The Markets October 21, 2010

Retirement Assets Down in Q2 2010

A report from the Investment Company Institute shows that between March 2010 and June 2010, retirement assets fell 5.1%, from $16.5 trillion to $15.7 trillion.
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According to a press release, The U.S. Retirement Market, Second Quarter 2010 report shows the decline in retirement accumulations reflected market returns. During the second quarter of 2010, equities experienced an 11.4% decline, while bonds returned 3.7%, according to the Standard & Poor’s 500 stock index and the Citigroup Broad Investment Grade Bond Index.  

At the end of the second quarter of 2010, IRAs were a significant component of U.S. retirement market assets, holding $4.2 trillion in assets. Employer-sponsored DC plans held another $4 trillion in assets, of which $2.7 trillion was held in 401(k) plans. Forty-five percent of IRA assets and 51% of DC plan assets were invested in mutual funds.  

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Assets earmarked for retirement are a significant component of U.S. households’ financial assets, accounting for 36% of all household financial assets at the end of the second quarter.  

ICI’s analysis includes assets held in private-sector defined benefit (DB) plans, government pension plans, defined contribution (DC) plans—including 401(k), 403(b), and 457 plans—annuities, and individual retirement accounts (IRAs). 

Compliance October 21, 2010

DoL Sues Money Managers over Madoff Losses

The U.S. Department of Labor (DoL) has accused four money management firms of violating their fiduciary duties by causing hundreds of millions of dollars in losses to pension and other benefit plans after placing their investments with Bernard Madoff.
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A DoL news release said the agency brought the accusations of violations of the Employee Retirement Income Security Act (ERISA) in a lawsuit against Beacon Associates Management Corp., Andover Associates Management Corp., Ivy Asset Management LLC, J.P. Jeanneret Associates Inc., and the principals of the four companies.

Also named in the suit are Joel Danziger and Harris Markhoff of Beacon and Andover, Lawrence Simon and Howard Wohl of Ivy, and John Jeanneret and Paul Perry of J.P. Jeanneret.  The defendants provided advice and investment services to plans.

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The suit also alleges that the defendants failed to take prudent actions to investigate or monitor Madoff and his purported trading and to disclose the extent of the known risks, irregularities and suspected “red flags” surrounding Madoff’s operation.  Additionally, the suit alleges that the defendants failed to protect the plans’ interests while collecting tens of millions of dollars in fees for themselves as a result of the Madoff investments.

According to the suit, plan investments were made with Madoff through direct investment and indirectly through the Jeanneret, Beacon and Andover funds that invested with Madoff.  The suit further alleges that the Jeanneret defendants improperly received higher fees on the Madoff investments than other investments.

The DoL said the suit seeks to require the defendants to restore all losses suffered by the plans and to return any fees and profits improperly received as a result of plan investments with Madoff.  It also seeks to permanently bar them from serving in a fiduciary capacity to any plan governed by ERISA in the future.

“These defendants chose their own financial interests over those of the plans whose assets they were duty bound to manage prudently.  Their actions put the future benefits of thousands of workers in jeopardy,” said Secretary of Labor Hilda L. Solis, in the news release.

The case is Solis v. Beacon Associates LLC, Civil Action Number 10-CV-8000.

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