News: 2005 2nd Quarter

IFS recently started a comprehensive fiduciary review of the investment programs and practices of these two funds, with combined assets of approaching $80 billion. One aspect of IFS’ work is designed to provide support for the Auditor General’s performance audit on several topics. IFS is evaluating many aspects of the investment programs of the two funds, compared to industry best practices, including, for example, the funds’ investment processes and policies concerning asset allocation, manager selection, risk management, brokerage, custody, securities class action litigation, staffing and resources and other matters.

IFS recently began several fiduciary transactional assignments and other projects:

• Hibernia National Bank Employee Stock Ownership Plan and Retirement Security Plan
  Through these two Plans, employees of Hibernia own employer stock. A publicly traded bank based in New Orleans, Hibernia received an offer from Capital One Finance to acquire Hibernia and the latter’s board of directors recommended that merger to all shareholders. The Plans hired IFS as an Independent Fiduciary to evaluate the proposed merger and to instruct the Plans’ trustee how to vote the proxies associated with participant shares. Assuming the transaction proceeds, IFS is also responsible for instructing the trustee regarding whether and to what extent to seek merger consideration in the form of cash or Capital One stock.
• A Multi-Billion Dollar National Taft Hartley Plan
  A multi-billion dollar National Taft Hartley Plan hired IFS to review, evaluate and report on its fixed income portfolio.
• The Children’s Hospital Endowment, Cincinnati OH
  Upon completing an earlier assignment for this fund, the Endowment board asked IFS to develop a proposed, revised scope of services and standard form of agreement for the Endowment’s regular investment consultant. The board also asked IFS to structure a commission recapture program and assist the board in selecting one or more providers.
• The 401K Plan of a New York Stock Exchange Company
  Approximately one third of the assets of the 401K Plan of this public company are invested in the company’s stock. The Plan’s investment committee hired IFS to evaluate its current investment policy statement and procedures regarding company stock as an investment option and to recommend enhancements. These enhancements concerned both the Committee’s processes and criteria for monitoring the continuing suitability of offering company stock as an investment option, as well as the Committee’s communications to participants regarding that option.
• American Federation of Musicians & Employers’ Pension Fund
  The fund hired IFS to develop policies and procedures for effective collection of recoveries from securities class action litigation involving securities in the fund’s investment portfolio.
• Dynegy Inc. 401k Savings Plan
  The Dynegy Plan hired IFS to decide whether to accept a proposed settlement of ERISA claims against the company. Those ERISA claims grew out of the same events that generated a securities class action against Dynegy, which was recently settled.

IFS recently completed development of an operational protocol and a policy statement concerning the Fund’s securities class action monitoring processes.

FS completed its review of the Hospital Endowment’s relationship with its investment consultant and its brokerage practices.

The $52 billion Pennsylvania Public School Employees’ Retirement System and the $26.6 billion Pennsylvania State Employees’ Retirement System signed an agreement allowing state audits of the two funds’ investment performance. The agreement settles pending litigation.

The auditor general’s office and the two funds also signed a contract with Independent Fiduciary Services to conduct a fiduciary review of operations at each fund, and to assist with the audits. The audits and IFS’ fiduciary review are set to begin immediately; there is no timetable on completion.

Milwaukee City Employees’ Retirement System selected Independent Fiduciary Services as consultant to conduct a fiduciary audit and operational review, pending contract negotiations, according to Jennifer A. Shannon, CJO of the $4.3 billion fund. The audit will include examination of investment policy, manager search process and money manager fees, and a cost/benefit analysis of improvements.

Samuel W. “Skip” Halpern, executive vice president, Independent Fiduciary Services Inc., Washington: commented on recent legislation enacted in Louisiana concerning conflicts of interest in the investment consulting business. “The overall thrust of the legislation is healthy from a public perspective. The statute is well aimed at focusing on revenue from other than pension sponsor sources, and I take that to mean revenue from helping money managers in their proprietary business.

Pennsylvania’s two largest state pension funds will be subject to performance audits by state auditor general Jack Wagner. Washington-based consulting firm Independent Fiduciary Services (IFS) will conduct fiduciary reviews of the two funds in conjunction with the audits.

Samuel W. Halpern, executive vice president of Independent Fiduciary Services, Washington, recalled testifying before a working group of the ERISA Advisory council in the mid-1990’s that investment consultants should be regarded as fiduciaries. At that time he indicated, “And to the extent they are, they (consultants), should be subject to the self-dealing provisions of (ERISA) where they should not be paid by someone with an interest that is adverse to the plan.” He still maintains this view. Mr. Halpern said IFS accepts fiduciary obligations under pension law.

Samuel (Skip) Halpern spoke at the recent conference of the International Foundation of Employee Benefit Plans on the topic of "Operational Reviews/Fiduciary Audits - What to Expect." He described the Operational Review as a best practices study of a pension fund's investment program and practices, the process and steps involved in conducting such a Review, the range of subjects that may be addressed, the reasons for conducting this type of evaluation, and the concrete benefits, including reduced investment and fiduciary risk, better cost control, and greater efficiencies.

IFS recently hired Roger A. Zions as an IT Specialist in our Washington, DC office.