Editorial: Yet another pension risk

A recent editorial by the Toledo Blade:

There’s another reason developing to keep a wary eye on private equity.

We’ve detailed how public pensions like Ohio’s retirement systems have been putting progressively more money into high fee, high-risk investments. Now, the U.S. Senate Banking Committee is taking a look at a private pension risk from private equity, under Sen. Sherrod Brown (D., Ohio).

Mr. Brown presided over a Thursday hearing on the fast growing trend of pension risk transfer from corporate retirement plans, covered by the Employee Retirement Income Security Act law and the federal Pension Benefit Guarantee Corporation, to private equity-owned insurance companies.

It’s a win-win deal for the corporation ridding itself of a lingering long-term liability and the private equity firm with new money to manage at fat fees. But it’s an abdication of responsibility by the U.S. Department of Labor to allow workers to be stripped of PBGC insurance and ERISA law protection when pension risk is transferred. Enriching corporate and financial interests while endangering worker’s retirement is a good indication of why populism is all about culture wars nowadays.

The Federal Insurance Office lists many issues for oversight in a letter responding to Mr. Brown’s questions ahead of hearings, but none as significant as the loss of federal protection with the transfer of pension liability to a single entity owned by a private equity firm.

Unsurprisingly, private-equity owned pension insurers follow their fund management parent company to offshore locations, where the FIO reports “regulatory arbitrage” is possible. That means asset reporting suffers from the same lack of transparency we have consistently opposed from Ohio’s public pensions. The regulatory rules in offshore money havens have been established to attract dollars, not to protect the beneficiaries of the funds.

“The full scope and magnitude of risk,” is masked to regulators because of less stringent reporting requirements in offshore locations, according to the FIO. Add the standard private equity risk of untrustworthy asset valuations supplied by fund managers with conflict of interest, and you have the ingredients for another retirement-fund scandal.

Mr. Brown was behind the bailout of a multiemployer Teamster pension turned insolvent from bad investments managed by Goldman Sachs and Northern Trust. The federal bailout restricts the pension investments to transparent, liquid, publicly traded options.

Now unions covered by corporate-controlled pensions are fighting to bar asset transfers out of federally regulated and insured status. That the government allows it to happen without a majority vote from worker-beneficiaries is evidence Washington follows the money.

— Toledo Blade, September 10, 2022