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48–943 2009

PENSION BENEFIT GUARANTY CORPORATION 

HEARING 

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT 

OF THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

FIRST SESSION 

SEPTEMBER 24, 2008 

Serial No. 110–100 

Printed for the use of the Committee on Ways and Means 

( 

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COMMITTEE ON WAYS AND MEANS 

CHARLES B. RANGEL, New York, Chairman 

FORTNEY PETE STARK, California 

SER M. LEVIN, Michigan 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

MICHAEL R. MCNULTY, New York 

JOHN S. TANNER, Tennessee 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

EARL POMEROY, North Dakota 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

RAHM EMANUEL, Illinois 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

SHELLEY BERKLEY, Nevada 

JOSEPH CROWLEY, New York 

CHRIS VAN HOLLEN, Maryland 

KENDRICK MEEK, Florida 

ALLYSON Y. SCHWARTZ, Pennsylvania 

ARTUR DAVIS, Alabama 

JIM MCCRERY, Louisiana 

WALLY HERGER, California 

DAVE CAMP, Michigan 

JIM RAMSTAD, Minnesota 

SAM JOHNSON, Texas 

PHIL ENGLISH, Pennsylvania 

JERRY WELLER, Illinois 

KENNY HULSHOF, Missouri 

RON LEWIS, Kentucky 

KEVIN BRADY, Texas 

THOMAS M. REYNOLDS, New York 

PAUL RYAN, Wisconsin 

ERIC CANTOR, Virginia 

JOHN LINDER, Georgia 

DEVIN NUNES, California 

PAT TIBERI, Ohio 

JON PORTER, Nevada 

JANICE MAYS, Chief Counsel Staff Director 

JON TRAUB, Minority Staff Director 

SUBCOMMITTEE ON OVERSIGHT 

JOHN LEWIS, Georgia, Chairman 

JOHN S. TANNER, Tennessee 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

JOSEPH CROWLEY, New York 

JIM RAMSTAD, Minnesota 

ERIC CANTOR, Virginia 

JOHN LINDER, Georgia 

DEVIN NUNES, California 

PAT TIBERI, Ohio 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Ways and Means are also published in electronic form. The printed 

hearing record remains the official version. Because electronic submissions are used to 

prepare both printed and electronic versions of the hearing record, the process of converting 

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process 

is further refined. 

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C O N T E N T S 

Page 

Advisory of September 24, 2008, announcing the hearing ................................... 2 

WITNESS 

Hon. Charles E. F. Millard, Director, Pension Benefit Guaranty Corporation .. 6 

Barbara D. Bovbjerg, Director, Education, Workforce, and Income Security, 

U.S. Government Accountability Office .............................................................. 21 

SUBMISSIONS FOR THE RECORD 

[No submissions for the record] 

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(1) 

PENSION BENEFIT GUARANTY CORPORATION 

WEDNESDAY, SEPTEMBER 24, 2008 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

SUBCOMMITTEE ON OVERSIGHT, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:07 a.m., in 

room 1100 Longworth House Office Building, Hon. John Lewis 

(Chairman of the Subcommittee) presiding. 

[The advisory announcing the hearing follows:] 

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ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

SUBCOMMITTEE ON OVERSIGHT 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–5522 

September 16, 2008 

OV–7 

Chairman Lewis Announces a Hearing on the 

Pension Benefit Guaranty Corporation 

House Ways and Means Health Subcommittee Chairman John Lewis (D–GA) 

today announced that the Subcommittee on Oversight will hold a hearing on the 

Pension Guaranty Corporation (‘‘PBGC’’). The hearing will take place at on 

Wednesday, September 24, 2008, at 10:00 a.m., in the main Committee hearing room, 1100, Longworth House Office Building. 

In view of the limited time available to hear witnesses, oral testimony at this 

hearing will be from invited witnesses only. Representatives of PBGC and the U.S. 

Government Accountability Office (‘‘GAO’’) have been invited to testify. However, 

any individual or organization not scheduled for an oral appearance may submit a 

written statement for consideration by the Committee and for inclusion in the printed record of the hearing. 

BACKGROUND: 

PBGC is a Federal corporation established under the Employee Retirement Income Security Act (‘‘ERISA’’) of 1974 (P.L. 93–406), as amended. It currently guarantees payment of basic pension benefits earned by 44 million American workers 

and retirees participating in about 30,500 defined-benefit pension plans. 

PBGC is funded by insurance premiums paid by plan sponsors, assets received 

from terminated plans, and investment income from PBGC assets. As of September 

30, 2007, PBGC reported a deficit of $13.1 billion in the single-employer pension insurance programs and a deficit of $955 million in the multi-employer pension insurance program. While ERISA specifically states that the U.S. Government is not obligated to pay PBGC’s obligations, PBGC’s 2007 Annual Report states that, if the corporation fails to address its deficit, eventually plan sponsors, participants, and ‘‘possibly taxpayers’’ will bear the burden. In the 2007 Annual Report, PBGC estimates 

that there is only a 23 percent chance of reaching full funding within the next ten 

years. 

