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3M Co. announced that its $19.7 billion pension plan is under investigation by the Labor Department.
The investigation, which began in April 2015, is related to certain private equity investments, plan expenses, securities lending and distributions of plan benefits, according to the company’s May 3 10-Q filing with the Securities and Exchange Commission.
In response to Department of Labor requests, 3M has produced documents and made employees available for interviews, the company said in the filing. In December, the DOL issued subpoenas to 3M and 3M Investment Management Corp. relating to this investigation, the company said. 3M has also produced additional “responsive documents and is cooperating with the DOL in its investigation,” the company said.
3M’s pension plan is fully funded, and it currently doesn’t have a minimum required contribution. In the past three months, 3M contributed $247 million to its U.S. and international plans and expects to contribute approximately $300 million to $500 million more in 2017, the company said in its SEC filings.
The issue of private equity in qualified retirement plans has made some headlines lately. Some practitioners say these investments can be used to minimize risks in portfolios, while others are concerned with the higher fees they carry.
The DOL has been actively auditing pension plans, and it has investigated what they consider to be alternative investments for some time, Greta Cowart, an attorney at Winstead PC, told Bloomberg BNA. Investments in private equity and plan expenses are common investigation items for the DOL, according to Cowart, who focuses on employee benefit plan issues.
“There’s no ERISA prohibition to invest in private equity or hedge funds within qualified plans,” Jonathan Epstein, president of non-profit Defined Contribution Alternatives Association, told Bloomberg BNA May 4.
Epstein, who also works at the investment advisory firm Thirty North Investments LLC, said he feels that the environment appears to be more lenient toward these types of alternative investments—given their potential to enhance performance and minimize volatility for investment portfolios of qualified plans. This is prefaced on the notion that plan fiduciaries believe there’s value for the cost being incurred for these types of investments, Epstein said.
3M representatives declined to comment for this article.
3M’s pension investments were the subject of a lawsuit more than a decade ago. In 2002, a federal court held that participants in 3M’s pension plan lacked standing to challenge a $20 million hedge fund investment in their plan. Although the plan lost the entire $20 million investment, at the time of the investment loss 3M’s voluntary contributions to the plan exceeded the Employee Retirement Income Security Act’s minimum funding requirements by $683 million, the court said.
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Text of the 10-Q SEC filing is at http://src.bna.com/owW.
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