Federal Pension Agency Loses Almost $5 Billion On Stocks

WASHINGTON — The federal agency charged with backstopping pension benefits for 44 million Americans lost almost $5 billion from investments in stocks in the budget year that ended Sept. 30, the agency head acknowledged Friday.

The Pension Benefit Guarantee Corp. will lose 6 percent to 7 percent on its entire investment portfolio, PBGC Director Charles Millard told the House Education and Labor Committee. It lost a significantly higher percentage of its investments in equities.

But that won't jeopardize the agency's ability to pay retirees who depend on it, Millard reassured lawmakers.

The PBGC has assets of $68 billion and liabilities of $83 billion. Millard said that over the long term, a new policy of creating a more diversified portfolio of 45 percent stocks, 45 percent bonds and 10 percent in alternative investments will produce better returns that give the agency a 57 percent chance to climb out of its deficit hole within a decade.

But the stock market has taken a sharp dive this month and those losses have yet to be reflected in PBGC estimates.

At present, the PBGC investment portfolio is about 70 percent fixed income assets like Treasury bonds and 30 percent in equities. That's about the same as a year ago, when the PBGC posted a 7.2 percent gain on its investments.

"We did not make the shift yet," Millard said.

There has been considerable debate over whether to shift more agency assets into stocks.

"This long-term, more diversified strategy aims at generating better returns that provide a greater likelihood that the corporation can meet its long-term obligations," Millard said.

"I am not sold at this point," said Rep. George Miller, D-Calif., who chairs the House committee. "Wall Street and this country is littered with people who had game plans designed by the brightest people in the room."

Millard reminded the lawmakers that the agency "pays monthly pension benefits spread over the lifetimes of participants and beneficiaries, not as lump sums. As a result, PBGC has sufficient funds to meet its obligations for a number of years."

The PBGC is one of the government's largest corporations and insures approximately 30,000 defined benefit pension plans. Defined benefit plans pay benefits based on years of service, salary levels and other factors. They are being increasingly replaced by 401(k)-style plans in which benefits depend on the employee's contributions. The PBGC doesn't insure 401(k) plans.

The PBGC's finances have come under strain as it has taken over several large pension plans in recent years from bankrupt airline and steel companies, including a $17 billion plan maintained by UAL Corp., parent of United Airlines. United emerged from bankruptcy in 2006.

The PBGC is funded by fees paid by the companies it insures, assets from failed pension plans, recoveries from bankruptcies and returns on invested assets. It doesn't receive taxpayer funds.

(This version CORRECTS Corrects attribution in 10th graf to Miller sted Millard. Moving on general news and financial services.)

Comments

[mrcontinental]

07:05 PM on 10/27/2008

6 percent loss? Guess we should have given social security to Wall Street after all.

[KCFreedom]

04:03 PM on 10/27/2008

I've got a partial solution.

Deny pensions to any member of Congress or the Senate who voted for the Iraq war or the Wall St. bailout.

Deny pensions to any member of the Bu$h administration who pushed for the war (all of them, except Brent Scowcroft who was against it).

Deny pensions to any member of Congress or Senate who are millionaires, or who became millionaires after taking office.

That's a start.

[ecoop]

11:16 AM on 10/27/2008

6-7% loss is remarkable, given the current conditions. I'd lost 20% of my IRA this year BEFORE the October slaughter. I haven't dared look at my 401K balance. As a federal pensioner, I feel a little more secure that my pension is relatively safe for the time being. Can it be that the government actually got something right in managing our pension fund?

[blackmouth]

10:06 AM on 10/27/2008

Well, there goes our cost of living increase. If this retirement account tanks then we will really see the government collapse.

[PT6]

04:57 AM on 10/27/2008

McCain PLAYS GAMES and GIMMICKS While the World's Markets BURN!

Nero playing the fiddle while Rome burned!

Asian markets extended their slide Monday on fears about a U.S. recession and global economic slowdown and Hong Kong and Shanghai fall on decelerating corporate earnings growth.

CONFIDENCE must be restored and Bush and McCain can not do it!

We need Obama and his team ready to work on this to help restore Confidence in American Markets!

[Gdebs]

03:41 AM on 10/27/2008

Perhaps we should help those who complained that they could earn far more in the stock market to take their fica payments and put them in the market retroactively. And lower their SS payments of course.

[darthdarcy]

12:22 AM on 10/27/2008

An there are still those who want to privatize Social Security...Imagine..

[Veri]

11:45 PM on 10/26/2008

$5 Billion is pocket change for some. How many years longer will the people who have lost this money have to work? So much for retirement.

Reminds me of when Bush & Co. arguing for privatisation of Social Security. Looking at today's stock market, everyone would have lost their privatised social security and become, further, the economic slaves we are.

It is about the money and the payoffs and the power that exists. This is not about you or me. Why? Because, to the New Aristocracy, we have no value other than to enrich them.

Getting a clue yet?

[dukeitout]

09:02 PM on 10/26/2008

The PBGC lost $5 billion from 10/1/07 thru 9/30/08. They no doubt lost about $5 billion more so far this month. I'm happy the Soc. Security Adm. doesn't invest our SS taxes in equities. Maybe the PBGC should restrict their investments to guaranteed government instruments too.

[Enid]

08:44 PM on 10/26/2008

we will be going back in time and use just coinage. Coinage of the Great Poubar.

[swift goat pet for truth]

07:56 PM on 10/26/2008

30% stocks?
Small potatoes.

EVERYBODY KNOWS that long term, stocks are the better investment.
That's why Bush and McCain want to turn over Social Security to the stock market.

How could anybody ever lose doing that?

[Erdgeist]

07:29 PM on 10/26/2008

And with Cox as head of the SEC who brought us "naked short selling" and dumped the uptick rule established in 1934 to prevent what is happening now -- expect a race to the bottom. Looking back, with Republican talent like Cox, a terrorist like Osama bin Laden seems like small potatoes.

[Grabit]

04:17 PM on 10/26/2008

It's Pension Benefit Guaranty Corporation (with a "y," not "ee"), but whatever.

[themodernleader]

03:13 PM on 10/26/2008

In this depression no fund appears safe. Liquid assets are being sucked down the hole. The only thing safe is something that is tangible, excluding real estate, autos, trucks and other items we are too poor to be able to afford.