Millard Defends PBGC Investment Policy Change

October 24, 2008 (PLANSPONSOR.com) - The head of the nation's private-sector pension insurer appeared before a U.S. House committee in Washington on Friday to respond to continuing controversy over whether the agency's new investment policy/asset allocation is too risky during a time of market turmoil.

Charles E.F. Millard, Director of the Pension Benefit Guaranty Corporation (PBGC), explained in testimony before the House Committee on Education and Labor and Chairman, George Miller (D-California), that the PBGC's newly announced investment policy change (See  PBGC Makes Big Shift to Stocks, Alternatives ) is expected to dramatically increase its chance of closing its deficit, which Millard said is expected to be in the $10 billion to $12 billion range at the end of FY 2008.

Charles E.F. Millard

Millard testified that the prior policy meant approximately a 19% chance of pulling even on the agency's budget in a decade, while the new approach would give the PBGC approximately a 57% chance of achieving that goal.

That investment policy, Millard said, "Is designed to take advantage of PBGC's long-term investment horizon" and will allocate 45% percent of its assets to equity investments, 45% to fixed income, and 10% to alternative investments, such as private equity. Millard asserted: "This long-term, more diversified strategy aims at generating better returns that provide a greater likelihood that the corporation can meet its long-term obligations."

He insisted the changes the PBGC was making were all intended to help the agency live up to its mandate to protect the private-sector pensions of workers and retirees.

"Companies that sponsor pension plans have a responsibility to live up to the promises they have made to their workers and retirees," Millard contended. "But when a company cannot keep its promises, workers and retirees need a strong insurance program as a safety net. We are building on the 2006 reforms and making internal improvements to strengthen the safety net."

Millard has faced doubters about whether the policy change is prudent (See  GAO: PBGC Investment Policy May be Riskier than First Thought ). The GAO also questioned whether the board sufficiently monitored the implementation of investment changes and suggested a variety of changes in the PBGC.

Also, faced with questions about how badly the agency has fared in the recent market downturn, Millard said Friday the agency did not yet have audited budget figures for FY 2008, but that officials expect the total return on investments to be -6% to -7% for the period. That compares with 7.2% in 2007, generating $4.76 billion in investment income, and $4.2 percent in 2006.