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Pension safety net's deficit reaches $33.5B and may rise
DETROIT — The agency that backs the pensions of 44 million American workers and retirees says its deficit is soaring, and may only get worse.
The Pension Benefit Guaranty Corp. said looming bankruptcies in the auto industry, retail sector, finance and health care industries could make the historic $33.5 billion deficit it posted Wednesday balloon even higher. The agency blamed soaring bankruptcies and low interest rates for the shortfall, which was $22.5 billion more than the deficit it posted in October.
The PBGC is a federal agency that acts as a backstop for pensions at 29,000 companies. As its deficit swells, the government will have to decide if it will cut retiree benefits, ask healthy companies to pay more to insure pensions, or rely on taxpayers to make up the deficit.
Senators want Justice to look at PBGC report
By Doug Halonen
May 21, 2009, 2:14 PM ET
Six senators asked the Justice Department to review a report by Rebecca Anne Batts, PBGC’s inspector general, alleging that Charles E.F. Millard, the agency’s former director, made inappropriate contacts with money managers as the agency was hiring firms to manage $2.5 billion in real estate and private equity investments.
“In recent days, serious questions have arisen about the actions and involvement of Charles Millard … in that agency’s procurement processes,” said the lawmakers in a May 20 letter to Attorney General Eric H. Holder Jr. “We trust that the Justice Department will engage in a thorough and independent review of Mr. Millard’s actions.”
Senators signing the letter were Edward M. Kennedy, D-Mass., and Michael Enzi, R-Wyo., chairman and ranking minority member of the Senate Health, Education, Labor and Pensions Committee, respectively; Max Baucus, D-Mont., and Charles Grassley, R-Iowa, chairman and ranking minority member of the Senate Finance Committee, respectively; and Barbara Mikulski, D-Md., and Richard Burr, R-N.C., Senate HELP Committee members.
Former head of pension agency takes the Fifth
By DEB RIECHMANN – 1 day ago
WASHINGTON (AP) — The former director of the government's pension agency invoked the Fifth Amendment on Wednesday when senators probed allegations that he had improper contacts with Wall Street firms while running the operation, which insures the pensions of one in seven Americans.
Charles E.F. Millard has previously denied that he was party to inappropriate phone calls and e-mails with 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 securities. Six senior members of the Senate, however, have asked the Justice Department for an independent review.
During his brief appearance before the Senate Special Committee on Aging, Millard said repeatedly: "I have been advised by my counsel that I should invoke my constitutional rights and decline to answer any and all questions from the committee on this matter."
After Millard was excused, the committee addressed the myriad other problems facing the Pension Benefit Guaranty Corp.
The recession is forcing into bankruptcy a rising number of companies with underfunded pension plans, leaving the agency with billions of dollars more to pay out in pension checks to retirees in the future. The agency's deficit tripled in the past six months to a startling $33.5 billion — the highest ever in its 35-year history.
The PBGC says it will be able to meet its obligations for many years to come. Still, it is closely monitoring weak companies with underfunded employer-sponsored pension plans in all sectors of the slumping economy, including auto, retail, financial services and health care. Hundreds of thousands of autoworkers' pensions soon could become the responsibility of PBGC.
Lawmakers are demanding tougher rules to insure strict oversight of the heavily indebted agency and protect its long-term solvency.
"I have thousands of autoworkers in my state who are out of work," Sen. Claire McCaskill, D-Mo., said, looking at acting PBGC director Vince Snowbarger. "When I see them, a lot of them grab me — physically grab me — and look in my eyes and ask `Is my pension OK?'
"The responsibility of this agency is very intense over the next 24 to 48 months. You need to be a rock," she told Snowbarger.
Sen. Herb Kohl, D-Wis., said he would introduce legislation to expand the three-member PBGC board comprised of the secretaries of commerce, treasury and labor. The trio meets infrequently and turns over every time there's a new president.
"The Government Accountability Office has indicated for years that the PBGC board members do not have enough time or resources to provide the necessary policy direction and oversight," Kohl said. "The role of the PBGC is too crucial to allow its governance to slip through the cracks."
Kohl also called for the controversial contracts, awarded under Millard's tenure, to be rebid.
A PBGC inspector general report said Millard's office had hundreds of phone conversations and e-mails with the firms bidding for the work at the same time he was actively evaluating their proposals. It also alleged that Millard sought Wall Street's help in crafting questions for the bid proposal and worked to limit the bidding to firms of a certain size. Moreover, it alleges that Millard sought post-employment assistance from an executive at one of the firms that won the three contracts.
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. Snowbarger said the staff was working with the new board members in the Obama administration to decide whether the contracts should be terminated.
In a statement, Millard's attorney Stanley Brand said, "The draft report was published on a committee Web site and senators were calling for further investigations before the report was even final. The Fifth Amendment protects innocent people against hostile environments. And Congress's recent actions and statements have created a biased and hostile environment toward Mr. Millard."
Charles E.F. Millard is the former Director of the Pension Benefit Guaranty Corporation (PBGC). He was confirmed by the United States Senate on December 14, 2007 and served until January 20, 2009. As Director, Mr. Millard was the chief executive officer of the PBGC. He was previously a member of the New York City Council, representing the Upper East Side of Manhattan as a Republican.
Under Millard's investment policy, the PBGC was to multiply by three the proportion of its holdings devoted to equities, and begin investing in alternative investments, though it is not clear to what extent the policy was implemented. The Congressional Budget Office expressed alarm at the investment strategy change towards "risky securities."
Millard was previously a Managing Director with Lehman Brothers and was a cabinet official in the administration of New York City Mayor Rudolph Giuliani.
The Pension Benefit Guaranty Corporation (or PBGC) is an independent agency of the United States government that was created by the Employee Retirement Income Security Act of 1974 (ERISA) to encourage the continuation and maintenance of voluntary private defined benefit pension plans, provide timely and uninterrupted payment of pension benefits, and keep pension insurance premiums at the lowest level necessary to carry out its operations. Subject to other statutory limitations, the PBGC insurance program pays pension benefits up to the maximum guaranteed benefit set by law to participants who retire at age 65 ($54,000 a year as of 2009). The benefits payable to insured retirees who start their benefits at ages other than 65, or who elect survivor coverage, are adjusted to be equivalent in value.
PBGC is headed by a Director, who reports to a board of directors consisting of the Secretaries of Labor, Commerce and Treasury, with the Secretary of Labor as chairman.
Under the Pension Protection Act of 2006, the Director of the PBGC is appointed by the President and confirmed by the Senate. Under prior law, PBGC's Board Chairman appointed an "Executive Director" who was not subject to confirmation.