May 20, 2009 > House committee investigating former PBGC director
House committee investigating former PBGC director
By Deb Riechmann, Associated Press Writer
WASHINGTON (AP), May 14 _ The former director of the Pension Benefit Guaranty Corp. had inappropriate contacts with Wall Street firms chosen to give investment advice to the agency, which insures the retirement benefits of 44 million Americans, according to a government watchdog report released Thursday.
A draft report by the PBGC inspector general raises questions about phone calls and e-mails between Charles E.F. Millard and Wall Street firms, including three that were awarded contracts to invest agency assets as it moved forward on a new, aggressive investment strategy, which increases the PBGC's exposure in the stock market.
``Phone records and e-mails show that the former director was communicating directly with some bidders at the same time that he was actively evaluating their ... proposals _ a clear violation of the prohibition of contact with potential offerors,'' the draft report said.
Millard denied the allegations, saying that his actions were legal and ethical.
``I always acted in the best interests of the agency,'' he wrote in a six-page letter to the inspector general. ``I exercised my authority and judgment in ways that were sometimes counter to staff's wishes and I took on additional work personally because I saw the need to change certain practices and to provide greater resources to an agency facing tremendous looming challenges with a limited staff.''
Historically, the PBGC has had a conservative investment strategy. However, in February 2008, during Millard's tenure, the PBGC's three-member board approved a new approach to invest a portion of a $48.4 billion investment portfolio more aggressively in stocks and alternative investments, the report said. The new strategy involves transferring up billions of dollars from fixed-income treasury securities to marketable equities, real estate and private equity.
At the end of its last fiscal year, the PBGC had about $11 billion less than it needed to meet $74 billion in obligations to pensioners down the road. The board _ comprising the secretaries of treasury, commerce and labor _ was convinced that more aggressive investments would help close the gap and prevent the need for a future taxpayer bailout. To help implement the new policy, the PBGC solicited the services of investment firms on Wall Street.
Vince Snowbarger, acting director of the PBGC, said the agency takes the inspector general's report ``very seriously.'' The board has accepted the recommendation that future directors refrain from involvement in procurement, Snowbarger continued, and management is working to implement the recommendation.
Although Goldman Sachs, Blackrock and JPMorgan were awarded multimillion contracts to invest up to $2.5 billion of PBGC assets, ``No PBGC assets have been transferred to our strategic partners for investment in private equity and real estate,'' Snowbarger said.
``We will work with our board to decide whether these contracts should be terminated and whether strategic partnerships fit into the board's investment approach going forward.''
The inspector general report noted 25 phone calls between the former director's phones and the three firms. The report does not allege any inappropriate activity by the firms or any of the other dozen or so that sought the work.
Millard said he did not discuss the requests for proposals for investment services with anyone outside the PBGC. He said numerous calls made from his office likely were placed by his assistants, who were working to schedule long presentations by the bidders at the PBGC offices in Washington and at the bidders' offices in New York.
``I have asked the IOG's office to compare these phone calls to my calendar to determine whether I was even in the building when these calls were placed,'' Millard wrote in his letter.
In response to the draft inspector general report, the House Education and Labor Committee has opened an investigation.
The Senate Special Committee on Aging has scheduled a hearing on Wednesday to evaluate whether the PBGC is capable of insuring future retirement benefits of millions of workers and retirees covered by employee-sponsored pension plans. Millard has been subpoenaed to appear at the hearing.
In addition, Democratic Sens. Edward Kennedy of Massachusetts and Max Baucus of Montana and Republican Sens. Charles Grassley of Iowa and Michael Enzi of Wyoming wrote a letter Thursday asking the inspector general to further investigate correspondence that suggests Millard sought help getting a job in the weeks after the contracts were awarded to the three Wall Street firms.
Millard, who was appointed by former President George W. Bush and stepped down when President Barack Obama took office, called those allegations ``ridiculous.''
``I already had numerous contacts at such firms and had worked in senior roles at two of them in the past,'' he wrote in his April 28 letter. ``I also fully understood that, under the ethics rules, I would not be able to work at any of the firms that we selected.''
Congress created the PBGC in 1974 to guarantee the retirement security of workers covered by more than 29,000 employer-sponsored defined benefit pension plans. It does not insure 401(k) plans. When a plan is terminated, the PGBC takes over and pays benefits to the retired workers, although they might not get the full amount that their employer promised. The PBGC receives no tax dollars. It operates on premiums the companies pay the agency to insure the retirement benefits of their employees and by money the PBGC makes on its investments.