Tweet
Pension Benefit Guaranty’s Deficit Triples to $33.5 Billion
By Holly Rosenkrantz
May 19 (Bloomberg) -- Pension Benefit Guaranty Corp.’s deficit tripled to $33.5 billion in the past six months as more companies canceled retirement plans amid the U.S. recession, according to the head of the government-owned corporation.
About $11 billion is for “completed and probable terminations,” and $7 billion is from an increase in interest rates that boosted liabilities, Vince Snowbarger, the acting PBGC director, said in written testimony to be delivered tomorrow to the Senate Special Committee on Aging.
The PBGC, set up to protect the employee pensions of bankrupt companies, will tell Congress that its financial condition may worsen amid the likelihood for more pension plan failures. In the first half of the fiscal year that began in October, the PBGC took on almost four times the number of participants as it did in all of 2008.
The potential for General Motors Corp. and Chrysler LLC to end their plans has left the PBGC facing the prospect of adding 900,000 current and future beneficiaries. The PBGC, which pays retirement income to almost 44 million Americans, estimates that $77 billion of the automotive industry’s pensions are underfunded, with about $42 billion of that not funded at all.
Automotive industry workers are at substantial risk of losing money if companies terminate their plans, according to Snowbarger’s prepared comments. There are still sufficient PBGC funds to meet benefit obligations for many years because benefits are paid monthly, spread over the lifetimes of participants and beneficiaries, he wrote.
Board Oversight
The PBGC also faces increased exposure from companies in other sectors of the economy, including retail, financial services and health care, Snowbarger wrote.
Snowbarger is testifying tomorrow alongside Government Accountability Office Associate Director Barbara Bovbjerg, who plans to tell the committee that the PBGC’s board is failing to provide adequate oversight and direction.
The three-member board includes Treasury Secretary Timothy Geithner, Commerce Secretary Gary Locke and Labor Secretary Hilda Solis. The three have yet to meet since joining the board this year. The previous board last met in February 2008, Bovbjerg said in written testimony.
“These board members have numerous other responsibilities, and are unable to dedicate consistent and comprehensive attention to the PBGC,” Bovbjerg said.
Representatives of the board members did meet as recently as November and there have been telephone calls and other contacts with PBGC senior management, Jeffrey Speicher, a PBGC spokesman, said.
GM, Chrysler
The GAO said the board still falls short in overseeing the PBGC’s performance, investment decisions and hiring, roles that have become critical as the agency may have its largest pension takeover since being created by Congress in 1974. The potential for General Motors and Chrysler to end their pension plans could “dramatically increase” the deficit at the PBGC, the GAO said.
Auburn Hills, Michigan-based Chrysler, which filed for bankruptcy protection on April 30, is seeking court approval of a settlement among the company, the PBGC, Cerberus Capital Management LP and Daimler AG to partly fund the plans and avoid such a termination, Chrysler lawyers said in a filing today in U.S. Bankruptcy Court in New York.
Detroit-based GM is facing a U.S.-imposed June 1 deadline to reduce its costs and debt obligations or face bankruptcy.
The PBGC’s board approved in February 2008 a new investment strategy to shift more money from safer Treasury securities to stocks, real-estate and private-equity with the potential for greater returns. The change was pushed by former Director Charles E.F. Millard, who is now under congressional investigation for his ties to Wall Street.
Millard Investigation
Millard was subpoenaed by the Senate Special Committee on Aging to answer questions related to a draft report by the PBGC inspector general alleges that Millard had inappropriate communications with eight of 16 Wall Street firms that bid last year to manage $2.5 billion of the agency’s $48 billion investment portfolio. A lawyer for Millard, Stanley Brand, said his client acted in a “transparent and ethical manner.”
Millard never fully implemented the less conservative investment strategy before he left the agency in January, the PBGC has said. About 30 percent of the agency’s $48 billion investment portfolio is in equities, 69 percent in fixed-income, and less than 2 percent in alternative assets.
“Millard’s actions were questionable and should be investigated further, but our main concern is that they are symptomatic of a much bigger problem,” Senator Herb Kohl, a Wisconsin Democrat and chairman of the Special Committee on Aging, said in a statement. “PBGC oversight structure is obviously inadequate if one person’s authority goes unchecked. At a time when we need PBGC more than ever, we have got to take concrete steps to strengthen the agency.”
------------------------
Not good.........I"m guessing this is a harbinger of far worse to come for private pensions.......which doesn't even include the local/state worker pension charade.
