WASHINGTON, D.C. – Representative Edward Markey (D-MA), a senior member of the House Energy and Commerce Committee, and Representative George Miller (D-CA), the Senior Democrat on the House Education and the Workforce Committee, today released a letter from the Pension Benefit Guaranty Corporation (PBGC) that responds to their May 2, 2006 request for information about the services that PBGC’s investment consultant, Wilshire Associates, has been providing PBGC and the work that Wilshire may have provided terminated pension plans currently under PBGC’s control.  The May 2nd letter follows the Department of Labor’s subpoena of Wilshire, issued as part of the Department’s investigation of potential conflicts of interest in the pension consulting industry.

“I remain concerned that the PBGC, which is responsible for safeguarding the pensions of millions of Americans, may be employing firms that the SEC has determined have conflicts of interest that could taint the objectivity of their investment advice,” Rep. Markey noted.  “The PBGC’s investment consultant, Wilshire Associates, has been subpoenaed by the Labor Department as part of their investigation into pension consultant conflicts of interest, and the PBGC’s response to our letter leaves open the possibility that its investment managers may have been identified by the Department as having conflicts.”

According to the PBGC’s response to Reps. Markey and Miller “PBGC…provided DOL with a list of its investment consultant and investment managers to determine if any of them were listed as having possible conflicts of interest. DOL has provided that information to PBGC. However, PBGC is unable to provide further information due to confidentiality requirements of ongoing DOL investigations.”  In responses to questions prepared by the SEC and DOL to help pension plans determine whether their advisors have potential conflicts of interest, Wilshire Associates’ informed its clients that “Wilshire Associates has an incentive for referring Wilshire Analytics clients to BNY Brokerage and WRA broker-dealers for third-party agreements because Wilshire Associates may be entitled to contingent payments from BNY Brokerage….Wilshire Associates’ potential revenue...could adversely affect Wilshire Associate’s (sic) objectivity.”  Wilshire Associates’ response indicates that these financial incentives will cease as of October 2006.

Rep. Miller said, “Wilshire Associates is planning to put an end to its own conflict-of-interest problem, and that is a good step. But government investigators recently disclosed that a number of other consultants who were providing investment advice to pension plans had extremely close and improper relationships with the investment firms they were recommending. The PBGC has got to take conflicts of interest at Wilshire and other consulting firms seriously. And the Bush administration has got to start vigorously pursuing consultants that have these improper relationships. We will never know how many workers and retirees have lost hard-earned retirement benefits due to these insidious practices until the Bush administration does its job and enforces the law.”

In response to Rep. Markey’s and Rep. Miller’s questions about whether any of the terminated plans under PBGC’s control employed conflicted consultants identified by SEC, then-PBGC Executive Director Bradley Belt indicated “PBGC is aware of one such firm, but is unable to provide further information because of confidentiality requirements imposed as a condition on its access to this nonpublic information.”  Mr. Belt also indicated that PBGC has brought numerous actions against plan fiduciaries involved in fraudulent activities and “there are currently five active lawsuits. These cases involve plan
sponsors, officers, directors and trustees. None of these cases has involved pension consultants.”

In May 2005, the Securities and Exchange Commission (SEC) reported that ““[P]ension consultants may steer clients to hire certain money managers and other vendors based on the pension consultant’s (or affiliate’s) other business relationships and receipt of fees from these firms, rather than because the money manager is best-suited to the client’s needs.  Such a conflict can compromise the fiduciary duty that investment advisers owe their clients.”  In August 2005, Rep. Markey and Rep. Miller wrote to the SEC and the Department of Labor (DOL) to seek answers about SEC’s and DOL’s actions to investigate conflicts of interest and hidden financial arrangements and take appropriate action.  They also have requested that GAO probe whether the SEC, DOL and PBGC, which has responsibility for pension plans once they have been terminated by companies, are taking the steps necessary to root out fraud and failure of pension advisors to disclose financial arrangements that can taint their objectivity to the detriment of workers who rely on their pension benefits during retirement.  The GAO has initiated the investigation requested by Reps. Markey and Miller.

Rep. Markey concluded, “I am pleased that the Government Accountability Office has agreed to the request that Congressman Miller and I submitted for an investigation of government regulation and enforcement of pension fraud resulting from conflicts of interest and similar activities.  Clearly, a thorough examination is urgently needed.”

For copies of correspondence with the SEC, DOL and PBGC on conflicts of interest in the pension consulting industry, check: http://markey.house.gov/

A copy of the PBGC response letter can be found here: Letter - PBGC Response to Markey-Miller.pdf