Compliance March 11, 2005

PBGC Moves to Seize United Ground Worker Pension Plan

March 11, 2005 (PLANSPONSOR.com) - In yet another sign that the nation's insurer of private pensions continues to get pounded by the airline industry's financial problems, the agency on Friday moved to take over a United Airlines plan covering 36,000 current and retired workers.
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>The Pension Benefit Guaranty Corporation (PBGC) said in a  news release that it was moving to take over the Ground Employees’ Retirement Plan, which the agency said was 30% funded, with $1.2 billion in assets to cover $4.1 billion in benefit promises.

>Of the $2.9 billion shortfall, the PBGC said it will guarantee payment of an estimated $2.1 billion as the plan formally ended Friday. The PBGC charged that the air carrier did not make $363 million in required contributions to the plan and that by moving to assume the United plan now, the agency said it saved itself at least $225 million in extra losses.

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“The decision to end a pension plan is never an easy one,” said PBGC Director Bradley Belt, in the news release. “But we must do everything we can to preserve our ability to pay benefits to the more than 1 million Americans who depend on us for their pension benefits. This is especially true in light of the (pension agency’s) current deficit.”   The PBGC currently has a $23 billion deficit (See  PBGC Posts Record Deficit in FY2004 ).

>A United spokeswoman told Reuters that the company was still studying the latest development. United has insisted repeatedly that it needs to close its four plans for the sake of its corporate financial future (See  United Makes Formal Pension Demise Request ). “We are studying the PBGC’s actions and are evaluating options,” said United spokeswoman Jean Medina. “We continue to believe that termination and replacement of all our defined benefit pension plans is necessary.”

>The PBGC in December asked for court permission to take over the underfunded retirement plans of United’s pilots (See  PBGC Takes Over United Pilot Pension Plan ). If a judge approves the proposal, United would be free of any duty to contribute to the pilots’ pension plans.   In recent congressional testimony, the PBGC estimated that United’s total underfunding stands at $8 billion. If all four of its plans are terminated, the government would be responsible for insuring $6 billion in benefits.

>Last month, the government assumed remaining pension plans at US Airways, which is also restructuring in bankruptcy (See  PBGC Takes Over Three US Airways Pension Plans at $2.3B Cost  ).

Administration March 10, 2005

PwC: Investment Management in for Change

October 27, 2003 (PLANSPONSOR.com) - Pressure from competing agendas to increase profitability, restore investor confidence and meet high regulatory and compliance standards will lead to sweeping changes in the investment management industry over the next three years.
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Worldwide, the performance of global stock markets is the greatest challenge to the investment management industry during the next three years, according to more than seven out of 10 investment managers polled.   This surpassed both evolving client needs and regulatory and compliance issues (both at 65%), according to a global investment management survey released today by PricewaterhouseCoopers Investment Management Industry Group.

These were followed by:

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  • cost containment (63%)
  • competitive pressure (59%)
  • investor trust (46%)
  • globalization (30%)
  • tax/reg barriers to cross-border distribution (30%).

“The relative lack of concern for investor trust is not necessarily surprising given the timing of the survey prior to allegations of wrongdoing in the US fund industry,” said Chip Voneiff, a partner atPricewaterhouseCoopers LLP and leader of the firm’s Investment ManagementIndustry Group, North America .  “The funds industry has long enjoyed a sterling reputation, but it got a wakeup call that trust is a precious asset that needs to be protected or restored if lost,” said Voneiff.  “It is likely that rebuilding trust would be a far greater concern to US fund managers today than just two months ago.”

In fact, the overwhelming impetus for change among US investment managers is regulatory and legal issues (83%), ahead of both market performance and evolving client needs (both at 67%).  As US firms, more than others, direct resources to compliance, this may reduce competitiveness and delay efforts to reduce costs through offshore outsourcing.

Additional change is also likely to come from a wave of fund consolidation and outsourcing to further reduce costs, coupled with an intense shift in focus from global expansion to niche market segmentation.   This will drive fundamental changes in the relationships among funds, distributors and service providers.  

Driving this trend, in part, is enhanced channel management as a top priority for 83% of US asset managers, a strategy that supports tighter integration with fewer distributors and service suppliers and achieves higher profit potential.   Overall, 50% of the aggregate expect up to a 30% reduction among funds over the next five years, driven largely by consolidation to further reduce costs and operational inefficiencies.   This, combined with an explosion in offshore outsourcing, will likely result in a significant reduction of investment management industry jobs in all but low-cost jurisdictions such as India.

“As these changes sweep the industry, asset managers will need to reassess how they are managing their business,” said Voneiff.  “Assets under management has long been the industry yardstick, but it becomes less meaningful in a highly segmented, highly interdependent market where profitability is the main focus.  Firms should be asking themselves if they are equipped and have the information they need to measure, aggregate and maximize profitability by product, partner and customer.”

The 2003 Global PricewaterhouseCoopers Investment Management Survey was conducted from May to September 2003. An online questionnaire was completed by more than 70 asset management organizations worldwide, representing assets totaling $6.6 trillion. To download the 2003 Global PricewaterhouseCoopers Investment Management Survey, visit    http://www.pwc.com/imsurvey .

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