Sen. Herb Kohl, D-Wis., is planning to introduce legislation later this month that would bar future directors of the Pension Benefit Guaranty Corp. from getting involved in the agency's hiring of money managers.
The legislation, which also would beef up the PBGC's board oversight, could gain some traction, because it follows allegations that Charles E.F. Millard, the agency"s former director, was inappropriately involved with the hiring of strategic partners to manage $2.5 billion of real estate and private equity investments.
”The (Senate Special Committee on Aging) has grave concerns about the agency's viability,” Mr. Kohl, the committee's chairman, said during a May 20 hearing looking into the allegations against Mr. Millard.
The PBGC's deficit rose to an all-time high of $33.5 billion as of March 31, the agency's acting director, Vince Snowbarger, told the committee. Mr. Snowbarger's testimony sparked fears that taxpayers might have to bail out the agency.
The deficit, for the first half of fiscal year 2009 ending Sept. 30, is up more than 200% — or $22.5 billion — from Sept. 30, 2008.
Mr. Snowbarger said $11 billion of the deficit comes from completed and probable pension plan terminations, about $7 billion from a decrease in the interest factor used to value liabilities, about $3 billion in investment losses and about $2 billion in actuarial charges.
Automotive-sector pension plans are underfunded by about $77 billion — and about $42 billion of that underfunding would be guaranteed by the PBGC if the plans were terminated, a PBGC release said.
The May 20 hearing was not short on drama.
Mr. Millard — summoned to testify under subpoena about the allegations during the May 20 hearing — refused to answer questions, invoking the Fifth Amendment right against self-incrimination.
Also at the hearing, Mr. Kohl released a copy of a May 19 letter from Labor Secretary Hilda Solis, who chairs the PBGC board, stating the board was considering a recommendation by Mr. Snowbarger that the strategic partnership contracts be canceled with Goldman Sachs Asset Management, JPMorgan Asset Management and BlackRock Inc.
“The board is evaluating this recommendation to determine whether additional action may be necessary,” Ms. Solis wrote in her letter to Mr. Kohl. “At the same time, the board is reviewing the PBGC's investment policy and determining what actions to take with regard to its implementation.”
Goldman Sachs spokeswoman Andrea Raphael said company officials had no comment on the matter. BlackRock officials also had no comment, according to Bobbie Collins, a company spokeswoman. JPMorgan officials also declined comment, said Kristen Batteria, spokeswoman.
Later the same day, a bipartisan coalition of six senators announced that it had referred the allegations against Mr. Millard — originally included in a report by Rebecca Anne Batts, the PBGC's inspector general — to the Justice Department.
The senators signing the letter were Edward M. Kennedy, D-Mass., and Michael Enzi, R-Wyo., chairman and ranking minority member of the Senate Health, Education, Labor and Pensions Committee, respectively; Max Baucus, D-Mont., and Charles Grassley, R-Iowa, chairman and ranking minority member of the Senate Finance Committee, respectively; and Barbara Mikulski, D-Md., and Richard Burr, R-N.C., Senate HELP Committee members.