My story on the negotiations on the bail out bill on the Hill. The point that Paulson and Bernanke made about pensions is interesting. Despite all the laments that Americans aren’t saving enough for retirement, this is a massive market: more than $1.9 trillion in DB pensions, $2.5 trillion in 401(k) savings and $4.75 trillion in IRAs by the end of last year. The total for 401(k) savings is bound to have gone up since the 2006 passage of a bill overhauling the pension system in Congress which made automatic enrollment in 401(k)s the default position for employers – a move expected to double 401(k) savings by 2016. (EBRI here is a phenomenal source on this stuff.)
But that bill opened up pension funds to huge new risks. The legislation relaxed regulations to make it easier for pension funds to invest larger stakes in riskier hedge funds and financial institutions, relaxing the fiduciary duties that usually come with investing in people’s retirement. This was a controversial provision that even the White House and Senate Republicans were leery of – Dems mostly opposed it – but House Republicans were adamant in seeing it included in the bill. In fact the original language of these provisions – introduced as an amendment in committee by Representatives John “Randy” Kuhl a New York Republican and Rob Andrews, a New Jersey Democrat** – called for even greater changes to the system: allowing pension funds to hold up to 50% stakes in hedge funds and financial institutions*. Just a thought, but when Congress gets down to reasserting more regulation on the markets, this might be something they want to look at.
*Though, I’m told with rules governing plan the aggregation of asset holding in all plans it’s unlikely that a huge percentage on any one pension plan is invested in hedge funds. The relaxed rules simply allow for greater investment — and risk — than before the Pension Protection Act was passed.
**Updated: Andrews is a Democrat.