Solis Asks PBGC to Halt New Investment
Strategy
May 29, 2009 (PLANSPONSOR.com) - Secretary of Labor
Hilda Solis, chairwoman of the Pension Benefit Guaranty
Corporation (PBGC), has urged its board to suspend a
controversial investment strategy shifting assets of the $64
billion fund out of bonds and into stocks and alternatives,
according to documents obtained by the Boston
Globe.
Solis recommended in a May 21 proposed resolution
that the agency suspend the new strategy in its entirety,
including the shift to stocks, the Globe said. In light
of ongoing investigations, Solis wrote, the pension
agency "shall cease all further activity to implement"
the investment strategy that the Bush-era board had
approved, according to the news report.
Commerce Secretary Gary Locke has signed off on the
resolution and Treasury Secretary Timothy Geithner is
expected to. They are the other two PBGC Board
members.
In February 2008, at the urging of former director
Charles E. F. Millard, the agency's board unanimously
approved a plan to put 55% of its portfolio in stocks,
private equity, and real estate, up from 15% to 25% in
stocks (see
PBGC Makes Big Shift to Stocks,
Alternatives
). Millard argued that the change would pay off over the
long term and possibly avoid the need for a taxpayer
bailout. The gradual move started late last year,
according to the Globe.
However, the agency's inspector general has opened an
investigation into whether Millard acted inappropriately in
awarding contracts to Wall Street firms that would
implement part of the new investment strategy (see
Former PBGC Head Draws Scrutiny
). Since then acting PBGC director
Vince Snowbarger has recommended three controversial
contracts with Wall Street firms be dropped (see
Acting PBGC Head Recommends Dumping Money
Mgmt. Contracts).
Solis wrote that the suspension of the policy
should remain in effect while the matter is under
investigation, and it is widely expected to remain frozen
until a new director takes over and makes a new
assessment, the Globe said.
Of the $33 billion deficit reported by the PBGC in
a hearing of the Senate Special Committee on Aging last
week (see
PBGC Funding Gap Ballooning as Plan
Terminations Increase
), about $3 billion was due to investment losses during
the stock market downturn in the past six months. During
the Senate committee hearing, Millard refused to answer
questions from committee chairman Herb Kohl
(D-Wisconsin), invoking his fifth amendment right against
self-incrimination (see
Millard Invokes Fifth Amendment Rights
at Senate Hearing
).
Rebecca Moore
editors@plansponsor.com