Skip to main content


Representing Individual, High Net Worth & Institutional Investors

Office in Indiana


Home > Blog > Category Archives: Pension Funds

Category Archives: Pension Funds

Military Pensions Target of Lending Scheme

Concern about a new lending practice targeting the military is worrying federal auditors and veterans. Military pensioners are offered money up front in exchange for signing over monthly benefits for a period of time, with few strings attached. After the time period ends, they’re told, they’ll get their monthly payments back.

The Government Accountability Office found that the terms of these financial deals are often unclear and sometimes conceal interest rates that are “significantly higher than equivalent regulated interest rates” from banks and other financial services companies.

18 of 38 companies offering pension advances to veterans and other federal retirees, are located in California, according to a recent federal audit. At least one class action suit has been filed by a Marine Corps veteran from San Diego County.

Jack Harkins, a Marine Corps veteran and past chairman of the United Veterans Council of San Diego County says, “He and other veterans are troubled that their comrades could find themselves in a financial situation in which they borrowed money from companies that didn’t have their best interest in mind.”

Without particular regulations for pension advance companies, they continue to flourish. Another issue identified by federal auditors is the network of companies offering pension advances.

“We found that at least 30 out of 38 companies that we identified had a relationship or affiliation with each other, including working as a subsidiary or broker, or the companies were the same entity operating with more than one name,” the federal auditors wrote.

So far there has been little movement to regulate the new loan products, said Scott Silver, managing partner of the Silver Law Group, which is attempting to file class action lawsuits against pension advance companies across the country. Silver said he gets three to four calls a week from retirees who signed up for pension advances that they now regret. He said the cases are difficult to take to court because the contracts include clauses that prevent veterans from participating in class-action suits and lock them into arbitration.

Northern Trust Involved In Pension Fund Lawsuit

Botched financial planning is the accusation facing Northern Trust Company, which has been sued by the Chicago Teachers’ Pension Fund over claims that the investment company breached its fiduciary duty and made unsuitable investments in risky, long-term securities that ultimately plummeted in value. 

The lawsuit – which seeks class-action status – was filed by Public School Teachers’ Pension and Retirement Fund of Chicago and the city of Atlanta Firefighters’ Pension Plan. It also names Northern Trust Investments N.A. 

As reported Feb. 2 by Pensions & Investments, the lawsuit stems from a Northern Trust securities lending program.  Specifically, the 43-page complaint states that instead of investing the Chicago and Atlanta funds in conservative, highly liquid, ultra short-term investment funds, “Northern Trust, in flagrant violation of its duties, locked the funds into risky, long-term investments – including hundreds of millions of dollars of unregistered, illiquid securities that plummeted in value.” 

On July 31, 2007, almost 70% of the securities held in the Short-Term Extendable Portfolio (STEP) were not due to mature for more than a year-and-a-half, and more than 20% of the securities in STEP were not due for at least 10 years,” the suit alleges. 

“The STEP portfolio included hundreds of millions of dollars in exotic, unregistered securities issued by structured investment vehicles, or SIVs – entities that were recently identified in hearings before the congressional Financial Crisis Inquiry Commission as one of the causes of the financial crisis that served no good or productive purpose in the financial system – and millions more in securities backed by risky residential mortgages and other consumer loans.” 

As of July 31, 2007, more than 15% of the securities in STEP were invested in unregistered securities – securities which, by definition, can only be sold under certain narrow circumstances and for which there is no ready market, the suit said. 

Those unregistered securities included two structured investment vehicles, Sigma Finance and Theta Finance Corp. Both were created and managed by the United Kingdom-based investment management company, Gordian Knot.  According to the lawsuit, the notes issued by SIVs are exotic, high-risk investments that were outside the enumerated classes of securities permitted to be held in STEP. 

The lawsuit further contends that because SIVs in general – and Sigma and Theta in particular – lacked an established track record, they were entirely inappropriate investments for a conservative fund such as STEP. 

