A U.S. Government Accountability Office analyst says preliminary results based on limited amounts of data hint that defined benefit pension plan investment consultants, with hidden conflicts of interest, may generate lower returns than conflict-free competitors.
From 2000 to 2004, the average annual rate of return was about 4.5% for 11 plans with consultants without known hidden conflicts, and only about 3.2% for the 13 plans with consultants accused of significant disclosure reporting violations, Barbara Bovbjerg, a GAO director, writes in a report on the effects of pension consultant conflicts of interest on plan participants.
The GAO prepared the report at the request of Rep. George Miller, D-Calif., chairman of the House Education and Labor Committee, and Rep. Ed Markey, D-Mass.
Bovbjerg based her return figures on a look at plans reviewed by examiners at the U.S. Securities and Exchange Commission.
One problem is that the Employee Retirement Income Security Act gives the U.S. Labor Department clear authority only over plan fiduciaries, Bovbjerg writes.
“Many pension consultants do not consider themselves to be fiduciaries to their clients,” Bovbjerg writes. “In fact, many pension consultants believe they have taken appropriate actions to insulate themselves from being considered a fiduciary under ERISA.”
To address that concern, “Congress may wish to amend ERISA to allow EBSA to recover plan losses against certain types of service providers even if they are not currently considered fiduciaries under ERISA,” Bovbjerg writes.
A copy of the GAO report is on the Web at