With 53 days left before voters decide who will be the next President of the United States, the Pension Benefit Guaranty Corp., like other government agencies, is already preparing for the change to new leadership.
To ensure smooth sailing for the PBGC’s new governing board that will come with January’s Presidential transition, the Government Accountability Office requested in a report released Wednesday that the PBGC prepare a full report on its financial and management challenges. The agency immediately agreed.
The PBGC, which insures pensions for 44 million private-sector employees and retirees, is governed by a three-member board made up of the secretaries of the Treasury, Labor, and Commerce departments. A seven-member advisory committee appointed by the President represents the interests of pension holders and the general public.
Although Congress oversees the PBGC, there is no established procedure for the agency to report to Congress on its management and finances. For that reason, and because of the board’s small size and partial leadership, the GAO notes that oversight weaknesses still exist. In its missive last week, it suggested that reports be given to the newly appointed board members, the GAO, and the Office of Inspector General, among others, “so that they can take appropriate action as needed.”
According to another GAO report released in August, the outlook for the agency is not all that bright. The GAO placed the PBGC on its “high risk” list of federal programs and said the agency may be preparing to take unwise gambles as it tries to clear up its debts. “The agency faces unique challenges, such as PBGC’s need for access to cash in the short term to pay benefits, which could further increase the risks it faces with any investment strategy that allocates significant portions of the portfolio to volatile or illiquid assets,” the August GAO report said.
At the time, PBGC director Charles Millard said the agency’s biggest risk is not being able to meet its liabilities, or that it will require a government bailout.
Looking at this “funded status” risk over the course of the next 20 years, Millard said the worst-case scenarios for the PBGC’s new investment policy — under which it no longer will be limited to investing 25 percent of its holdings — are much safer than the worst-case scenarios for the current policy. Moreover, he noted that the PBGC had already tested hundreds of portfolios against 5,000 different economic scenarios, and that institutional investors will see less risk and investment gains of up to $40 billion over the next 30 years under the new policy.
“The new investment policy will readily allow PBGC’s trust fund to meet the projected cash flow needs of the corporation over the next 20 years,” said Millard.
The PBGC’s deficit is the result of taking over several large pension plans that failed during the past several years. The agency is funded by fees from the companies whose pension plans it insures, assets from failed pensions, bankruptcy liquidations, and returns on its investments.
While improvement still is needed, the GAO did commend the PBGC for revising its bylaws to define the roles and responsibilities of its board members more clearly.