Note: Mitt Romney Tax Return Analyzed in Separate Post
As an investment advisor I have found reviewing a company’s pension plan to be a good indicator of the sponsoring company’s quality of management. These pension plans are all available for viewing at http://www.free5500.com via required annual 5500 ERISA filings. The filings show not only show total assets yet also investment vehicles used and key administrative rules.
What follows is an analysis of Bain Capital’s 2010 Profit Sharing plan, a plan that likely explains how Mitt Romney so effectively built his IRA into a balance some speculate could be as high as $100 million.
What they appear to be doing is using a “common collective trust” account at Merrill Lynch that likely has Bain Capital partnership related investments contributed at artificially low prices and then rolled out into IRAs each year by participants. This explains in part why the current plan is so small in terms of total assets, it is essentially being flushed each year. In 2010 almost a third of the entire plan was rolled into IRAs and the plan document does indeed clearly state that participants are entitled to do one rollover each year.
A few key financial facts followed by copies of key documents:
1) Total assets were $28 million at 12/31/2010 with 719 participants. Each participant can contribute up to $42K per year.
2) 60 percent of the investments are in the “collective trust” held at Merrill Lynch. The remaining 40 percent are in standard mutual funds.
3) Total direct rollovers out of the plan into IRAs in 2010 was approx $9 million, representing almost a third of total plan assets.
Observations:
1) It looks like Bain is allowing employees to do the annual rollovers to avoid ERISA rules on annual contribution limits of $42K and disguise gains on their portfolio securities contributed. And would it not be interesting to compare subsequent IRA values for the same investments with the values rolled over previously?
2) Most plans allow rollovers only when a new plan is created or when an employee leaves the firm. Bain again allows existing employees to do one rollover per year.
3) The profit sharing plan is audited by Pricewaterhouse Coopers, also the auditor of record for Bain Capital. This is the firm responsible for reviewing Bain’s carried interest charges, etc. as part of their audit. If indeed Bain investments are included in the profit sharing plan, that would be a significant conflict of interest. Bain generally charges carry fees of 30 percent, 50 percent higher than the industry standard 20 percent.
Bain Capital 2010 ERISA 5500 Filing
Bain Capital – Total Participants 719
Collective Trust 60 Percent of Total Investments
Employees Direct Rollovers in 2010 Approx $9M
Existing Employees Can Do Annual Rollovers
Summary of Specific Investments
Audit Opinion by Pricewaterhouse Coopers
