Secretary of Labor Elaine Chao has been in that role since 2001. She is not only the only remaining member of the original Bush cabinet, she is the longest-serving Secretary of Labor since World War II. Assistant Secretary of Labor Brad Campbell was not confirmed until August 2007 (see White House Taps Bradford Campbell for EBSA Post ), but he took over from Ann Combs, who held the post from early in 2001 until late 2006 (see PLANSPONSOR Legends Awards: Ann L. Combs ).
However, during one of the more tumultuous periods in its 34-year history, the Pension Benefit Guaranty Corporation, or PBGC, which insures the nation’s private-sector pensions, has been guided by no fewer than three executive directors, and two interim directors (more accurately, one interim director twice) since 2001 (see Chao Names Kandarian Head of PBGC , Ex-Kansas Congressman Named as Acting PBGC Chief , Belt Named to Head PBGC , Snowbarger Retakes PBGC Top Spot , White House to Nominate New PBGC Director ) (1) .
That has not kept the PBGC from undertaking a number of significant initiatives over the past eight years, as it transformed itself from a manager of liabilities imposed on it by events outside its control and adopted a more proactive, if not preemptive, involvement. However, the initiatives undertaken in recent months may turn out to be the most momentous of all.
Among the new provisos of the Pension Protection Act of 2006—widely deemed the most significant piece of pension legislation since ERISA, which gave birth to the PBGC, and one indicative of the concerns attendant with the financial viability of the nation’s private-pension insurer—was a requirement that the position of executive director of the Pension Benefit Guaranty Corporation (PBGC) be vetted by the U. S. Senate. Enter Charles E. F. Millard, nominated by President Bush in May 2007, and confirmed for the position in December of that year (see Millard Confirmed as PBGC Director ).
While the PBGC had, in recent years, adopted a more assertive policy in intervening to preserve corporate pensions at troubled firms (see PBGC to Airlines: Pension Contributions Still Required , Pilots’ Union “Deplores” PBGC Action ), under Millard’s leadership, the agency has moved further and faster than at any time in recent memory. The PBGC has gotten involved as an active participant in bankruptcy discussions (see PBGC Threatens $900M Delphi Court Pension Demand ), and has even gone so far as to actively work with companies to help them take back their pension obligations when they are financially ready to do so (see PBGC Applauds Dana Corp’s Bankruptcy End , PBGC Commends Towers Automotive for Keeping Pension Obligations ). Just this month, the PBGC notified the U.S. Bankruptcy Court for the Southern District of New York that it would represent the government if a corporate plan were to fail as a result of losses linked to the alleged $50 billion Ponzi scheme of investment manager Bernie Madoff (see PBGC Stakes Out Place in Madoff Proceedings ).
1 In fairness, at all of these agencies, the true continuity comes from the thousands of dedicated public servants who serve there regardless of the party in power in Washington—as their leaders would surely all agree.
Millard has pressed for a better, dollar-focused 4010 disclosure of pension problems that might present big liabilities for PBGC, rather than the PPA-mandated change in that reporting that emphasized percentages. However, Millard is all too aware that there is a macroeconomic exposure for PBGC, last year reminding a Congressional committee that historical trends suggest that troubled industries bear watching as much as individual firms (see Millard Responds to Committee Questions ).
And though the vast preponderance, nearly 75%, in fact, of the PBGC's current liabilities have come from just two industries—steel and airlines—Millard has in recent months talked about—and with—companies in other areas. Most notable among those areas: the health-care sector, which includes entities such as small hospitals that have thin operating margins and are not-for-profit entities. Millard said that the PBGC is proactively working with firms in that industry to help them avoid a funding problem with their pensions ( Millard Responds to Committee Questions ).
PBGC also has taken a fresh look at how it manages its $63 billion portfolio. 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 consultants—and published for any plan sponsor to employ in their own plans (see " A New Track for Transitions," PLANSPONSOR, September 2008 ). In 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 ).
However, perhaps the most controversial initiative to date was the announcement of a new investment policy direction for the agency (see PBGC Makes Big Shift to Stocks, Alternatives ). Since unveiling the new policy a year ago this month, the PBGC has moved cautiously in implementing the new allocations. It is a caution befitting both the size of the portfolio and the complexity of making those adjustments, as well as one that appreciates the market impact movements of those size might trigger. It is also why the PBGC, which had 15 people to keep up with some $50 billion in investable assets according to Millard, in August issued a request for proposal (RFP) looking for "strategic partners" to help the agency carry out its new policy - as well as "â€¦asset management, consolidated performance reporting, risk mitigation, staff training and other resources that bidders may propose" (see PBGC Puts Out Call for Asset Management Partners). As it turns out, the methodical shift has served to help the PBGC avoid the worst of recent market turmoil—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 ).
Having said that, the new policy is hardly outside the mainstream of most pension plan allocations; 45% will be invested in fixed-income, 45% to equities, and the rest to alternative investment classes, such as private equity, where the PBGC has not had an active allocation in more than 20 years, according to Millard. Contrast that with the agency's previous policy, which set an equity investment target of just 15-25%. Millard explains that, while the prior investment policy of the PBGC meant having only a 19% chance of pulling even on the agency's budget in a decade, the new approach stands to give the PBGC approximately a 57% chance of achieving that goal. With a patience that belies the number of times he has been asked to explain the shift, he notes that "frequently the focus in government is the next five years, the next year, or sometimes the next press release." But, he notes, "Pension liabilities last over many decades; you have to see past the noise and clutter."
And there has been plenty of that for the agency: In its recent annual report, the PBGC said that its single-employer program operated at a funding deficit from its inception until 1996, before experiencing a growing surplus that reached a historic high of $9.7 billion in 2000, before falling to a record deficit of $23.3 billion in 2004. Still, by the end of fiscal 2007, the deficit was down to $13.1 billion (see PBGC Databook Offers Insights on Termination ).
Even as Millard prepares to leave office, the PBGC has launched another new initiative, this one focused on the impact of longevity of beneficiaries on the agency's liabilities and how it manages to meet them going forward. "It is strange: Nobody considers longevity to be a problem, and if it is, then it is one that, personally, everyone hopes to suffer from. But while it is a social good, it is clearly a risk that all pension plans and insurers must address," he says.
The longevity project is, in Millard's words, " designed to get as many people as possible in the same room so that a more robust suite of solutions will come into the marketplace." And make no mistake—Millard is a market champion who believes "capital markets can help here because there is probably not enough capacity in the insurance industry at present." Millard says that the PBGC is, in fact, considering a pilot project in the area.
"The PBGC wants plan sponsors to succeed, not just because we do not want the liabilities—obviously, the individuals here are not harmed by taking those liabilities in—but because the people here believe in the mission of the organization," Millard says.
"Protecting against moral hazard is what we do," Millard explains. "We have never missed a payment and, despite our long-term deficit, we are unlikely to do so. But we have to hold the line and argue that, if a plan sponsor makes a promise, then the plan sponsor must keep the promise. That is to the benefit of the entire pension and pension-insurance system."
As the PBGC girds itself for the challenges ahead with new initiatives in place and under way, Millard acknowledges that it has been "humbling and exciting to serve with the team at PBGC." He is reluctant to predict what his next challenge will be, though asset management, insurance, or pension-related services could well be on the horizon.
Next up for Millard, a father of nine, "is a little more time with my wife and kids. And with my size family, that that will take a while!"
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