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COMPLY-Navigating the maze of public pension rules
2012年5月11日 / 下午5点53分 / 6 年前

COMPLY-Navigating the maze of public pension rules

May 11 (Reuters) - For advisers to public pension funds, avoiding trouble often means not getting tripped up by the little things.

A complex web of rules that severely restrict how much advisers can spend on gifts and entertainment for government officials is an area full of potential traps.

For advisers thinking about getting into the lucrative pension business, these issues are worth more than a cursory look. In some cases, buying an official as little as a cup of coffee can trigger penalties as severe as being temporarily barred from selling services to state and local governments.

The over-the-top examples are easy to spot, of course. Lavishing government officials with more than $125,000 worth of perks, including a $63,000 trip to Las Vegas on a private jet in order to hold onto business from a city pension - among the allegations made Wednesday by the U.S. Securities and Exchange Commission in a civil enforcement case against a Detroit-based registered investment adviser and others - wou l d be obvious abuses.

While such situations are extreme, advisers to public pension funds face bigger problems in the everyday work they do, according to Ki Hong, a Washington-based lawyer who advises companies on political law issues.

Governments at every level have restricted or banned spending on government officials in recent years, often in response to scandals, said Hong. That means many advisers have to think twice before covering even typical business expenses, such as ordering sandwiches during an all-day meeting with pension officials, he said.

“The majority of advisers out there do play it clean, but they are unduly hindered by these laws that go over and beyond prohibiting corruption,” Hong said.

Concerns about graft are not new in the world of public pension funds. Advising on the vast sums of money in these funds can bring in generous fees for advisers with the right connections.

In the Detroit case for example, MayfieldGentry Realty Advisors LLC, allegedly earned almost $3 million in fees between 2008 and 2010 from investments the firm’s chief executive and majority owner, Chauncey Mayfield, recommended to Detroit’s city pension trustees, according to the SEC complaint against Mayfield and his firm. The SEC alleges that Mayfield paid for massages, concert tickets and other luxuries for Detroit’s ex-mayor, Kwame Kilpatrick, to curry favor with his administration after supporting another mayoral candidate.

Kilpatrick and Jeffrey Beasley, the city’s former treasurer, were also charged in the case. A lawyer for MayfieldGentry declined to comment. Lawyers for Mayfield, Kilpatrick and Beasley did not return calls requesting comment.

The cloud of such alleged influence-peddling discourages many advisers from trying to do business with public pensions. Still, Hong and others say it is not impossible to enter the business and work honestly.

Many retirement plan servicers in both the private and public sectors avoid offering clients extravagant trips and fancy dinners not just because it’s against the rules, but also because it “puts the recipient in a bad place,” said Michael Kozemchak, a retirement plan consultant at Institutional Investment Consulting in Bloomfield, Michigan.

His company routinely declines invitations for outings and dinners from investment managers and service providers who want access to his clients, he said. Even small items are off-limits.

“It’s not worth accepting a golf ball or a t-shirt,” Kozemchak said. “Although the value is de minimus, it looks bad.”


Good record keeping is essential for advisers working in the public pension area. Some rules are easy to follow, like ones that prohibit advisers from making gift and entertainment expenditures on behalf of government officials.

Smaller limits, that can affect everything from golf outings to ordering sandwiches for a meeting, are often imposed by various states, cities and even the plans themselves. Those rules can be more difficult to follow because of how they are written. California state and local officials, for example, are prohibited from receiving gifts totaling more than $420 in a calendar year from certain sources.

Familiarity with the rules and ongoing changes is critical for any adviser considering work in the public pension business.

Buying software to help track expenses, such as packages offered by MyComplianceOffice and StarCompliance, is also something advisers should consider.

The programs cost between $10,000 and $25,000 annually, depending on the size of the firm, according to Larry Goldfarb, a New York-based compliance consultant.

Some companies are developing software that automatically track total gifts and entertainment expenses when employees seek reimbursement through expense account systems, Goldfarb said.

Those programs may be even pricier, but still a bargain compared with the fines and loss in revenue that advisers may face if they break the rules.

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