Millard Responds to Committee Questions

October 24, 2008 (PLANSPONSOR.com) - In prepared testimony and a series of questions following, the executive director of the nation's private pension plan insurer tried to give lawmakers a sense of the agency's preparedness in view of the recent market turmoil.

Charles E. F. Millard, Director of the Pension Benefit Guaranty Corporation (PBGC) told the House Education and Labor Committee that PBGC's operating results are subject to significant fluctuation from year to year, depending on the severity of losses from plan terminations, changes in the interest factors used to discount future benefit payments, investment performance, general economic conditions, and other factors, including changes in law.   As a result, he noted that PBGC has been in a deficit position for most of its existence.   The Education and Labor Committee has been conducting hearings to ascertain the impact of the recent financial crisis on the nation's retirement security (see  House Committee Takes Retirement Investigation on the Road ).

Millard noted that at the end of fiscal year 2007, PBGC had assets of $68.4 billion to cover liabilities of $82.5 billion, resulting in an accumulated deficit of $14.1 billion.   He noted that the audited financial results for 2008 were not yet available, but that he anticipated that they would be available by the annual November 15 deadline.   "While we expect that the deficit will be somewhat lower for fiscal year 2008, we believe that the deficit still remains in double digits - somewhere in the range of $10 to $12 billion," he said.  

Congressman Miller referenced criticisms raised by the Government Accountability Office regarding the PBGC's new asset allocation strategy, as well as its concern that the softening economy could trigger a fresh wave of troubled pensions to be dumped at the doorstep of the nation's private pension insurer (see  GAO: PBGC Investment Policy May be Riskier than First Thought ).   Millard noted that as of September 30, 2007, the value of equity securities in the PBGC's portfolio was approximately 28% of total assets, compared to 23% at the end of FY 2006.   He also noted that, while the new investment policy statement and asset allocation had been approved (see  PBGC Makes Big Shift to Stocks, Alternatives ), that only "very small changes" have been made so far.   He reiterated that the kind of changes contemplated, the asset classes involved, and the sheer size of the portfolio would require, in some cases, years to fully implement (see  PBGC Puts Out Call for Asset Management Partners ).   The PBGC recently announced the development of a new standard that it had developed for managing portfolio transitions - and that it saw as a model for other programs (see  A New Track For Transitions ).

In prepared testimony, Millard had outlined the particulars of the new investment policy (see  Millard Defends PBGC Investment Policy Change ).