The complaint also cites what could be some telling information by Northern Trust’s chief economist, Paul Kasriel. In 2006, according to the complaint, Kasriel said the following: “The U.S. housing market was in a ‘recession’ and that the housing market would ‘pull the economy down’ in 2007.” 

Northern Trust, however, ignored the warnings of its own chief economist and kept the collateral pools invested in securities, the lawsuit states. And those securities had significant exposure to mortgage-backed securities, SIVs and financial institutions that (Mr.) Kasriel warned were overly exposed to mortgage-backed investments. 

Northern Trust has denied the allegations.

Texas, Ohio Pension Funds Lead Investor Lawsuit Against Bank of America

A group of public Ohio and Texas pension funds will lead a securities class-action lawsuit on behalf of investors against Bank of America (BofA) and the acquisition of brokerage firm Merrill Lynch.

On June 30, Judge Denny Chin of the U.S. District Court for the Southern District of New York granted lead plaintiff status to the State Teachers Retirement System of Ohio, the Ohio Public Employees Retirement System and the Teachers Retirement System of Texas. They are joined by two European pension funds: Fjärde AP-Fonden and Stichting Pensionfonds Zorg en Welzijn. 

Investors in the case allege Bank of America purposefully misled them about the fiscal health of Merrill Lynch before the purchase on Jan. 1, 2009. In its fourth quarter, Merrill reported a loss of $15.4 billion. 

As reported July 2 by the New York Times, the BofA/Merrill Lynch merger has prompted Congressional hearings into why Bank of America failed to back out of the acquisition or disclose more information about Merrill’s financial status. In addition, lawmakers want to know the extent to which federal regulators may have pushed Bank of America to close the deal.

Under Funded Pension Plans A Bone Of Contention For Companies, Employees and Retirees

Chaos in the world’s financial markets has wreaked havoc on corporate pension plans, with more people seeing their retirement savings slowly dwindle in value month after month. For retirees of bankrupt employers, the reality is especially grim.

David Jeanes, 60, is one of those individuals. Jeanes retired from Nortel Networks, North America’s biggest telephone equipment maker, in 2003 with a full pension benefit package. On Jan. 14, 2009, Nortel filed for bankruptcy protection. Now, Jeanes’ dreams of retirement, along with his pension plan, could be in jeopardy.

As reported March 25 in the Toronto Star, the future of corporate pension plans has become a huge question mark. With stock losses eating away at retirement earnings, many people who are close to retirement may either have to work longer than they initially planned or retire with far less income.

In less than six months, the amount of under funded pension plans in the United States has doubled to $373 billion. By law, when pension plans are under funded companies must infuse additional money into their plans each year to remedy the funding imbalance.

According to a March 23 article by Bloomberg, the decline in U.S. stock prices will saddle more than 50% of companies in the Standard & Poor’s 1500 Index with defined-benefit plans with about $70 billion in pension expenses this year.

Among the companies with ballooning pension deficits: Dow Chemical and Sears Holdings Corporation. Dow, whose pension plan was under funded by $4 billion at the end of 2008, anticipates doubling pension contributions to $376 million this year from $185 million in 2008.

Sears may need to nearly triple its pension contributions to $500 million in 2010.

Meanwhile, pension funds have become a hot issue in New Jersey, which recently sued former executives of Lehman Brothers over claims that fraud and misrepresentation caused the state’s public pension fund to suffer more than $118 million in losses.

According to a March 17 article in the New York Times, a “thirst for profit” and “simple greed” on the part of Lehman’s top executives, including former CEO Richard Fuld, were responsible for the investment firm misstating its financial position when New Jersey bought more than $180 million worth of Lehman shares in April and June 2008. 

The lawsuit also said that Lehman executives provided false and misleading statements about the firm’s liquidity, the value of its assets and its ability to hedge against risk.

This is the second lawsuit filed by a government entity that names former Lehman executives as defendants. In November 2008, San Mateo County, Calif., accused Fuld and other Lehman executives of making false statements that ultimately led to a $150 million loss in the county’s investment pool. 

Top of Page