbox - November 21, 2006 - first of four webinars (There is a charge.)

3. Hedge Fund Valuation and Red Flags - December 1, 2006 workshop (There is a charge.) posted by Susan Mangiero at 11/02/2006 12:04:00 PM | 0 comments | links to this post   

Pension Consultants and Hedge Funds

In "Retirement funds fear untested consultants" (HFM Week, August 17-30, 2006), Jefferson Wells engagement manager Aileen Doherty describes a need for independent hedge fund valuations and a concern that pension consultants may not be doing as much as possible to vet valuation issues. Attorney Doherty adds that "There is going to be more pressure on pension funds to make sure the managers they hire are doing what they are supposed to be doing", especially at a time when "Pressure from the SEC and individual states is growing."

In the same article, Wilmer Hale partner Alexandra Poe asserts the need for "trustworthy third party valuations", adding that pension fund trustees "may feel they have hired consultants to get to the bottom of it, and they may feel underserved."

Any pension consultant who wishes to comment has an open invitation from this blog to offer your perspective. The same invitation extends to investors. Please be reminded that we do not endorse any particular firm for any type of product or service. We would simply be acting as a communication conduit.

As I've written before, valuation is a cornerstone of a hedge fund's activities, including, but not limited to, asset allocation, trading, risk management, performance reporting, compliance and auditing.

A point which CANNOT be emphasized enough is the need for independence and objectivity. Regulatory bodies such as the IRS and various courts continue to emphasize specialized valuation training and designations. This applies regardless of purpose - rendering an opinion of value of a particular position or portfolio, assessment of the economic interest of a hedge fund partner or the business itself (such as when a new person exits or enters, key person insurance, divorce) and/or a review of the process employed by organizations providing valuation numbers.

As an Accredited Valuation Analyst, I have written extensively about valuation issues. Please email if you want a copy of any or all of these items:

1. Chart that describes various valuation designations
2. Aforementioned article
3. Hedge fund valuation panel transcript from earlier this year

In case you missed these items, these links may be of interest.

"Hedge Fund Valuation is a Big Deal for Pension Fiduciaries" (Source: www.pensionriskmatters.com)

"Do You Really Know the Value of Your Portfolio?" (Source: www.pensionriskmatters.com)

"Hedge Fund Valuation: What Pension Fiduciaries Need to Know" (Source: Journal of Compensation and Benefits, July/August 2006) posted by Susan Mangiero at 11/02/2006 12:02:00 AM | 0 comments | links to this post