In July 2003, GAO designated PBGC’s single-employer pension insurance program as a high-risk program that needs broad-based transformations and warrants 

Congressional attention. In January 2007, GAO continued to list PBGC as a high 

risk area and noted in its High Risk Series that PBGC-insured plans had cumulative underfunding of $350 billion, including $73 billion in plans sponsored by financially weak firms. In addition, GAO has investigated and issued recommendations with respect to various aspects of PBGC’s operations, including reports on the 

investment strategy and governance structure. 

In announcing this hearing, Chairman Lewis said: ‘‘PBGC plays a vital role in 

our retirement system and our economy. The operation of PBGC is a concern for workers, plan sponsors, and the American taxpayer. The Congress 

must make sure that PBGC is governed responsibly and operates efficiently.’’ 

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FOCUS OF THE HEARING: 

The Subcommittee will review the financial condition, operations, and governance 

of PBGC. The hearing will focus on the deficit in the single-employer pension insurance program, the change in investment policy, and the governance weaknesses 

identified by GAO. The Subcommittee also will examine the overall status of the defined-benefit pension system, including the rise in the number of frozen or voluntarily terminated plans. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit comments for 

the hearing record must follow the appropriate link on the hearing page of the Committee website and complete the informational forms. From the Committee homepage, http://waysandmeans.house.gov/, select ‘‘110th Congress’’ from the menu entitled, ‘‘Committee Hearings’’ (http://waysandmeans.house.gov/Hearings.asp 

?congress=18). Select the hearing for which you would like to submit, and click on 

the link entitled, ‘‘Click here to provide a submission for the record.’’ Once you have 

followed the online instructions, complete all informational forms and click ‘‘submit’’ 

on the final page. ATTACH your submission as a Word or WordPerfect document, 

in compliance with the formatting requirements listed below, by close of business 

Wednesday, October 8, 2008. Finally, please note that due to the change in House 

mail policy, the U.S. Capitol Police will refuse sealed-package deliveries to all House 

Office Buildings. For questions, or if you encounter technical problems, please call 

(202) 225–1721. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing record. As always, submissions will be included in the record according to the discretion of the Committee. 

The Committee will not alter the content of your submission, but we reserve the right to format 

it according to our guidelines. Any submission provided to the Committee by a witness, any supplementary materials submitted for the printed record, and any written comments in response 

to a request for written comments must conform to the guidelines listed below. Any submission 

or supplementary item not in compliance with these guidelines will not be printed, but will be 

maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word or WordPerfect 

format and MUST NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised that the Committee relies on electronic submissions for printing the official 

hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons, and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, and telephone and fax numbers of each witness. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://waysandmeans.house.gov. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TTD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

f 

Chairman LEWIS. Good morning. The hearing is now called to 

order. The Chair would like to apologize to the Members and witnesses for being a little late this morning. 

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But before we begin, I would like to welcome the distinguished 

gentleman from North Dakota, Mr. Pomeroy, and the distinguished 

gentleman from Texas, Mr. Johnson, and thank them for joining us 

at this hearing. 

I also would like to make a few remarks about two of our Subcommittee Members. First, I would like to pause to remember our 

dear friend and sister, Stephanie Tubbs Jones, who we lost last 

month. There’s a void that can never been filled, but we each carry 

her commitment to helping people who need a voice, and she will 

live on in our work here on this panel, and in our lives. She was 

a dedicated and committed public servant, a friend, and she will be 

deeply missed. 

I would like to pause now for a moment of silence in her memory. 

[Pause.] 

Chairman LEWIS. Thank you. 

Because this year is quickly coming to a close, I believe this will 

be the last hearing of the Subcommittee on Oversight for the 110th 

Congress. So, I would also like to take a moment to recognize my 

dear friend and Ranking Member, Jim Ramstad of Minnesota, who 

is retiring from Congress this year. Mr. Ramstad and I have served 

on this panel together for many, many years, and they have been 

wonderful years, and we have always worked well together. We 

have worked together and have had many successes together on 

this Committee. 

Jim, I want to thank you for you service to this Committee, and 

to our country, and for your friendship over the years. You will be 

missed by me and this Subcommittee, and by all of the people you 

have served over the years. Thank you so much for your service. 

Mr. RAMSTAD. Thank you, Mr. Chairman. This is a bitter-sweet 

moment for me. I deeply appreciated most of all your friendship 

over the past 18 years, as well as your leadership of this Subcommittee, the way you’ve conducted not only yourself but the 

Committee’s business. You’ve always reached out in a bipartisan 

way and upheld this Subcommittee’s proud tradition of bipartisanship. 