By Holly Rosenkrantz
May 19 (Bloomberg) -- Pension Benefit Guaranty Corp.’s deficit tripled to $33.5 billion in the past six months as more companies canceled retirement plans amid the U.S. recession, according to the head of the government-owned corporation.
About $11 billion is for “completed and probable terminations,” and $7 billion is from an increase in interest rates that boosted liabilities, Vince Snowbarger, the acting PBGC director, said in written testimony to be delivered tomorrow to the Senate Special Committee on Aging.
The PBGC, set up to protect the employee pensions of bankrupt companies, will tell Congress that its financial condition may worsen amid the likelihood for more pension plan failures. In the first half of the fiscal year that began in October, the PBGC took on almost four times the number of participants as it did in all of 2008.
The potential for General Motors Corp. and Chrysler LLC to end their plans has left the PBGC facing the prospect of adding 900,000 current and future beneficiaries. The PBGC, which pays retirement income to almost 44 million Americans, estimates that $77 billion of the automotive industry’s pensions are underfunded, with about $42 billion of that not funded at all.
Automotive industry workers are at substantial risk of losing money if companies terminate their plans, according to Snowbarger’s prepared comments. There are still sufficient PBGC funds to meet benefit obligations for many years because benefits are paid monthly, spread over the lifetimes of participants and beneficiaries, he wrote.
Board Oversight
The PBGC also faces increased exposure from companies in other sectors of the economy, including retail, financial services and health care, Snowbarger wrote.
Snowbarger is testifying tomorrow alongside Government Accountability Office Associate Director Barbara Bovbjerg, who plans to tell the committee that the PBGC’s board is failing to provide adequate oversight and direction.
The three-member board includes Treasury Secretary Timothy Geithner, Commerce Secretary Gary Locke and Labor Secretary Hilda Solis. The three have yet to meet since joining the board this year. The previous board last met in February 2008, Bovbjerg said in written testimony.
“These board members have numerous other responsibilities, and are unable to dedicate consistent and comprehensive attention to the PBGC,” Bovbjerg said.
Representatives of the board members did meet as recently as November and there have been telephone calls and other contacts with PBGC senior management, Jeffrey Speicher, a PBGC spokesman, said.
GM, Chrysler
The GAO said the board still falls short in overseeing the PBGC’s performance, investment decisions and hiring, roles that have become critical as the agency may have its largest pension takeover since being created by Congress in 1974. The potential for General Motors and Chrysler to end their pension plans could “dramatically increase” the deficit at the PBGC, the GAO said.
Auburn Hills, Michigan-based Chrysler, which filed for bankruptcy protection on April 30, is seeking court approval of a settlement among the company, the PBGC, Cerberus Capital Management LP and Daimler AG to partly fund the plans and avoid such a termination, Chrysler lawyers said in a filing today in U.S. Bankruptcy Court in New York.
Detroit-based GM is facing a U.S.-imposed June 1 deadline to reduce its costs and debt obligations or face bankruptcy.
The PBGC’s board approved in February 2008 a new investment strategy to shift more money from safer Treasury securities to stocks, real-estate and private-equity with the potential for greater returns. The change was pushed by former Director Charles E.F. Millard, who is now under congressional investigation for his ties to Wall Street.
Millard Investigation
Millard was subpoenaed by the Senate Special Committee on Aging to answer questions related to a draft report by the PBGC inspector general alleges that Millard had inappropriate communications with eight of 16 Wall Street firms that bid last year to manage $2.5 billion of the agency’s $48 billion investment portfolio. A lawyer for Millard, Stanley Brand, said his client acted in a “transparent and ethical manner.”
Millard never fully implemented the less conservative investment strategy before he left the agency in January, the PBGC has said. About 30 percent of the agency’s $48 billion investment portfolio is in equities, 69 percent in fixed-income, and less than 2 percent in alternative assets.
“Millard’s actions were questionable and should be investigated further, but our main concern is that they are symptomatic of a much bigger problem,” Senator Herb Kohl, a Wisconsin Democrat and chairman of the Special Committee on Aging, said in a statement. “PBGC oversight structure is obviously inadequate if one person’s authority goes unchecked. At a time when we need PBGC more than ever, we have got to take concrete steps to strengthen the agency.”
------------------------
Not good.........I"m guessing this is a harbinger of far worse to come for private pensions.......which doesn't even include the local/state worker pension charade.
Comment