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
).