The matter came to light today when Congressman George Miller (D-California), chairman of the House Education and Labor Committee, announced that the committee was “â€¦opening an investigation of potential improprieties by the former director of the federal Pension Benefit Guaranty Corporation, Charles E. F. Millard, based on a draft report of the PBGC’s Inspector General.”
According to the announcement , the committee obtained a draft PBGC Inspector General report that alleges Millard may have had knowingly inappropriate contacts with Wall Street firms, some of which were awarded contracts to advise PBGC as it reallocated a portion of PBGC’s multi-billion dollar investment portfolio.
“The House Education and Labor Committee is looking into very serious questions raised by the PBGC Inspector General that the former head of the PBGC had inappropriate contacts with Wall Street contractors. Our committee takes these issues seriously and we plan to review this matter thoroughly,” said Miller in the committee announcement.
The report cites 25 phone calls between the former director’s phones and Goldman Sachs, Blackrock and JPMorgan, three firms awarded multimillion contracts to invest up to $2.5 billion in PBGC assets. The report does not allege any inappropriate activity by the three firms or any of the other dozen or so bidders.
Responding to a draft of the audit report, Millard said that he both “sought advice from agency counsel and from the Chief Procurement Officer at PBGC before becoming involved in the selection process”, that he ” never discussed matters pertaining to the RFP with any participant during the pendency of the RFP”, and that he “acted in what I believed to be the best interests of PBGC to implement desperately needed reforms of PBGC investment policy.”
The PBGC had solicited bids for these contracts to implement the new investment policy that the former PBGC board approved in February 2008 (see PBGC Makes Big Shift to Stocks, Alternatives ) – a policy change that would have dramatically increase PBGC’s exposure to the stock market – and a policy change of which Congressman Miller, among others, has previously been critical (see Millard Defends PBGC Investment Policy Change ).
That new allocation called for 45% of the PBGC’s portfolio to be invested in fixed-income, 45% to equities, and the rest to alternative investment classes, such as private equity. Contrast that with the agency’s previous policy, which set an equity investment target of just 15-25% (see A Controverisal Proposal ).
That new policy had not been put into place when the markets hit the skids last fall. As it turns out, that methodical shift served to help the PBGC avoid the worst of recent market turmoilÂ—but it also has provided time to draw the scrutiny of the Government Accountability Office (see PBGC Head Fires Back on GAO Investment Policy Criticisms ), as well as some in Congress (see Millard Defends PBGC Investment Policy Change ).
In his response to the Audit report draft, Millard acknowledges that these changes were not without their challengers within PBGC. "They did not like the idea of new advisers being brought in," Millard notes. "For years the senior finance staff had a close relationship with PBGC's consultant, and I often had difficulty obtaining the information I felt a responsibilty to have," he said in the response. "I believe many of the complaints about Strategic Partnerships were the result of the sfaff being threatened. However, I knew that we needed more resources and felt my responsibility was not to please the staff but to make the right decisions for the good of the PBGC."
The asset allocation change was just one of several significant initiatives undertaken during Millard's relatively short tenure at PBGC. In 2008, the agency laid out an innovative best-practices approach on transition management, since termed "the PBGC Standard." put together with the assistance of some of the nation's leading providers and consultantsÂ—and published for any plan sponsor to employ in their own plans (see " A New Track for Transitions," PLANSPONSOR, September 2008 ). Last December, the PBGC announced that it was undertaking a review of its securities lending program and practices, issuing a request for information from securities lending providers as it did with transition management (see PBGC Taking a Fresh Look at Securities Lending ).
To read the draft PBGC Inspector General report - as well as Mr. Millard's response - click here .
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