[Congressional Record Volume 140, Number 112 (Friday, August 12, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: August 12, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                       PACIFIC PENSION INSTITUTE

  Mr. PRESSLER. Madam President, a few weeks ago, I attended a 
conference of the Pacific Pension Institute. The primary objective of 
the conference was to discuss the cross border flow of investment 
capital among the Pacific rim countries. The participants consisted 
primarily of public pension plan administrators.
  I was invited to attend the conference to discuss current pension 
issues, including actions by the Clinton administration as well as 
legislative proposals pending in Congress. I ask unanimous consent to 
insert in the Record excerpts from my speech immediately following my 
remarks.
  There being no objection, the speech was ordered to be printed in the 
Record, as follows:

                Pacific Pension Institute Pension Issues

       One of the primary legislative initiatives being considered 
     during the 103rd Congress is designed to shore up the Pension 
     Benefit Guarantee Corporation (PBGC). As you probably know, 
     the PBGC has a growing underfunded balance--a deficit which 
     has increased for the fifth year in a row. This is causing 
     some alarm due to the massive taxpayer bailout needed from 
     the S&L collapse.
       The measure being considered is the Retirement Protection 
     Act (H.R. 3396 and S. 1780). This legislation is based on 
     recommendations from an interagency working group headed by 
     the Secretary of the Department of Labor, Robert Reich. The 
     group was tasked to study the problems facing the PBGC and 
     they completed their work last fall.
       The proposed legislation is designed to ensure the 
     financial stability of the insurance program of the PBGC--due 
     to underfunded pension plan growth. It would require 
     underfunded plans to pay higher overall insurance premiums 
     and fund their obligations more quickly. Hearings have been 
     held in both the House and Senate. Passage is considered 
     likely.
       While public pension plans are not directly related to the 
     PBGC, you may be interested to learn of recent action that 
     does concern public plans. During last week's mark-up in the 
     House Ways and Means Committee, a provision was added to the 
     proposed Retirement Protection Act. The amendment would 
     direct the General Accounting Office (GAO) to conduct a study 
     on the underfunding of State, local, and Federal government 
     plans.
       In addition, the amendment provides for the GAO to consider 
     the causes and implications of public plan underfunding. The 
     report would be due April 30, 1995. This bill is continuing 
     through the House legislative process.
       In addition to the Administration's focus on the PBGC, the 
     Department of Labor (DOL) also has recently issued an 
     ``Interpretive Bulletin'' regarding pension investments. 
     Specifically, it clarifies the DOL's ``interpretation'' of 
     the ERISA law concerning the investment of Economically 
     Targeted Investments (ETIs). Let me briefly describe the 
     DOL's bulletin.
       The DOL issued its bulletin on June 23, 1994. The document 
     ``sets forth the view of the DOL concerning the legal 
     standard imposed by sections 403 and 404 of Part 4 of Title 1 
     of ERISA with respect to a plan fiduciary's decision to 
     invest plan assets in economically targeted investments 
     (ETIs).'' ETIs are generally defined as investments that are 
     selected for the economic benefits they create in addition to 
     the return on investment.
       In the DOL document, the Department states--``the 
     requirements of ERISA do not prevent plan fiduciaries from 
     deciding to invest plan assets in an ETI if the ETI has an 
     expected rate of return that is commensurate to rates of 
     return of alternative investments with similar risk 
     characteristics that are available to the plan, and if the 
     ETI is otherwise an appropriate investment for the plan in 
     terms of such factors as diversification and the investment 
     policy of the plan.''
       While the DOL's bulletin directly effects private plans, I 
     understand public plan administrators may be interested in 
     the DOL's bulletin too. After all, public plans abide by many 
     regulations and fiduciary responsibility similar to those 
     interpreted by the DOL. Therefore, public fund managers are 
     always wise to pay attention to DOL actions.
       At first glance it may raise concerns that the 
     Administration's bulletin could result in limitations on 
     public fund investment options--or rather forcing managers to 
     invest in ETIs. However, I view the DOL's actions in a 
     different light.
       First, as you know, it does only apply to private plans. 
     Second, it really is no more than a ``clarification'' of 
     DOL's interpretation of ERISA. That is, that if all things 
     are equal, it is okay to invest in an economically 
     disadvantaged target. Now, I think it is rare to find that 
     level of equality in risk assessment. In fact, if you want to 
