February 3, 2006- Labor Department Reports It is Investigating Conflicts of Interest Within Pension Consulting

WASHINGTON, D.C. – Representative Ed Markey (D-MA) and Representative George Miller (D-CA) today released a letter from the Labor Department that responds to their August 12, 2005 letter regarding conflicts of interest within the pension consultant industry.   The Labor Department letter indicated that the Department has initiated investigations into conflicts of interest within the pension consulting industry.

“I am pleased that the Labor Department has decided to investigate several of the pension consultants that the SEC determined have engaged in business dealings that can undermine their ability to offer objective advice to their pension plan clients,” said Rep. Markey, explaining that, “There is a crisis in the pension marketplace, and sweetheart deals cut by consultants and concealed from pension plans may be contributing to it.”

“I urge the Department of Labor to move swiftly to investigate and remove pension consultants who are jeopardizing workers’ retirement security through conflicts of interest, kickbacks, and self-interested fees,” Rep. Miller said.  “As pension plans struggle with underfunding and workers become more dependent on 401(k) plans to get them through their golden years, we have to be vigilant to make sure workers’ retirement nest eggs are invested in their best interests, not in the interests of the pension consultants.”

Last year, a report prepared by Securities and Exchange Commission (SEC) staff revealed that “Concerns exist that pension 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.”  The SEC staff reported that more than half of the consultants they examined have brokerage affiliates or relationships with broker-dealers that may lead consultants to advocate an active trading strategy to maximize their own commissions, rather than the returns of their pension plan clients.  Following release of the SEC staff report, Reps. Markey and Miller requested that the SEC and Labor Department provide specific information about pension consultants found in the SEC report to have conflicts of interest and explain what steps the SEC, Pension Benefit Guaranty Corporation (PBGC) and Labor Department are taking to detect and deter conflicts of interest and hidden financial arrangements that threaten the financial health of workers’ pension plans.  The SEC responded to the lawmakers’ letter on September 1, 2005.  The Labor Department responded to the lawmakers on February 1, 2006.

The Labor Department response, signed by Assistant Secretary for Employee Benefits Security Administration (EBSA) Ann L. Combs, states that “EBSA enforcement officials are currently reviewing the documents [provided by the SEC] to determine what DOL investigative action may be necessary.”  Ms. Combs further indicated that “Based on this review, several matters have been referred to EBSA regional offices for investigation.”

The Department also indicated in the letter that “we are also reviewing existing DOL regulations relating to the disclosure of fees, including revenue sharing arrangements, by service providers to employee benefit plans.”  Ms. Combs explained in the letter that fee disclosure was important since “plan fiduciaries need to be able to assess whether fees are reasonable” and fiduciaries also “need to be able to assess whether revenue sharing arrangements might affect the recommendations provides by a services provider, such as a pension consultant.”

In response to the lawmakers’ questions regarding whether or not DOL intended to audit the financial circumstances surrounding the underfunding ot the defined benefit pension plans of companies which have filed for bankruptcy protection, Ms. Combs indicated that “DOL is working with Treasury, and the PBGC, to identify and pursue appropriate cases.”  At the same time, she indicated that “it is our policy to neither confirm nor deny the existence of an investigation of a specific plan or entity.”

Rep. Markey concluded, “Workers across the country have lost millions in hard-earned pension benefits that they had been counting on for retirement.  We must ensure that pension beneficiaries are not being victimized by unscrupulous advisors more interested in padding their own profits than offering objective advice for keeping pension plans on solid financial footing.”

Copy of Original Letter to DOL and SEC Copy of Original Letter to DOL and SEC, August 12, 2005

Copy of Letter from Securities and Exchange Commission Copy of Letter from Securities and Exchange Commission, September 1, 2005

Copy of Letter from Department of Labor Copy of Letter from Department of Labor, February 1, 2006

February 3, 2006


CONTACT: Tara McGuiness
Mark Bayer