PBGC Reallocates Portfolio with Greater Fixed Income Position

January 29, 2004 (PLANSPONSOR.com) - The nation's private pension insurer announced Thursday that it was re-jiggling its investment portfolio to a greater fixed-income position to better manage its risk.

The Pension Benefit Guaranty Corp. (PBGC) said its liabilities from rescued pension plans increase as interest rates go down, Reuters reported. So, the agency wanted to increase its investment in securities that gain in value as rates fall.

Over the next two years, the portion of its total assets invested in equities under the new policy would decline to between 15% and 25% from 37% on September 30, 2003, out of total investments of $34.5 billion.

The PBGC said it would continue to benefit when equity markets rise because pension plans insured by the agency remain heavily invested in equities. But when equity markets fall the agency’s financial condition would not deteriorate as badly as the assets in insure pension plans, the agency said in its announcement.

“The PBGC’s new policy will reduce balance sheet volatility arising from a mismatch between assets and liabilities,” said outgoing executive director Steven Kandarian in a statement.

The PBGC saw its fiscal 2003 deficit in its single-employer program grow to $11.2 billion from $3.6 billion a year earlier (See    PBGC FY 2003 Deficit Triples to $11.2B ). A record number of pension plan terminations combined with low interest rates is blamed for the slide in PBGC’s financial health.

The US Senate on Wednesday passed $80 billion in pension funding relief for companies over the next two years by allowing them to assume a higher return on pension assets than allowed under current law (See    Details Emerge on DRC Provision of Senate Bill ).

The agency, which steps in to assume pension liabilities from a bankrupt or ailing company, is funded by insurance premiums from covered companies and investment income. The  PBGC stands behind the pensions of about 44 million Americans.