I’ll miss you, Mr. Chairman. You are my friend and brother. I’ll 

miss the staff, who have been so helpful, particularly Chris and 

Carrin back here from my staff; but all the staff, including Reggie. 

I’ll miss you all. 

But I might be leaving Congress, but I’m not leaving public service, and I look forward to serving in other ways and staying in 

touch with all of you. 

Thank you, Mr. Chairman. 

Chairman LEWIS. Thank you very much, Jim. 

Today the Subcommittee on Oversight will review the Pension 

Benefit Guaranty Corporation. The Corporation plays a vital role 

in our retirement system; it guarantees basic pension benefits for 

44 million working Americans. 

I am deeply concerned with the current financial position of the 

Corporation and retirement security. In 2007 it was reported that 

pension plans insured by the Corporation were underfunded by 

$350 billion. Further, the Corporation has a $14 billion deficit. 

The recent turmoil on Wall Street only makes it more important 

that we examine the financial condition of the Corporation and the 

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plans it insures. We need a true and complete understanding of its 

position for the sake of the workers, employers, and taxpayers. 

It would be good to know why there are almost 37,000 Americas 

who are missing their pension benefits, benefits valued more than 

$200 million. These numbers are too high. 

I look to hearing from our witnesses today. Thank you for being 

here. 

I am pleased to recognize the distinguished Ranking Member, my 

dear friend and brother, Mr. Ramstad, for his opening statement. 

Mr. RAMSTAD. Thank you, Mr. Chairman. 

As you state so well, the Pension Benefit Guaranty Corporation 

is truly one of the stewards of the American workers’ retirement 

security, and as such Congress must remain committed to active 

oversight of the PBGC. By the same token the PBGC must be responsive and cooperative with each and every request from Congress. It works both ways. 

With more than 44 million Americans insured by the PBGC, Mr. 

Chairman, we must guarantee sound governance and management, 

so retirement income will be available, will be there for those who 

need it. 

That’s why I must say it’s troubling that the PBGC reported a $14 billion deficit at the end of last fiscal year, even as it’s Single 

Employer Program remains exposed to the threat of future terminations of large unfunded pension plans. 

I’m also concerned about the recent investment allocations instituted by the PBGC that would invest more of its trust fund assets 

in equities. GAO’s testimony notes that the new allocation will likely carry more risk than acknowledged by PBGC’s analysis. 

Now I understand the need for the PBGC to earn a good return 

on its assets, but we cannot risk unrecoverable losses through stock 

investments. We’ve seen huge stock declines, as you point out, Mr. 

Chairman, in many companies that were previously considered 

blue chip companies. 

Although the PBGC’s liabilities are not explicitly backed by the 

full faith in credit of the United States, this doesn’t mean there is 

no risk to the taxpayer. If the PBGC becomes financially insolvent, 

Congress may find it necessary to bail out the PBGC at taxpayer 

expense. That’s the last thing Congress and the American people 

want, another bailout. 

Congress can help promote the solvency of pension plans by not 

needlessly penalizing investments in the stock market, where so 

many of his nation’s public and private pension plan assets are invested. To that end, Mr. Chairman, I hope Congress extends the 

15 percent maximum tax rate on capital gains and dividend income, and the zero-percent rate for those in the lowest two income 

tax brackets. 

Many seniors also rely on capital gains and dividends, and it 

would be a shame if Congress raised taxes on retirement income, 

particularly with so much recent market turmoil. 

Mr. Chairman, thanks again for calling this hearing. I’m looking 

forward to hearing from the witnesses as the PBGC is truly a crucial concern for American workers. Thank you, Mr. Chairman. I 

yield back. 

Chairman LEWIS. Thank you, Mr. Ranking Member. 

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Now we will hear from our witnesses. I ask that you limit your 

testimony to 5 minutes. Without objection, your entire statement 

will be included in the record. 

It is now my pleasure and delight to introduce the Director of the 

Pension Benefit Guaranty Corporation, Mr. Charles Millard. 

STATEMENT OF CHARLES E. MILLARD, DIRECTOR, PENSION 

BENEFIT GUARANTY CORPORATION 

Mr. MILLARD. Thank you, Mr. Chairman, Ranking Member 

Ramstad, and Subcommittee Members. I appreciate the opportunity to appear before you today to discuss the state of the Pension Benefit Guaranty Corporation, and we welcome your oversight. 

The Orations’s pension insurance program covers 44 million 

workers, retirees, and beneficiaries in 30,000 private defined benefit pension plans. When an underfunded plan terminates because 

the employer can no longer fund the promised benefits, PBGC 

takes over the plan as trustee and pays benefits to the full extent 

permitted by law. 

PBGC payments are important, often crucial to the retirement 

income security of retirees and workers. At the end of fiscal year 

2007 PBGC was paying benefits to 630,000 individuals in trusteed 

plans. Another 530,000 people in these plans will be eligible to receive benefits in the future. 

