October 24, 2008 / 8:51 PM / 11 years ago

UPDATE 1-US agency loses $4 bln, seeks to reassure retirees

(Updates with testimony)

By John Crawley

WASHINGTON, Oct 24 (Reuters) - The agency that insures corporate pensions has enough money to pay long-term benefits despite $4 billion in estimated investment losses and ongoing U.S. economic turmoil, its director said on Friday.

“The people who depend on us should not be concerned,” said Charles Millard, director of the Pension Benefit Guaranty Corp (PBGC), told a House of Representatives Health and Labor Committee hearing.

There has long been concern about the health of the deficit-ridden PBGC but fears of a taxpayer bailout have eased in recent years as returns improved significantly and its deficit narrowed sharply.

The agency’s funding gap for the fiscal year that ended Sept. 30 will not be reported until November. But Millard estimated the shortfall between $10 billion and $12 billion. The previous annual deficit was $14.1 billion on assets of $68.4 billion, most of which were eligible for investment.

The agency estimated a loss of 6.5 percent, or $4 billion, in investments for the just-concluded fiscal year. Its equity portfolio accounted for all of the losses, according to investment performance details released at the hearing.

The PBGC relies mainly on fixed-income securities, but plans to ramp up its exposure to equities to maximize long-term returns and reduce its deficit.

Millard said the estimated 2008 decline was less than suffered by “most other investors,” but Rep. George Miller, the committee chairman, said “most people were stunned to see a $4 billion loss.”

Miller, a California Democrat, said also he was “not sold” on the agency’s “game plan” adopted in February which calls for boosting long-term returns by sinking nearly half of its investments in equities.

Millard said he was concerned about economic and market turmoil and PBGC would take a “slow and deliberate” approach to the new investment policy.

“We haven’t made any (new) equity allocations yet,” he said.

PBGC insures pensions for 44 million people participating in 30,000 plans. Its books mainly reflect the health of traditional corporate pensions, which pay a fixed benefit over many years.

These employer-sponsored plans were once a staple of major American business but are expensive, and have given way to 401(k) and other retirement options that transfer more risk to employees.

Plunging markets in recent weeks have cut deeply into the value of retirement accounts like 401(k)s, ratcheting up concern for millions of Americans about their long-term financial security.

Pension plan defaults at airlines and steel companies this decade have contributed substantially to the PBGC’s financial woes. For instance, United Airlines, a unit of UAL Corp UAUA.O turned over four underfunded employee plans to the government in 2005 during its bankruptcy.

United’s claim, the largest in history, affected 122,000 people and totaled $7.5 billion.

Some lawmakers wondered openly about the health of pensions at distressed U.S. automakers, specifically General Motors Corp (GM.N).

GM invested billions in its employee pensions in recent years and Millard said its retirement accounts are in reasonably good shape. (Editing by Matthew Lewis)

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