Now Wall Street Wants Your Pension, Too

JPMorganChase, Citi, Cerberus, and Morgan Stanley are among the firms lobbying Washington to let them take over and run corporate pension funds

The folks who brought you the mortgage mess and the ensuing hedge fund blowups, busted buyouts, and credit market gridlock have another bold idea: buying up and running troubled corporate pension plans. And despite the subprime fiasco, some regulators may soon embrace Wall Street's latest scheme.

In preparation for that moment, the world's biggest big investment banks, insurers, hedge funds, and private equity shops have been quietly laying the groundwork for such deals over the past year. They would be a big prize for Wall Street. The $2.3 trillion pension honey pot has $500 billion in "frozen plans" that are closed to new employees and whose benefits are capped, including those at IBM, Hewlett Packard, Verizon, and Alcoa. And that figure could triple by 2012, according to consulting firm McKinsey. By managing those troubled plans, Wall Street also gains entrée to an appealing set of customers to whom it can sell a broad array of fee-generating products. "We have identified several clients who would be willing to be first to sell a plan," says Scott Macey, a senior vice-president at Aon Consulting. "But the question is, when is a good time for this?"

The concept of off-loading pension funds sounds great. For businesses it's a chance to rid themselves of struggling plans, which can weigh down a balance sheet. It's especially good timing now. New accounting rules take effect in the next year or so that will require companies to mark their pension assets to prevailing market prices each quarter—a change that could devastate some companies' profits. Meanwhile, many companies no longer want to pay for pensions, troubled or otherwise. A recent report from the U.S. Government Accountability Office found that most companies freeze their pension plans merely to avoid "the impact of annual contributions to their cash flows."

But the gambit to turn pensions into for-profit enterprises raises troubling questions. Critics, including some on Capitol Hill, worry that financial firms don't have workers' best interest at heart, which would put some 44 million current and future retirees at risk. "We think it's just a terrible idea," says Karen Friedman, policy director for advocacy group Pensions Rights Center. "In the wake of the subprime crisis, it would be crazy to allow financial institutions to manage these plans."

Wall Street's Dumping Ground

Historically, pension funds have been managed conservatively, in keeping with the broad goals of long-term wealth accumulation. Alternative investments such as hedge funds, derivatives, and asset-backed securities represent less than 25% of pension assets. If financial firms get involved, exotic investments could swell to 50% of pensions assets by 2012, predicts McKinsey. The biggest fear is that Wall Street could use retirement portfolios as a dumping ground for its most toxic and troublesome investments. It's not unlike what regulators allege UBS officials did with its stockpile of risky auction-rate securities by trying to off-load them to wealthy clients.

If Wall Street gambles with those pension assets and loses, U.S. taxpayers would probably foot the bill. When a company with a pension goes belly up today, the Pension Benefit Guaranty Corp., under federal law, has to take on the fund's obligations and dole out money to its beneficiaries. It's a costly burden: The PBGC currently runs a $14.1 billion deficit.

Link for rest of the article: http://finance.yahoo.com/retirement/article/105522/Now-Wall-Street-Wants-Your-Pension-Too

Just imagine what Social Security would look like right now had the bu$h regime been able to push through their privatization plan.

Too bad they missed their window 'cause there'd be a couple hundred new 'murkin billionaires today. Meanwhile, the Republics claims that SS is broke would finally have some truth to them.

Not that they'll give up or anything. That's a hell of a pile of cash to leave unplundered.

is an idiot.