Created by Congress under ERISA, the PBGC is a wholly owned 

Federal corporation with a three-member board. The Secretary of 

Labor is the chair of the board and the Secretaries of Commerce 

and Treasury also sit on the board. Under the Pension Protection 

Act of 2006, the Orations’s. is now headed by a Senate-confirmed 

director, and I am proud to be the first person approved for this 

important position. We have an advisory Committee appointed by 

the President, that provides guidance on a number of matters, including investment policy. 

PBGC is self-financed, receives no funds from general tax revenues, and its obligations are not backed by the full faith and credit 

of the U.S. Government. PBGC’s statutorily created revolving funds 

receive premiums, which are invested in U.S. treasuries. PBGC 

also has trust funds which hold assets from trusteed plans and recoveries from employers. The trust funds can be invested in more 

varied holdings, consistent with sound fiduciary principles. 

The Corporation has been in a deficit position for most of its 34 

years. At the end of fiscal year 2007, we had a $14 billion deficit, 

with some $82 billion in long-term liabilities, versus $68 billion in 

assets. Fortunately, we have sufficient funds to meet our benefit 

obligations for a number of years. Nevertheless, the deficit is a significant and continuing concern. 

Pension underfunding in companies with below-investment-grade 

debt ratings has been the main source of past claims and comprises 

reasonably possible terminations for the future. 

PBGC actively works to limit risk exposure and keep pension 

plans ongoing. Since 2005 we have successfully sought arrangements with some 13 auto parts companies, including Dana and 

Dura Automotive to emerge successfully from bankruptcy without 

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terminating their plans. We are very proud of the work of our 

group in this area. 

Earlier this month, General Motors agreed to file to take over 

$3.4 billion worth of liabilities for Delphi’s hourly plans. Chrysler’s 

plans received $200 million in contributions beyond ERISA requirements, and Daimler will provide a $1 billion guarantee for up to 

5 years against plan termination. 

The Deficit Reduction Act of 2005 and the Pension Protection Act 

of 2006 changed PBGC premiums, guarantee rules, and reporting 

and disclosure requirements. We have issued proposed and final 

regulations on a variety of these provisions, and expect to complete 

work on most of all of them by the end of next year. 

We also look forward to the funding reforms in the 2006 legislation taking hold, but it is too early to tell the effect they will have 

on the funded status of plans that constitute reasonably possible 

terminations. 

The President’s Fiscal Year 09 budget continues to recommend 

legislation giving PBGC’s board the ability to adjust premiums and 

provide some level of risk-based premium-setting authority. 

The Bush Administration has long taken a comprehensive approach to strengthening the pension system and beginning in 2004 

developed reforms that led to the passage of the 2006 legislation. 

Under the leadership of Secretary Chow, PBGC’s board has taken 

a consistently active role in guiding the Corporation, meeting 12 

times since 2003. 

Let me also mention some steps we’ve taken more recently to 

build for the future. In February, our board unanimously adopted 

a more diversified investment policy to better enable PBGC to meet 

its long-term obligations. We have reduced the time it takes to 

issue final benefit determinations to participants, in some case 

shortening this process by over a year. 

Improvements we have made on information technology have led 

OMB to take us off its management watch list. We’re currently 

transitioning 80 percent of our employees to invitations performance plans, which are key to our actual strategic plan. PBGC continues to receive among the highest American customer satisfaction 

ratings in the government, and in May our board adopted new bylaws to clarify the roles of the board, the director, and senior management. 

Companies that sponsor pension plans have a responsibility to 

live up to the promises they make to their workers and retirees, 

but when a company can no longer keep its promises, workers and 

retirees need a strong Federal insurance system as a safety net. 

We are building on the 2006 reforms and making internal improvements to strengthen this critical program. 

Thank you, Mr. Chairman. I would be happy to answer any questions. 

[The prepared statement of Mr. Millard follows:] 

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Statement of The Honorable Charles E. F. Millard, Director, Pension 

Benefit Guaranty Corporation 

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Chairman LEWIS. Thank you very much for your testimony. 

Now it’s my pleasure and delight to introduce Barbara Bovbjerg 

from GAO. Welcome. 

STATEMENT OF BARBARA D. BOVBJERG, DIRECTOR, EDUCATION, WORKFORCE, AND INCOME SECURITY, UNITED 

STATES GOVERNMENT ACCOUNTABILITY OFFICE 

Ms. BOVBJERG. Thank you, Mr. Chairman; Members of the 

Committee. 

I too am pleased to be here today to speak about the challenges 

facing the Pension Benefit Guaranty Corporation, created by 

ERISA in 1974. PBGC today insures the retirement benefits of 

more than 40 million Americans and manages nearly $70 billion in 

plant assets. 

