Pension-rescue fund seen as still strong

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By David M. Dickson

NEWSMAKER INTERVIEW:

The government's pension-rescue fund suffered heavy losses in the stock market this year but has still managed to lower its deficit to $12 billion, leaving it strong enough to protect American workers' pensions in the short term even if several major companies fail during the burgeoning economic crisis, the chief of the Pension Benefit Guaranty Corp. told The Washington Times on Thursday.

"I can't foresee any realistic circumstances under which the PBGC would need to be bailed out by the taxpayer in the next 10 years," Director Charles E.F. Millard said.

Mr. Millard is prepared to be questioned Friday by members of Congress about some $3 billion in losses the fund suffered in the stock market during the first 11 months of fiscal 2008, but he plans to tell lawmakers that those losses were countered by strong earnings from bond investments and reductions in the agency's overall liabilities. As a result, he told The Times, the fund actually improved its overall financial position during a turbulent year, shaving $2.1 billion from the $14.1 billion deficit it had at the beginning of the year.

The PBGC is poised to become an increasingly important player in the economic crisis as analysts foresee several more corporate failures, which would thrust major new pension liabilities upon the federal agency. While Mr. Millard remains confident of the fund's short-term ability to protect pensions, there is near universal agreement among pension analysts that the long-term problems are much more serious.

Because the PBGC has only 30 percent of its assets invested in equities, the agency incurred "a decline in total assets of only 6 percent at a time when most investors like us were down in the mid-teens" for the 12 months that ended in September, said Mr. Millard, who testifies Friday before the House Education and Labor Committee.

At the end of fiscal 2007, the PBGC held $68.4 billion in assets and $82.5 billion in liabilities, resulting in the $14.1 billion deficit.

To buttress his point that the prospect for a near-term taxpayer bailout was remote, Mr. Millard emphasized that the agency pays out about $2.5 billion per year, while its $60-billion-plus asset portfolio includes more than $15 billion in ultra-safe Treasury securities.

"In fact, our actuaries have performed a study which concludes the likelihood we would have such a problem 20 years from now is below 2 percent," he told The Times.

Asked about the effect of a General Motors bankruptcy upon the PBGC, Mr. Millard noted, "While the company is facing tremendous problems today, GM's pension plan is reasonably well funded."