ANALYSIS-Calif. pension reform won't end pay-to-play schemes =2

FEDERAL VERSUS STATE

Siedle and other experts said the federal government needs to bring public pension funds under its purview through a comprehensive and uniform set of rules.

"State oversight just isn't cutting it," said Chris Tobe, a trustee for the Kentucky Retirement Systems. "This stuff is going on in formal and informal ways in hundreds of public pension funds. It's almost as if it's a part of the system."

Tobe said public pension plans should come under the purview of the Employee Retirement Income Security Act, a federal law that sets standards for private sector pension plans.

Uniform federal rules would also solve a practical problem for placement agents, who must now deal with a patchwork of state laws, said Susan Bryant, a securities lawyer and former state regulator.

"Each state is adopting something different. And you have placement agents who are doing business on a national basis," Bryant said. "There needs to be some sort of a baseline so that these firms know what they are supposed to be doing."

Still, not everyone is in favor of more federal oversight.

A combination of disclosure of fees and registration with the Financial Industry Regulatory Authority, a private-sector regulator of U.S. broker dealers, so that there are regular audits of the organization is the best way to go, said Kelly DePonte, a partner at placement agent Probitas Partners.

"More states are requiring disclosure. I am not sure if it is necessary to have a federal mandate in order to address that issue," DePonte said.

No matter how many laws are put in place, the key would lie in how well the authorities enforce the rules.

"There needs to be more resources devoted to examiners at the SEC to go out and look at firms, to look at investment advisers who are doing business with the states and auditing who they are paying," said Bryant. "And that's where you are going to find the violations."