In a time of major economic downturn when we already know we are in a recession and most are forecasting things to get a lot worse, why would you move your fund from reliable low-risk investments to much higher risk investments in the stock and real estate markets? In a time when many are predicting a possible economic depression would it not be advisable to keep your money in safer havens? Especially when that fund just happens to be a lifeline or backup for other firms serving around 45 million people? Well apparently that was not the view point of the Pension Benefit Guaranty Corporation, which is a federal agency.
For years the agency had a policy of keeping most investments in low-risk places, keeping only 15-25% in stocks. That was the situation under director Bradley N. Belt. However, under Charles E.F. Millard that changed to 55%. This change was originally decided upon in February of 2008, during a time of rapidly rising oil prices, an already well-known collapsed housing market, and many signs that were pointing to a severe recession ahead. As far as anyone can tell this policy stayed in place up through the end of Millard’s term which ended on January 20th, 2009 when President Bush left office.
To make things worse the operators of the fund refuse to say how it has fared in any detail. Telling us only that ” its fund was down 6.5 percent – and all of its stock-related investments were down 23 percent – as of last Sept. 30, the end of its fiscal year“. That was right before some of the largest stock-market drops in recent history. Which means that the fund could be faring significantly worse at this point.
Millard may have learned the unique skills he has for destroying financial security at his former post of managing director for the Lehman Brothers, a major corporation that went under last fall. However, he blames the problem on Congress stating “Congress had limited the agency’s ability to charge higher premiums based on each plan’s likelihood of drawing on the agency’s funds“. This may be the case to some extent, but he may have also taken the simplest path out. Only time will tell. Hopefully the new director from the Obama Administration will be able to curtail some of the losses of the fund before it is too late.
Tags: Congress, Economics, investments, pension, stocks
