Markey, Miller: Are Oil, Other Commodity Funds Violating Pension Laws?

Press Release

While the influence of Wall Street speculators on the recent spikes in the price of oil is well-documented, little-known financial products known as commodity index funds may be inflating the price of commodities like oil and wheat while also endangering people's pensions. Reps. Ed Markey (D-Mass.) and George Miller (D-Calif.) today raised their concerns over commodity index funds with the head of the Department of Labor, asking the Department whether the funds might run afoul of the Employee Retirement Income Security Act (ERISA).

Commodity index funds are financial products that allow customers to purchase a wide range of commodities without having to actually physically possess and use those commodities. First created by Goldman Sachs in 1991, these have grown explosively in recent years. Commodity index traders now collectively comprise the single largest group of non-commercial participants in commodity markets, giving them significant power over both our commodities markets, and even the price of products like gasoline and bread.

Commodity index funds are highly volatile products that may put pension stability at severe risk and help cause price spikes in oil and other commodities that hurt all consumers. Under ERISA, however, pension managers must act prudently and in the sole interest of the participants and beneficiaries. Congressmen Markey and Miller are concerned that investments in commodity index funds may not meet this low standard.

"Commodity index funds appear to have extreme price volatility and are often highly leveraged, and although they have been existence for a little more than 20 years, they have grown dramatically in the last decade," write the two Congressmen to Labor Secretary Hilda Solis. "These investments appear to be among the riskiest financial products available, on par with the housing-related derivatives that destroyed the American housing market and have left millions of homeowners owing more on their mortgages than their houses are worth. While originally considered to be a lucrative investment strategy, commodity index funds have not performed well of late. And their very existence drives up oil and energy prices for all consumers. Considering that plan beneficiaries of pension funds are almost all on fixed-incomes, price spikes in gasoline hurt plan beneficiaries even more than the ordinary citizen."

The letter from Reps. Markey and Miller to Secretary Solis is available HERE. Rep. Markey is the Ranking Member of the Natural Resources Committee and Rep. Miller is the Ranking Member of the Education and Workforce Committee.

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