PBGC Head Fires Back on GAO Investment Policy Criticisms

August 18, 2008 (PLANSPONSOR.com) - The nation's private-sector pension insurer on Monday defended itself against questions raised in a new Congressional oversight report about the Pension Benefit Guaranty Corporation's (PBGC) new investment policy.

The Government Accountability Office (GAO) report, “Implementation of New Investment Policy Will Need Stronger Board Oversight,” raised questions about whether the PBGC board has been sufficiently involved in approving investment policy changes in concept – including the one the board okayed in February 2008 (See  PBGC Makes Big Shift to Stocks, Alternatives ).

Charles E.F. Millard

The GAO also questioned whether the board sufficiently monitored the implementation of investment changes and suggested a variety of changes in PBGC governance (see  GAO: PBGC Investment Policy May be Riskier than First Thought ).

“The Board of Directors provides consistent and robust oversight of PBGC’s investments,” said Charles E.F. Millard, Director of the PBGC, in the pension agency’s Monday statement. “The current Board and its representatives have been deeply involved in the crafting of our new investment policy, and will continue to oversee its implementation.”  

Responding to GAO concerns the latest PBGC policy may be overly risky, Millard offered “Other than some process-related criticisms, the GAO study confirms that the Board was correct to adopt the new diversified policy.   Under all scenarios tested by the GAO, the new policy’s level of risk-standard deviation–is consistent with the best practices of other large institutional investors.  

“We agree with GAO’s emphasis on the importance of continued measurement and mitigation of risk,” Millard continued in the statement. “That is why we have performed additional sensitivity analyses, and will do so going forward. This policy’s use of risk is prudent by any standard.   Members of Congress have called for more diversification of PBGC’s investments, and this policy is far more diversified than the previous policy.   Most important, it addresses the greatest risk of all:   The risk that the Corporation could someday fail in its commitment to the 1.3 million Americans who depend on it for retirement income.”

The GAO report is available  here .