A troubling story today from the New York Times regarding the relationship between the head of the Pension Benefit Guaranty Corporation (PBGC), the federal agency that insures defined benefit pension plans, and Wall Street.
From the New York Times:
As a New York money manager and investment banker at four Wall Street firms, Charles E. F. Millard never reached superstar status. But he was treated like one when he arrived in Washington in May 2007, to run the Pension Benefit Guaranty Corporation, the federal agency that oversees $50 billion in retirement funds.
BlackRock, one of the world’s largest money-management firms, assigned a high school classmate of Mr. Millard’s to stay in close contact with him, and it made sure to place him next to its legendary founder, Laurence D. Fink, at a charity dinner at Chelsea Piers. A top executive at Goldman Sachs frequently called and sent e-mail messages, inviting Mr. Millard out to the Mandarin Oriental and the Ritz-Carlton in Washington, even helping him hunt for his next Wall Street job.
Both firms were hoping to win contracts to manage a chunk of that $50 billion. The extensive wooing paid off when a selection committee of three, including Mr. Millard, picked BlackRock and Goldman from among 16 bidders to manage nearly $1.6 billion and to advise the agency, which Mr. Millard ran until January.
But on July 20, the agency permanently revoked the contracts with BlackRock, Goldman and JPMorgan Chase, the third winner, nullifying the process. The decision was based on questions surrounding Mr. Millard’s actions during the formal bidding process. His actions have also drawn the scrutiny of Congressional investigators and the agency’s inspector general.
I know, I know. This is Washington D.C. and unethical, if not illegal, practices like this should be expected. But I can’t help believing that a situation like this (if true) could have been avoided by simply putting into place some balance and checks on how the PGBC retirement funds are invested.
Three proposals: (1) Do not make the head of the PGBC an investment manager. The head of the PGBC should be a person well familiar with employee benefit plans and the law surrounding the management and operation of such funds. (2) Do not place the head of the PGBC on a committee that selects the investment firms. Conflicts of interest need to be stomped out from the get go. (3) Obviously, an investment manager-type will be needed for advice on who to invest the money with. However, such a person should completely disclose all personal and professional relationships and should be recused from dealing with those firms.
Is that really so hard?
[Cross Posted on Workplace Prof Blog]
As