Administration May 12, 2006

Fannie Mae's Ousted Chief to Collect Big Payout

December 29, 2004 (PLANSPONSOR.com) - Ousted Fannie Mae chairman and chief executive Franklin Raines is slated to receive over $19 million in cash and stock, plus a large pension, fueling criticism of the beleaguered mortgage lending giant.
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Raines, who was forced out of Fannie Mae last week, will receive $5.8 million in stock options and $8.7 million in deferred compensation, plus $114,000 a month in pension benefits, according to Reuters.

Not surprisingly, critics were quick to condemn the large payout. “The severance payments are just outrageous,” said Elliot Schwartz, director of research at the Council of Institutional Investors, according to Reuters. “Once the guy is leaving, you don’t need to give him incentives anymore.”

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Raines may be forced to pay some of the money back however, since the mortgage giant has come under Securities and Exchange Commission (SEC) scrutiny for inflating its earnings. Forced to recalculate its earning for the years 2001 to 2004, the company expects to see a $9 billion cut from its stated profits.

Timothy Howard, Fannie Mae’s CFO, also retired last week, and will receive $4.4 million in vested stock, $4 million in deferred compensation, and $36,000 a month in pension payments. The two may still be in line to collect performance bonuses, the agency said.

Raines severance package echoes that of former chairman of the New York Stock Exchange Richard Grasso, who received $139 million upon his departure (See NYSE Chairman Grasso Resigns ). New York Attorney General Eliot Spitzer has sued Grasso over the large payout (See Spitzer Slaps Former NYSE Head Grasso with Pay Suit ).

Administration May 11, 2006

UK Pensions Follow US Trend

November 17, 2005 (PLANSPONSOR.com) - A new poll has found that, similar to US companies, UK employers are freezing their defined benefit pension plans to new employees.
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Reuters reports that the National Association of Pension Funds found that more than half of 400 firms polled no longer allow new employees to join final-salary, or defined benefit, pension plans.   Some 57% of private-sector final-salary pensions are no longer open to new employees, according to the Association’s report.

Thirty seven responding employers closed their DB plans to new hires in 2005 and 36 plans were closed to new hires in 2004.   The survey drew responses from pension plans with a total of 9 million members and aggregate assets of over £370 billion, according to Reuters.

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Just as in the US, many UK pension plans report large shortfalls between assets and their estimated obligations for benefits, Reuters says.   The reasons are the same as well: an aging population, low bond yields, and modest stock market returns.

After a series of pension fund failures, the UK government set up the Pension Protection Fund, an insurance agency similar to the US Pension Benefit Guaranty Corporation (See  Britain’s Answer to PBGC Opens for Business ).   In addition, the government set up the Pension Regulator to police the pension industry (See  UK Regulator to Seek Out At Risk Pensions ).

A special commission appointed by the government and chaired by Merrill Lynch Europe Vice Chairman Adair Turner is scheduled to present recommendations for pension reform to the UK government on November 30 (See  UK Commission Favors Auto Enrollment ).    One recommendation expected is the extension of the UK retirement age to 67 (See  Report: Raise UK Retirement Age to 67 ).

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