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: Elizabeth Warren urges that ‘corporate wrongdoers’ shouldn’t be managing retirement funds

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Sen. Elizabeth Warren is urging the Department of Labor to get tougher on corporations that have been convicted of financial crimes, by restricting their ability to manage Americans’ retirement funds. 

In a letter in support of proposed regulation changes to the Employee Benefits Security Administration, Warren (D- Mass.), and co-author Sen. Tina Smith (D- Minn.), outline why they feel retirees need additional protections and transparency. 

“We have long been concerned that EBSA’s use of individual exemptions has undermined the Department of Labor’s (DOL) responsibility to protect American workers and their retirement savings from greed, corruption, and mismanagement,” they wrote. 

At issue is a waiver process, called a qualified professional asset manager (QPAM) exemption, that allows companies to avoid conflict of interest problems and also allows those convicted of financial felonies in foreign countries to still do business with institutions that manage retirement and pension accounts that fall under the jurisdiction of the Employee Retirement Income Security Act (ERISA). 

The proposed changes would, foremost, require any company granted a waiver to report it to the agency. Other provisions pertain to what kind of foreign convictions — deemed “substantially equivalent” to prohibited U.S. offenses — would now be prohibited altogether. Generally, there would just be more stringent conditions to meet, from the types of transactions covered to the level of assets companies need to qualify. 

Warren and Smith have weighed in on this issue in the past, most recently in February when Credit Suisse was granted a new five-year QPAM waiver, despite a 2021 conviction for $547 million in fraudulent loans in Mozambique. 

“It is powerfully important that workers be able to count on the fact that the investment firm they use for their retirement savings does not have a lengthy list of fraud settlements and convictions,” said Warren in a statement to MarketWatch. “The Department of Labor has a responsibility to protect American workers and these proposed QPAM rules for retirement asset managers are an important first step.”

‘I think they went overboard’

The financial industry is weighing in against the proposed changes. “This could impact the asset management business in a way it shouldn’t, by limiting participants,” said David Kaleda, an attorney for Groom Law Group who represents asset managers and plan sponsors. “I think they went overboard.”

The impact of having more stringent restrictions could be that retirement plan sponsors and asset managers have to change the way they’ve been doing business, and that could get expensive. These increased costs can get passed along to retirement savers, which is what worries Allison Wielobob, general counsel for the American Retirement Association, an umbrella trade group for the spectrum of service providers to the U.S. private retirement system. 

“QPAM is so big, it’s hard to overstate how relied upon it is. If it changes, somebody has to bear the costs. We hope that wouldn’t be plan participants,” she said. 

Other risks to retirement savers

Retirement savers might have more to risk than just increased costs, according to James S. Henry, former chief economist at McKinsey and now a lecturer and fellow at Yale’s Global Justice Program. Henry recently testified before the Employee Benefits Security Administration, as did Wielobob. 

Savers are also subject to bad investment choices by managers who aren’t stringently regulated against conflicts of interest, he said. He pointed to pension funds like Ontario Teachers Pension Plan, which recently wrote down a $95 million investment in FTX, after the crypto exchange declared bankruptcy. 

“Who is putting those pension funds in high-risk investments?” Henry asked. “Consumers will be worried when Grandpa’s pension is gone, and they can’t get health insurance, all because somebody invested it in some screwy security.”

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