GAO raises concerns about PBGC strategy

The federal agency charged with backstopping pension benefits for 44 million Americans has understated the risks of its new investment policy, a congressional watchdog said today.

The Government Accountability Office said in a report that the Pension Benefit Guaranty Corp.’s new strategy could significantly boost the PBGC’s investment returns, but it “will likely also carry more risk than acknowledged by PBGC’s analysis.”

The PBGC said earlier this year that it would take a more aggressive investment approach by investing more in stocks and adding new alternative investments, such as real estate and private equity funds.

The agency, which has assets of $68 billion, hopes the strategy will help it close a $14 billion gap between those assets and its liabilities. Otherwise, taxpayers could be called upon to pony up extra funding, the director of the PBGC has warned.

The PBGC has said its new approach will reduce risk because it will result in a more diversified portfolio of 45 percent stocks, 45 percent bonds, and 10 percent in alternative investments.

Previously, its targets were 75 percent to 85 percent bonds and 15 percent to 25 percent in stocks, though the actual figure reached 28 percent last year. The agency is seeking bids from Wall Street firms to help manage the switch.

The GAO, however, said that under certain scenarios the new strategy would have more volatile results than the old approach. The report said that’s risky because PBGC pays out more than $4 billion a year to retirees and needs access to cash.

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