Labor chief Solis wants pension insurer on less risky path

http://www.boston.com/news/nation/washington/articles/2009/05/29/labor_chief_wants_pension_insurer_on_less_risky_path/

Calls for suspension of investment strategy


Charles E. F. Millard, the pension agency's former director, pushed a more aggressive investment strategy.

By Michael Kranish
Globe Staff / May 29, 2009

WASHINGTON - Labor Secretary Hilda Solis, chairwoman of the federal agency that insures the pensions of 44 million Americans, has urged its board to suspend a controversial strategy under which the majority of a $64 billion investment fund was to be shifted out of bonds and into riskier stocks, according to documents obtained by the Globe.

The investment strategy is important because the Pension Benefit Guaranty Corp. announced last week that it faces a $33 billion deficit - triple the amount six months earlier - and could face an even greater crisis if it has to take over the pension fund of an automaker or other large business.

In February 2008, at the urging of its then-executive director, Charles E. F. Millard, the pension agency's board unanimously approved a plan to put 55 percent of its portfolio in stocks, private equity, and real estate, up from 15 to 25 percent in stocks. Millard argued that the change in strategy would pay off over the long term and possibly avoid the need for a taxpayer bailout. The gradual move into stocks started late last year.

But earlier this month, the agency's inspector general reported that Millard violated rules by playing a role in awarding contracts to Wall Street firms that would implement part of the strategy dealing with real estate and private equity. The inspector general also said Millard had discussed his Wall Street job prospects with an official at one of the firms. As a result, the pension agency indicated it would freeze three contracts that had gone to Wall Street firms.

Solis wants to go further, recommending in a May 21 proposed resolution that the agency suspend the new strategy in its entirety, meaning that the broader shift to stocks would also stop. In light of ongoing investigations, Solis wrote, the pension agency "shall cease all further activity to implement" the investment strategy that the Bush-era board had approved. The document has not been previously reported.

Her recommendation would take effect if, as expected, it is agreed to by the other two board members, Commerce Secretary Gary Locke and Treasury Secretary Timothy Geithner. Locke has signed off and Geithner is expected to follow.

FULL 2 page story at link.