The PBGCs new investment policy likely will carry more risk than previously acknowledged by the agency, according to a report slated to be released Aug. 18 by the Government Accountability Office. The report also calls for increased monitoring of investments by the PBGC board of directors.
The new policy significantly raised the PBGCs allocations to equities and alternative investments in an effort to eliminate its $14 billion deficit.
More investment risk translates into additional risk for taxpayers, and if the additional risk isnt mitigated through adequate diversification, it could be disastrous, Sen. Chuck Grassley, R-Iowa, said in a release. Mr. Grassley and Sen. Max Baucus, D-Mont., requested the GAO report.
PBGC Director Charles E.F. Millard defended the new policy. In a statement to Pensions & Investments, he wrote: Under all eight scenarios that GAO analyzed, the new asset allocation outperforms the old, with increased returns of $19 billion to $42 billion over 30 years. This makes it more likely the PBGC will be able to meet its future obligations, unlike the previous policy which virtually assured the need for a taxpayer bailout.
Mr. Millard also said that PBGC calculations show that the risk of the new policy is less than that of the old policy and within the level considered mainstream for large institutional investors.