February 16, 2011
The Plan Sponsor article, "Lender Beware: Lawsuits and Congressional scrutiny make the timing right for a securities-lending review," reviewed the government's increased investigations into pensions. Partner Richard S. Chargar explained that over that past three years, the landscape has changed such that securities lending is no longer viewed as a risk-free way to enhance earnings.
Mr. Chargar discussed risks with 401(k) plans. Following the market crisis, Senate investigations prompted mutual funds to temporarily freeze assets and account balances. Mr. Chargar reviewed how plan sponsors can manage their risk. He stated sponsors need to request more transparency from mutual funds with respect to securities-lending programs. This can include information on counterparty exposure and the management of collateral. In negotiating investment-management agreements, he noted that sponsors can try to limit a fund's ability to restrict withdrawals.