My testimony today describes the role and funding structure of 

PBGC, the financial challenges it faces, and its issues regarding it’s 

governance and management. My statement is based on reports 

we’ve issued over the last several years on these topics. 

First, PBGC’s role in structure. PBGC is self-financed, a wholly 

owned Government Corporation that insured defined benefit pension sponsored by private sector employers. PBGC collects premiums from employers, and in the event of a planned default, 

PBGC assumes control of plant assets and pays benefit amounts 

due plan participants. 

Since 2000 the number of potential beneficiaries has grown from 

about 500,000, half a million workers and retirees to 1.3 million 

today. 

PBGC’s treatment in the Federal budget is complicated. The Corporation has two accounts, has a non-budgetary trust fund, which 

holds the assets obtained from terminated plans and the on-budget 

revolving fund, which holds everything else. 

The revolving fund reports cash flows from premium collections, 

interest income, administrative expenses, benefit payments, some 

of which are financed by reimbursements from the trust fund. 

But the trust fund is non-budgetary, when assets are transferred 

from terminated plans to PBGC, these are not receipts to the government. Similarly, the liabilities that PBGC incurs when it takes 

over an unfunded plan are also not reflected in the budget. So, 

PBGC’s budgetary treatment is actually thought to distort the Federal fiscal balance as reported. 

For example, even as PBGC’s long-term deficit grew from $11 billion to $23 billion in 2004, the revolving funds cash flow was positive, and thus reduced the government’s reported budget deficit in 

that year, so the signals are not quite what you might want over 

the long term. 

But let me turn now to PBGC’s long-term financial challenges. 

PBGC’s largest insurance program, the Single Employer Program, 

has been hammered by claims resulting from employer bankruptcies and the associated terminations of large underfunded 

plans. Indeed GAO put this program on its high-risk list in 2003, 

and by 2004, PBGC’s net deficit for this program exceeded $23 billion. 

Since then, economic conditions favorable to employers and plans 

have helped to reduce PBGC’s net deficit, and passage of the Penjbell on PROD1PC69 with HEARING

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sion Protection Act of 2006 has the potential to strengthen planned 

funding in the future. However, more recent economic events may 

affect employers and their pension plans negatively, and could in 

turn have an impact on PBGC. 

In addition, PBGC has recently altered its investment policies to 

improve returns, but our work suggests that the higher risk associated with such a policy needs more attention. Hence, we believe 

PBGC’s financial challenges remain. 

Finally, although my written statement also discusses several 

management issues, with time constraints I will focus on the most 

important of these, which are our government’s concerns. 

PBGC’s board, as you heard, is comprised of three cabinet secretaries, and it has limited time and resources to devote to providing 

policy direction and oversight that would be needed for this growing corporation. 

The size and composition of the board doesn’t meet corporate 

governance guidelines, and further we found that no other government corporation has a board as small as PBGC’s. 

Although the board has recently approved a set of new by-laws, 

some critical decisions and processes go undocumented, including 

approval and oversight of the various changes in investment policies made over the years. 

Further, the composition of the board assures that the entire 

board will turn over along with the PBGC director when a new administration takes office in January. 

Last year, we recommended that the Congress restructure the 

PBGC board to expand membership, stagger terms, and diversify 

expertise. 

In conclusion, PBGC acts as a crucial support for American’s retirement income security. It began as a relatively small benefit insurance agency in the seventies, but today manages billions in assets, pays benefits to more than a million Americans, and is still 

growing. 

It is unclear what today’s economic turmoil will mean for PBGC 

in the future, and how effective recent legislative changes will be 

in protecting the Corporation. 

Although improving the governance and oversight of PBGC will 

not by itself solve these problems, such actions could be critical to 

helping PBGC manage them as they arise, and we urge Congress 

to consider legislating these needed improvements. 

That concludes my statement, Mr. Chairman. I await your questions. 

[The prepared statement of Ms. Bovbjerg follows:] 

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Statement of Barbara D. Bovbjerg, Director, Education, Workforce, and 

Income Security, United States Government Accountability Office 

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Chairman LEWIS. Thank you very much for your statement. 

At this time we will open the hearing for questions. I ask that 

each Member follow the 5-minute rule. If the witnesses will respond with short answers, all Members should have the opportunity to ask questions. 

Mr. Millard, the last 2 weeks on Wall Street have been unreal, 

unbelievable. Has PBGC looked at the pension plans held by 

Fannie, Freddie, and others? 

Mr. MILLARD. Yes, sir, we have. It’s an interesting situation, 

because although they are have terrible, terrible times, we have actually looked at some information that we get that’s confidential, 

so I’m not allowed to say what each company has, but I can tell 

you on an aggregate basis what we’ve learned, and that is if you 

look at AIG, Fannie, Freddie, IndyMac, and Lehman, those five, 

the aggregate underfunding on a termination basis for those five is 

about $400 million. 

