The Sunday Oregonian




JULIE TRIPP of the Oregonian Staff

October 15, 2000


Financial consultants encourage plan participants who've lost funds to stick with a savings plan


Two little words you hope you'll never hear applied to your retirement plan: "Ponzi scheme."


Yet that's just what thousands of union members and their beneficiaries from Portland and elsewhere have been hearing about their pension and 401[k] retirement plans invested by Capital Consultants LLC, the Portland investment management firm formerly headed by Jeff Grayson.


What should they do now? And what should the rest of us be doing to check our own retirement plans?


Participants in any plan whose retirement money may be threatened should start playing catch-up immediately, the experts say.


But there's work to be done by others, too. Everyone in a retirement plan who has ever tossed out a pension report without reading it should consider the investors in the Capital Consultants story. Larry Miller and a fellow member of the Oregon Laborers Union found a discrepancy in their pension's Summary Annual Report and reported their suspicions to authorities.


The federal government has since seized Capital Consultants, claiming Grayson and his son, Barclay, were running a "Ponzi like scheme" to conceal losses in the funds they managed. The union members are suing, and securities regulators and labor officials are investigating possibly more than $200 million in losses.


Local union members have long complained that it was difficult to get detailed information on the federal legislation, the situation could get even worse.


A bill in Congress that would increase contribution limits to IRAs and 401[k]s -- the Retirement Security & Savings Act of 2000 -- also drops the reporting requirement as a waste of administrative effort.


A sponsor of the bill, Sen. William V. Roth Jr., R-Del., said last week through a spokesman that he is extremely concerned about what happened to the Oregon employees and is working to fix the bill before it becomes law.


Someone who is urging that fix is Karen Ferguson, director of the nonprofit Pension Rights Center in Washington, D.C.


"This is so critically important," Ferguson said. "People who read the reports can see the red flags and say, 'Hey! What's going on here?'"


Currently, the Summary Annual Report, or SAR, is given to every plan participant. It is a one-page report of plan assets, gains and losses, administrative expenses, loans and inside deals. It helped local union members in their quest for information about their Capital Consultants investments, Miller said.


Losses unknown Shell-shocked union members have yet to learn how much they may have lost. The investments with Grayson's company were spread among union pension funds, 401[k] investment options and union health and welfare funds. Any losses would depend upon each member's exposure to the Grayson investments in the various funds.


Not all of Capital Consultants' investments were potentially bad. Many were traditional stocks and bonds, and union members who chose those options may feel little effect.


But nearly half of Capital Consultants' $1 billion under management went into commercial and real estate loans and other private investments. The impact on individual investors depends on their exposure to the private deals. A report on that impact is expected later this month.


But among effects some retirees might feel are fewer benefits, no cost of living increases and no "13th check" -- a bonus paid to retirees at the end of the year.


In addition, losing money in the health and welfare fund are a big concern to retirees such as longtime manual laborer Gayland German, 64, of Portland, who has had four surgeries to fix his back and replace a shoulder joint since retiring three years ago.


There's a chance members could recover some of their potential losses through their lawsuits against plan trustees and insurance coverage by the Pension Benefit Guaranty Corp. The government agency insures traditional pension plans, but not 401[k] plans, which have no safety nets.


But union members shouldn't count their chickens, says Marilyn Bergen, a certified financial planner in Portland. They should keep their names "in the pot" of litigants but should plan on money gained from the lawsuits as a bonus.


Develop plan to recoup Meanwhile, determine the extent of possible losses and develop a plan to recoup them.


It won't be easy for those who had hoped to retire early after 30 years of laying pipe, digging ditches and pouring concrete.


Depending upon the extent of any loss and how much time they have to catch up, "they may have to work longer, and they'll probably have to live at a lower standard of living when they retire," Bergen said.


Bergen ran some numbers to determine the impact of losing $100,000 in retirement funds at age 53. She found the results so discouraging she could barely repeat them.


To raise the more than half a million dollars it would take to provide a retirement income of $40,000 annually until age 85, a couple would have to save $20,000 annually and work until they're 71.


Any union member losses may be considerably less than the example, depending upon the member's past dedication to retirement saving. The result will be less bleak if the loss is smaller, if less is spent in retirement or if retirees don't live until age 85.


Bergen urged anybody near retirement age who has lost retirement funds to get very serious about saving.


"If you're saving something already, plan to double, triple or even quadruple it," Bergen said.


"Have your spouse go to work or work a second job yourself," she said, and plow all the earnings into retirement savings. "Plan to work part time in retirement."


People who have lost retirement money at the hands of investment managers often don't have the stomach for consulting another professional, but Bergen said a financial planner who follows the code of ethics could help with the all-out catch-up effort.


Those who prefer to go it alone can get help from Ellen Hoffman, author of "The Retirement Catch-Up Guide: 54 Real Life Lessons to Boost Your Future Resources Now!"


Hoffman said 401[k] participants such as Nancy Schultz should continue contributing to other investment options in their plan.


Stick with investing Schultz, chief executive officer of the United Food & Commercial Workers Northwest Federal Credit Union, had most of her 401[k] invested in a cash management fund, one of four options from Capital Consultants. She's not sure yet whether that money still exists.


But there are also five other mutual fund options from big national companies such as Scudder, Janus and Dreyfus, which are under no investigative clouds. Schultz said she intends to stick with investing in the 401[k] despite her experience.


"It's a wonderful tool with great advantages," she said. "It's not the plan, it's the people who had control over it."


Hoffman said those playing catch-up shouldn't neglect considering their home as an asset. People 62 or older could get a reverse mortgage, a loan that pays the homeowner cash while gradually consuming equity in the home.


They can also: sell a big home and move to a smaller one in a less expensive place; retire to the suburbs or the coast where it costs less to live; find a place where taxes are lower.


The prospect that thousands of retirement plan participants are forced to consider such options is "a tragedy for working people in the Pacific Northwest," said Dan Feinberg of Oakland, Calif., attorney for the members of the Oregon Laborers Union.


German, the retired laborer, agreed.


"This pension thing isn't a gift," he said. "We earned it. We worked damn hard for it, too.



Julie Tripp can be reached by phone at 503-221-8008, by e-mail at or by mail at 1320 S.W. Broadway, Portland, OR 97201.

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