Administration May 29, 2009

Solis Asks PBGC to Halt New Investment Strategy

May 29, 2009 (PLANSPONSOR.com) - Secretary of Labor Hilda Solis, chairwoman of the Pension Benefit Guaranty Corporation (PBGC), has urged its board to suspend a controversial investment strategy shifting assets of the $64 billion fund out of bonds and into stocks and alternatives, according to documents obtained by the Boston Globe.
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Solis recommended in a May 21 proposed resolution that the agency suspend the new strategy in its entirety, including the shift to stocks, the Globe said. In light of ongoing investigations, Solis wrote, the pension agency “shall cease all further activity to implement” the investment strategy that the Bush-era board had approved, according to the news report.

Commerce Secretary Gary Locke has signed off on the resolution and Treasury Secretary Timothy Geithner is expected to. They are the other two PBGC Board members.

In February 2008, at the urging of former director Charles E. F. Millard, the agency’s board unanimously approved a plan to put 55% of its portfolio in stocks, private equity, and real estate, up from 15% to 25% in stocks (see PBGC Makes Big Shift to Stocks, Alternatives ). Millard argued that the change would pay off over the long term and possibly avoid the need for a taxpayer bailout. The gradual move started late last year, according to the Globe.

However, the agency’s inspector general has opened an investigation into whether Millard acted inappropriately in awarding contracts to Wall Street firms that would implement part of the new investment strategy (see Former PBGC Head Draws Scrutiny). Since then acting PBGC director Vince Snowbarger has recommended three controversial contracts with Wall Street firms be dropped (see Acting PBGC Head Recommends Dumping Money Mgmt. Contracts).

Solis wrote that the suspension of the policy should remain in effect while the matter is under investigation, and it is widely expected to remain frozen until a new director takes over and makes a new assessment, the Globe said.

Of the $33 billion deficit reported by the PBGC in a hearing of the Senate Special Committee on Aging last week (see PBGC Funding Gap Ballooning as Plan Terminations Increase ), about $3 billion was due to investment losses during the stock market downturn in the past six months. During the Senate committee hearing, Millard refused to answer questions from committee chairman Herb Kohl (D-Wisconsin), invoking his fifth amendment right against self-incrimination (see Millard Invokes Fifth Amendment Rights at Senate Hearing ).

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