Chairman LEWIS. Could you repeat, it’s about how much? 

Mr. MILLARD. The aggregate underfunding for those five plans is approximately $400 million. However, not all of that $400 million is insured by the PBGC. As you know, PBGC pays up to approximately $51,000 as our maximum guaranteed benefit for a 65- 

year-old retiree. So, some of the benefits promised are not guaranteed by PBGC. The amount of that $400 million that is guaranteed 

by the PBGC is approximately $100 million, so there would be 

about a $305 million loss to the $115,000 participants in those five 

companies’ plans; and the hit to PBGC’s deficit, based on the information that we have—and of course that’s based on filings and 

things can change, and it’s hard to give any information that’s up 

to date in this marketplace—but as we have estimated it from the 

information we have, the hit to our deficit from those five would 

be approximately $100 million. 

Chairman LEWIS. Hmm—— 

Mr. MILLARD. That’s if we take them in. It’s not at all certain 

that we will. Right? AIG is not bankrupt now. AIG is in an unusual 

situation, but it did not file for bankruptcy, so we would not necessarily take AIG’s plan. Fannie and Freddie are not bankrupt. We 

would not necessarily take their plan, or they haven’t filed for 

bankruptcy. So, that is not all clear what will actually happen, but 

that’s the magnitude of the risk that we face there. 

Chairman LEWIS. Do you believe that some place along the way 

or down the road, the taxpayers could be asked to step in and pay 

for this? 

Mr. MILLARD. When you say ‘‘pay for this,’’ I mean we are trying to do everything that we can at PBGC to close the deficit over 

time. The actually ‘‘this’’ that’s at issue here, the hit to our deficit 

would be $100 million; so frankly the actual hit to PBGC’s financial 

status, specifically from those five companies—now understand, 

we’re not talking about the overall financial services sector, we’re 

not talking about the drop in financial stocks and all the defined 

benefit plans that hold them—I’m trying to give you statistics that 

are worth relating to you, rather than generalized estimates—so 

those five companies would hit our deficit to about $100 million. I 

don’t think $100 million is going to be the reason that taxpayers 

do or do not ultimately have to bail out PBGC’s $14 billion deficit. 

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Chairman LEWIS. Well, in a recent article you stated that 

PBGC’s biggest risk is that it may not able to meet its liability or 

that it would require a government bailout if the economy got 

much worse. Is this still the case? 

Mr. MILLARD. I believe that the long-term risk to PBGC, particularly under the prior investment policy, was that the implicit 

assumption was we were going to rely on Congress to bail us out 

at some point. The prior investment policy basically had as its 

unstated foundation that we’re not going to try to close the deficit, 

we’ll let Congress worry about that. As you know, ERISA states 

that the government doesn’t stand behind our liabilities, so we’re 

trying to improve the possibility that Congress will not have to bail 

us out in the long run. 

But to be clear, in the immediate term we have $68 billion in assets. We pay out a net approximately $2.5 billion a year in benefits, 

a total of $4 billion a year in benefits. So, we are able to meet those 

benefits for a number of years to come. We’re not a demand institution. People can’t show up and say ‘‘I want all my benefits right 

now.’’ 

Chairman LEWIS. What is the number one concern at PBGC 

right now? 

Mr. MILLARD. In terms of very hot I would say of course we are 

concerned about the financial services industry, and we have 

looked very carefully at what’s going on to try to make sure that 

our managers are managing to the targets that we hired them to 

manage through our investment managers. 

I would say my number one concern is that we have adopted an 

investment policy that should give us a reasonable chance to get 

out of our deficit over time. My number one concern is that people 

would try to change that policy, and change horses in mid-stream. 

You lose the possibility that this long-term investment policy will 

pay off. We’ve taken a very long-term view of the markets. We’re 

not trying to time markets or pick stocks. We’re trying to a long 

term diversified basis increase the likelihood that we will be able 

to meet our liabilities and that Congress will not be on the hook 

to bail us out. 

Chairman LEWIS. Let me just ask, why are 37,000 people missing their pension benefits? 

Mr. MILLARD. You’re referring, I believe, to the missing participants. These are people who are already—I don’t know if missing’s 

the best word—but the were already missing when we trustee the 

plan. So, before we get plans, the people who run the plans are already trying to track these people down. 

Sometimes there is someone who maybe worked part time or for 

21⁄2 years, who didn’t stay in touch with the company. Often, they 

may be dead, but no one can confirm that. So, they come to us, 

they’re already missing. What we do is we try to publicize once a 

year or so the fact that we have a missing participants program. 

We make sure that financial journalists are aware of this and occasionally people will write articles about the fact that, hey, you 

know, if you ever worked for a corporation with a pension plan, you 

should contact PBGC. It’s on our website. 