     look at the possible implications of the DOL bulletin on 
     public plans, it could be argued that the DOL is adding 
     further credence to the public pension fiduciaries desire to 
     invest in non-typical investments. I would consider the DOL's 
     bulletin as no more than a ``sprinkling of holy water'' for 
     ETIs.
       At the same time, it is true the Clinton Administration is 
     on record regarding their desire to encourage pension 
     managers to take into account social concerns as they make 
     their investments. Reportedly, the Administration would like 
     to tap into pension funds to help pay for improving our 
     nation's infrastructure. This is based on recommendations 
     from the Infrastructure Investment Council.
       Of course, this idea has raised serious concerns. What are 
     the rights and protections of pension plan participants and 
     retirees? What is the risk of taxpayers and workers in the 
     investment of these funds? What are the long-range returns? 
     How will such investing contribute to overall economic growth 
     and societal well-being? While such investing may be 
     ``politically correct'', is it fiscally prudent? These 
     questions and more remain unanswered. Many of these same 
     questions should be asked in regard to ETIs.
       What else is the Clinton Administration up to? Only 
     yesterday, Secretary Reich issued guidelines to prod pension 
     managers to take a more active role in the governance of 
     their companies. The DOL's guidelines are aimed at making 
     fund managers use their voting power more. In short, its a 
     push to get pension managers involved in issues ranging from 
     job training to corporate appointments.
       Frankly, I do not think it is the role of the federal 
     government to be nosing around in this area. Businesses need 
     less government interference, not more. As ranking member of 
     the Senate Small Business Committee, I will be monitoring 
     the Administration's actions very closely in this area. 
     And I encourage you all to continue to watch closely the 
     actions by both the Administration and Congress. After 
     all, what you don't know can hurt you.
       As you are all aware, some public pension plans do have 
     limitations imposed by State legislatures on their ability to 
     invest in international markets. In fact, thirty-nine percent 
     of U.S. public pension systems are subject to a state law 
     that prohibits or restricts pension fund investments in 
     foreign securities. Sixty-one percent have no such 
     restriction.
       Let's consider the public pension plan in my home state of 
     South Dakota. Public pension funds for South Dakota state and 
     local employees, as well as educators, are covered under the 
     South Dakota Retirement System. This multiple employer, 
     defined benefit retirement plan covers over 400 separate 
     public employers and over 50,000 members.
       The international investment of South Dakota's public 
     pension funds is allowed. However, the South Dakota Benefit 
     Board has imposed some limitations (note, the limitations 
     were not imposed by state law). According to the South Dakota 
     Benefit Board, a maximum of fifteen percent of the assets may 
     be invested internationally. This figure of 15 percent 
     includes one percent in an ``emerging country''.
       I thought you may be interested to hear a bit more about 
     South Dakota's Retirement plan and how they are doing with 
     their international investments:
       The State Investment Council manages $2.2 billion in funds 
     for the South Dakota Retirement System--
       --$270 million (or 12.4 percent) of the $2.2 billion is 
     invested internationally;
       --$197 million is invested internally,
       --the remainder--$70 million--is invested by outside 
     management. The outside managers handle the ``emerging 
     country'' funds. Internally, they handle the ``high-quality'' 
     funds.
       Of the 12.4 percent of the South Dakota public pension 
     funds that are invested internationally, the investment 
     breakdown is as follows:
       21.0 percent = United Kingdom.
       20.0 percent = Japan.
       9.0 percent = Switzerland.
       8.5 percent = Germany.
       7.0 percent = Hong Kong.
       5.0 percent = France.
       4.0 percent = Netherlands.
       3.5 percent = Spain.
       3.5 percent = Australia.
       3.0 percent = Sweden.
       2.5 percent = Belgium.
       2.5 percent = Mexico.
       2.5 percent = Singapore.
       2.0 percent = Italy.
       1.6 percent = Norway.
       0.5 percent = New Zealand.
       0.5 percent = Malaysia.
       I thank you for the opportunity to take part in this 
     important conference and discuss some aspects of the 
     regulation and management of pension funds and investment 
     alternatives.
       These indeed are important subjects for your consideration 
     as investment managers. Your decisions are vital to millions 
     of people who depend upon their retirement benefits for their 
     livelihood in their later years. Again, it has been a 
     pleasure to be with you.

                          ____________________