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.
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).
Rebecca
Moore
editors@plansponsor.com