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But understand please that once they come to us, they’ve already 

been missing for some time and no one has found them in the 

plans when they were trying to find them. 

Chairman LEWIS. What more can be done to find these people 

to locate them? Is there anything else you can do? 

Mr. MILLARD. I think we’re being diligent in the following 

sense. We’re not hiring private investigators to track them down, 

but we try regularly to publicize that this is so, and we do that 

only after the plan has come to us, and they have already been determined to be missing after the plan has made substantial efforts 

to track them down. 

Chairman LEWIS. Thank you. 

Ms. Bovbjerg, let me ask you, what is GAO’s greater concern 

with PBGC? What is your greatest concern with the agency? 

Ms. BOVBJERG. We’re concerned about the long term and the 

long-term future defined benefit plans. We reported recently to supplement some work that PBGC has also done on frozen plans that 

almost half of the employers that we surveyed had at least one 

plan that they had frozen. While they’re paying premiums on these 

plans, the defined benefit system is shrinking. PBGC is overseeing 

an area that is only really being concentrated in very large companies and some of the older industries in America that have not 

been faring very well, and we’re concerned about the PBGC’s future. 

I understand that PBGC does not have many levers at its disposal to alter that future, and that’s part of the reason for altering 

the investment policy, and we understand that. 

Chairman LEWIS. Thank you. 

Now turning to Ranking Member Ramstad for his questions. 

Mr. RAMSTAD. Thank you, Mr. Chairman. I want to thank both 

the witnesses here today for your testimony. 

Dr. Millard, if I may please ask you a couple questions. I noted 

from PBGC’s most recent annual report, as of September 30, 2007 

PBGC held about $4.5 billion in asset-based securities, just following up on the line of questioning by the Chairman. Are these, 

just so I understand, are these mostly mortgage-backed securities? 

Mr. MILLARD. Excuse me. PBGC holds approximately 6 percent 

of its portfolio in mortgage-backed securities, yes. 

Mr. RAMSTAD. About 6 percent. Roughly what would the market value of these asset-backed securities be now, given the current 

situation on Wall Street? 

Mr. MILLARD. Well, it’s hard for me to say what these would 

be now, because that’s an annual report that’s based on September 

30th, 2007. To be very clear—and I’m sure you understand this— 

but we select managers, we don’t pick this asset-backed security, 

this Fannie Mae bond, this IBM bond. We select managers, wellknown household names, and they trade in and trade out of certain 

instruments at certain times. So, I can’t tell you what the value of 

those is, because those may have been bought or sold even a couple 

of times since September 2007 a year ago. 

Mr. RAMSTAD. That accounting is only d1 yearly, once a year? 

Mr. MILLARD. Correct. However, right now the holdings—in 

other words, I can’t tell you what happened to those, but our holdings of mortgage-backed securities right now is approximately 9 

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percent of our portfolio. I would point out, though, that 40 percent 

of those are in agency securities and 60 percent are almost entirely 

triple-A-rated. 

Mr. RAMSTAD. I want to ask you one last question. Also in reference to your annual report, I see that PBGC invests in derivatives, including futures, forward contracts, credit default swaps, 

swaption contracts—whatever that means—stock warrants, debt 

option contracts, and foreign currency—and option contracts. The 

question is how much of PBGC’s investments were in derivative 

contracts? 

Mr. MILLARD. Again, you know, we don’t make those contracts, 

we hire the managers to do them, and we hire managers who—— 

Mr. RAMSTAD. But you certainly have oversight of those—— 

Mr. MILLARD. Yes. No, I just wanted to make it clear, we’re not 

sitting at PBGC, trying to write CDS on whatever names we think 

it needs to be written on. 

Mr. RAMSTAD. I understand. 

Mr. MILLARD. The number that I can best give you is on credit 

default swaps—which is what we were able to get the best information on, because I thought you might want to know—we have a 

$2.8 billion notional value is our current credit default swap exposure, and if all of those went to zero, our expected loss would be 

about $70 million. 

Mr. RAMSTAD. About 70—— 

Mr. MILLARD. $70 million. 

Mr. RAMSTAD. $70 million. 

Were Lehman Brothers, Bear Stearns, or AIG the counter-party 

to any of PBGC’s non-exchange-traded derivative contracts? 

Mr. MILLARD. AIG was not; Lehman Brothers was. I’m sorry, 

what was the third one? 

Mr. RAMSTAD. Bear Stearns.; 

Mr. MILLARD. Hmm, well, Bear Stearns is not. Whether they 

ever were, I’m sorry, I don’t know. I mean I can get you that information. I have who they are currently and it does include Lehman, 

but it does include AIG. 

Mr. RAMSTAD. I was appreciate that. 

Finally, Director Millard, are there other counter-parties to your 

derivative contracts? 

Mr. MILLARD. Oh, certainly. I mean other than Lehman Brothers and AIG? I certainly hope so. 

