Senator Says More Oversight Is Needed at Federal Pension Agency
May 20, 2009 - 5:49 AM<br />
The recession is forcing into bankruptcy an increasing number of companies with underfunded pension plans, leaving the Pension Benefit Guaranty Corp. with billions of dollars more to pay out in pension checks to retirees in the future. Its long-term deficit tripled in the past six months to a startling $33.5 billion.
The PBGC says it will be able to meet its obligations for many years to come. Still, it is monitoring weak companies with underfunded employer-sponsored pension plans in all sectors of the slumping economy, including auto, retail, financial services and health care.
"Given the state of the economy, the question of PBGC's viability is more urgent than ever," said Sen. Herb Kohl, D-Wis., who is chairing a hearing Wednesday on the agency at the Senate Special Committee on Aging. "One in seven Americans count on the agency to pay out their pension in the event that their employer is unable to due to bankruptcy. As the auto industry teeters on the edge of insolvency, hundreds of thousands of workers' pensions could soon become the responsibility of the PBGC."
Compounding the agency's fiscal problems are investigations into allegations that its former director, Charles E.F. Millard, had inappropriate contacts with three Wall Street firms that recently won multimillion-dollar contracts to advise the agency on a new strategy to invest its assets more heavily in stocks, real estate and private equity rather than more conservative fixed-income treasury securities.
The allegations were contained in a PBGC inspector general's report last week which said Millard's office had hundreds of phone conversations and e-mails with the Wall Street firms bidding for the work in 2007 and 2008 at the same time he was actively evaluating their proposals.
Kohl has called for the contracts to be rebid.
Millard, who has denied any wrongdoing, has been subpoenaed to testify at the hearing. If he does attend, he will assert his Fifth Amendment right against self-incrimination on the advice of his Washington lawyer, Stanley Brand. Brand says some lawmakers appear to have already reached "adverse conclusions" about Millard's actions without a thorough and fair evaluation of the facts under investigation. In a statement to the committee, Millard said, "Even before I had a chance to review the document, the inspector general's draft report was leaked and was published by Congress before it became final."
In response to the inspector general's and his committee's own probe, Kohl is introducing legislation in coming weeks that will require the agency's presidentially appointed director to remove himself from potential conflicts of interest. The bill also will expand and strengthen the PBGC's board of directors.
Three members of the president's Cabinet oversee the government's multibillion-dollar safety net for retirement benefits covered by employer-sponsored plans; 401(k) plans are not insured by the agency. Representatives for the secretaries of treasury, commerce and labor meet regularly, but in 28 years, the full PBGC board has met only 19 times. Kohl's bill would force the board to meet more frequently and stagger membership to make sure experienced board members are serving at all times.
In February 2008, during Millard's tenure, the board approved a new investment strategy that would invest the PBGC's assets more heavily in private equities and real estate. Millard remains convinced that more aggressive investments will help reduce the agency's deficit and perhaps prevent the need for a future taxpayer bailout. To help implement the new strategy, the agency solicited the services of investment firms on Wall Street.
Goldman Sachs, BlackRock and JPMorgan won awards to invest up to $2.5 billion of PBGC assets in real estate and private equity in return for fees that could exceed $100 million over 10 years.
So far, no agency assets have been transferred to the three firms. PBGC's acting director, Vince Snowbarger, said Tuesday that the staff was working with the new board members in the Obama administration to decide whether the contracts should be terminated.
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