The Senate's Y2K front man is concerned that the Year 2000 bug could create serious risks for citizens' pensions and investments in mutual funds.
Sen. Bob Bennett (R-Utah), chairman of the Senate Special Committee on the Year 2000 Technology Problem, said the risk could extend to bank customers wanting to make sure they can access their ATM accounts or investors in the stock market looking to make sound investments.
Bennett expressed his concern yesterday in hearings before his committee that looked at the Year 2000 readiness of the securities industry, in particular pensions and mutual funds. In doing so, Bennett reminded financial managers of their fiduciary responsibilities to make the best investments for their customers--including assessing the impact of the Year 2000 bug on those investments.
"I have...come to understand just how important it is for customers and investors to get useful information about the Year 2000 readiness of the companies with which they do business and in which they invest," Bennett said in his opening statement.
The committee decided to explore pension and mutual funds because they are the primary vehicles through which most Americans access the stock market, Bennett said.
According to estimates released by the committee, more than 84 million Americans participate in pension plans. The Labor Department reports that of the $3.6 trillion in assets held by private pension plans, nearly half of those funds, or $1.8 trillion, are invested in equities.
In the past decade, Americans have directed increasing amounts of their discretionary investments to the stock market--particularly funds accumulated for long-term investment goals, such as college or retirement. Since 1991, according to the committee, individuals have funneled $1.1 trillion into stock mutual funds and that amount has been increasing at a rate of $21 billion a month.
"It remains unclear whether and to what extent fund managers are considering the Year 2000 as they decide whether to buy, sell, or hold an equity investment and whether the fund managers are getting the information they need to make informed judgments," Bennett said.
To clarify Y2K awareness within the pension and mutual fund industry the committee had three panels of speakers come before it and give their opinions: Officials from the Securities Exchange Committee; the Labor Department; and executives from investment firms.
Matthew Fink, president of the Investment Company Institute, the national association of the investment industry, told the committee the industry takes the issue of Year 2000 readiness very seriously.
"The industry's continued success is predicated on maintaining the confidence of investors. It is critically important that we strive for the smoothest possible transition to the 21st century," Fink said.
Fink said fund firms have for some time been engaged in internal efforts to identify and remediate Y2K problems. Many funds have dedicated staff for this purpose, have established separate Y2K budgets, and provide periodic Y2K compliance progress reports to their boards of directors.
"No one can guarantee that they will be problem-free when the Year 2000 arrives--in fact, some temporary glitches are probably inevitable," Fink said. However, when considering the Year 2000 issue in the context of the mutual fund industry, Fink said it is important to bear in mind three points:
Meanwhile, Bennett used yesterday's hearing to follow up on the utilities hearing the committee held in June, saying that the committee was unable to determine at that hearing whether "the lights will stay on," because there had been no industry-wide Year 2000 assessment of the industry.
He said the report released yesterday by the North American Electric Reliability Council sheds light on the utilities industry's Y2K status and shows that though steps are being taken, "progress continues to be slow."