The widening mutual fund trading investigation has created a quandary for many pension plan administrators: They face pressure to fire money management firms that have been implicated but not proved guilty of an offense.
What's more, dumping one manager for another may be hazardous because it isn't clear how many fund companies may be charged with wrongdoing before the probe runs its course.
The dilemma faced by pension plans may echo with many individual investors as they try to decide what to do with money invested with fund companies caught up in the scandal.
On Tuesday, California Treasurer Phil Angelides wrote to the state's two largest public pension plans, urging them to drop Putnam Investments as a money manager.
Federal and state regulators last week charged Boston-based Putnam with securities fraud, alleging that the firm failed to stop some of its investors and its own fund managers from engaging in "market timing" of fund shares in recent years, to the detriment of long-term investors.
Pension funds in seven states already have pulled money from Putnam, which manages private pension accounts as well as mutual funds. An avalanche of redemptions from an investment firm can be ruinous by slashing the company's fee income.
Angelides, who sits on the boards of the California Public Employees' Retirement System and the California State Teachers' Retirement System, advised the plans to drop Putnam because it has "failed to meet the standards we should expect from a firm" overseeing billions of dollars in pension money.
Putnam manages $1.2 billion for CalPERS and about $332 million for CalSTRS, small fractions of their total assets.
Responding last week to regulators' charges, Putnam said it "did not act fraudulently in any way," and that it worked aggressively to stop improper trading, though the company said "in some instances our actions were insufficient." On Monday, the firm's chief executive, Lawrence J. Lasser, resigned under pressure.
CalPERS and CalSTRS have declined to follow the lead of pension plans in Massachusetts, Iowa, Arkansas and other states in firing Putnam.
A CalSTRS spokeswoman said the plan's board was expected to discuss the matter today.
At CalPERS, spokeswoman Pat Macht in Sacramento said the $152-billion-asset plan was "very methodical" about hiring and firing money managers, usually working with consulting firms to evaluate the merits of a manager.
