Liability-driven investing hurts pension returns
Unfortunately your Nov. 26, Page 1 article describing how the PBGC missed out earning an extra $4 billion in assets the past three years wasnt a surprise to many of us, including myself, who made this prediction to PBGC and Treasury officials while the 2006 Pension Protection Act was under consideration. I personally made several trips to Washington in 2005 while I was president and CEO of General Electrics pension plan to argue to the deaf ears of Brad Belt (then PBGC executive director) and others that the unintended consequences of the act would: (1) substantially reduce future DB pension returns; (2) cause many companies to terminate their DB plans; and (3) ultimately shift more of the countrys future retirement obligations to the taxpayer. The first two of these predictions are already occurring.
Readers of your newspaper have seen the spectacular returns of the unregulated long-term-oriented investment policies of endowments like Yale and Harvard and the strong returns the past few years of DB funds like GE that maintained their equity- and alternatives-biased asset allocation. Both of these strategies have generated significantly higher returns than the liability-driven investment policy advocated by the academics and actuaries responsible for writing the 2006 act. Its not too late to admit a mistake and repeal the act before further unintended consequences materialize.
JOHN H. MYERS
EDITORS NOTE: Mr. Myers retired in 2006 as president and CEO of GE Asset Management Inc.
Biased report on PBGC
The Nov. 26, page 1 article, The $4 billion trade-off, purports to be news, but it is highly editorial in nature.
The following paragraph is extraordinarily one-sided:
The irony is that many corporate pension executives now are considering adopting similar long-duration bond portfolios to reduce volatility in their funding levels. The PBGCs example points to the potential opportunity costs of adopting such an approach.
It assumes pension business as usual, which means that it ignores all that we have learned this century about risk management and shareholder value.
Jeremy Gold Pensions