Pensions Can Be Outsourced

From the LA Times...

Citigroup got the green light from the Federal Reserve for an unusual deal to take over the $400-million retirement plan of a British newspaper company. In exchange for getting its hands on all that cash, Citigroup will run the pension plan - investing the money, paying the benefits and taking on the liability previously borne by Thomson Regional Newspapers. And it's eyeing similar moves stateside. Other banking investment and financial companies, including JPMorgan Chase, also are exploring the idea of taking pension plans - and their billions of dollars of assets - off the hands of employers. At least three federal agencies are considering aspects of the idea, including its basic legality and safeguards for workers.

Advocates say such changes would be a win-win for retirees and employers, retaining all the protections of current law, while putting plans in the hands of sophisticated financial stewards. Plus, large banks are less likely to go out of business or face severe financial strains than smaller employers.

Yet other people worry that such setups could subject retirement benefits to new risks and jeopardize decades-old worker protections. They're concerned that the would-be pension managers are more interested in profit than in the security of retirees. Further, they fear that unwise investments could bring a crisis for which there is no simple solution.

And from the industry magazine Pensions & Investments...

Bradley Belt, the former PBGC chief, wants to take over your frozen pension plans — and he’s betting he can wring enough money out of the hundreds of millions of dollars now sitting in frozen plans in the US to pay off the existing liabilities and turn a tidy profit for his new company and other investors. “We’re very comfortable with our ability to manage the assets against the liabilities in a way that will allow us to earn a consistent return above the liabilities, but without taking inordinate risk in doing so,” said Mr. Belt, now chairman of Palisades Capital Advisors LLC, in an interview in the firm’s Washington office. There’s no precedent for pension plan liability buyouts in the US. So over the past several months, Mr. Belt has been meeting with federal regulators, pension plan sponsors and representatives of investment firms to encourage support for a concept that he argues could serve the best interests of plan sponsors, plan participants and the PBGC alike.

Of course, this isn't really news. The big banks have been making their plays in this space for years now, as seen in this story from January 2006 ...

Recruiters in New York and London say corporate pension deficits are driving demand for actuaries who can help match pension fund assets to ever mounting pension liabilities. As the problem becomes more acute, so demand is likely to rise. “Banks are keen to strengthen their offering in this space,” says Kim Yates, a director at London-based search firm Principal Search. She says, “There are several clear leaders, and others are seeking to challenge them.” The leaders are Goldman Sachs and Morgan Stanley, which formed so-called ‘pension advisory groups’ in the late 1990s and now have large teams devoted to the business. More recent entrants include ABN AMRO, which founded its pension advisory group in 2004.