Significant Changes Imposed In Pension Plan Valuation of Alternative Investments


The Boston office of the Department of Labor (the “DOL”) recently delivered an unpleasant surprise for pension plan investors in private equity funds, hedge funds, and other alternative investments. In a July 1, 2008 letter to an unidentified pension plan, James Benages, the director of the DOL’s Boston office, contends that a pension plan’s method of valuing its alternative investments (limited partnerships and joint ventures) was not in the best interest of the plan’s participants and beneficiaries and violated Section 404(a)(1) of ERISA.

The plan reported the value of its alternative investments on its Form 5500 by relying on financial information received from its investment adviser and/or the general partner of the underlying alternative investment entity. In one case, the value was based on a general partner’s “unaudited Capital Account Balance Statement” and audited financial statements; in another case, an alternative investment was valued according to the unaudited determination of fair market value by the general partner, without “any further analysis to ascertain whether the unaudited fair market value accurately reflected the true value of the asset.”

To read the full alert, click on the PDF linked below.


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