Mr. RAMSTAD. Well I mean how many? Let me rephrase that. 

How many? 

Mr. MILLARD. About dozen, maybe approximately a dozen. 

Mr. RAMSTAD. Approximately a dozen—— 

Mr. MILLARD. That also can vary from time to time, depending 

on the decisions that our managers make. 

Mr. RAMSTAD. Very good. Well, thank you again to both the 

witnesses. I yield back. 

Chairman LEWIS. Thank you. 

Now I turn to Mr. Kind for his questions. 

Mr. KIND. Thank you, Mr. Chairman. Thank you for holding 

this important hearing and we thank the testimony that we have 

before us here today. 

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Mr. Millard, we have a problem. It may not be very comfortable, 

but I want to give you an opportunity to explain the situation that 

we’re confronted with. 

Obviously, we here in Congress and the Committees take our 

oversight responsibilities extremely seriously, and as a 10-year 

Member of the Education and Labor Committee, I know we took 

our oversight responsibilities there very seriously, as we do in this 

Committee, now that I’m serving on Ways and Means. 

But earlier this year, the Ed and Labor Committee issued a subpoena, requesting all the information related to the McKinsey report, a subpoena to my understanding that was basically ignored 

or brushed off by you and those on your staff. That’s the problem. 

Obviously you contracted out to have McKinsey do a follow-up report based on GAO’s highly critical report of the operations and 

functions as we know it at PBGC, and then when the Committee 

of Education and Labor issued the subpoena, they didn’t get the response that quite frankly all of us were expecting. 

I want to give you an opportunity right now to explain why that 

subpoena was ignored and why that Committee had to go to 

McKinsey directly to request the documents that they were seeking. 

Mr. MILLARD. To say it was brushed off or ignored I don’t think 

is a fair comment on what occurred. We asserted or engaged in the 

assertion process of certain executive privilege about deliberative 

process and draft documents. We made very clear that we were 

working on finishing that McKinsey report and of course would 

provide a copy of the McKinsey report to the Ed and Labor Committee when it was finished. I’m not going to try to litigate constitutional issues of privilege—that’s really a lawyer’s role, not 

mine—but we did anything but brush it off or ignore it. We tried 

to cooperatively say what we could show; we explained that we felt 

that there was a privilege issue; we worked with White House 

counsel and the Department of Justice to assert or engage in the 

assertion of executive privilege as appropriate, and as you know, 

the McKinsey Report has been provided. 

Mr. KIND. Director Millard, not to get into an argument with 

you here, but based on my understanding and the review of your 

response, there was no constitutional privilege that was asserted. 

There was some reference to some process or deliberative process 

which none of us recognize as a valid privilege to exclude the production of documents and the request of information that came 

from a Congressional Committee. 

Now if there’s a constitutional privilege you want to assert, then 

assert it. Then work with Committee staff and our own legal team 

as far as the basis of that privilege, and maybe something can be 

worked out. But that clearly wasn’t the response that was initially 

given from PBGC. 

Mr. MILLARD. I take issue with your characterization of how we 

responded. We did discuss privilege issues; we did try to cooperate 

with the Committee; and the report has been provided. 

Of course we take Congress’s right to oversight very seriously. 

Beyond that, for me to try to argue what’s constitutional, assertion 

of privilege, whether you and I agree about deliberative process, I 

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don’t think it’s fruitful. I mean by that in that I would be guided 

by the lawyers. 

Mr. KIND. Well, did you or PBGC, anyone on your staff or on 

the board influence the final report that McKinsey was producing, 

especially areas that may have been critical of PBGC’s operations? 

Mr. MILLARD. I don’t know what you mean by ‘‘influence the report.’’ I mean we had a cooperative process where we all said, ‘‘Gee, 

I think this makes sense, I think this doesn’t makes sense.’’ So, in 

that sense, sure, lots of people influenced the report. 

Mr. KIND. Well, again, we’re trying to get a clear picture of 

what’s going on here. Obviously, we’re talking about billions of dollars and potentially billions of taxpayer dollars that are stake in 

regards to the investment decision and the management of these 

important funds that you’re responsible for. 

You can imaging how irritated we become when we submit what 

we view as a valid request for information and expecting cooperation from an agency such as yours, only to be stone-walled and not 

get that, and then in fact have to boot-strap around you and go to 

the issuing company doing the report, in order to acquire the information that we were seeking to beginning with. Can you see the 

problem here? 

Mr. MILLARD. I understand your point of view very well; but I 

think you have to understand that the executive branch also has 

points of view about privilege, and you and I are not going to litigate that issue here I don’t think. I’m certainly not going to try to. 

On a subject like that I’m guided by the attorneys. 

Mr. KIND. Now can you provide a little better explanation here 

today why the investment decisions of PBGC were revamped in 

February of this year, with no consultation with Congress, no input 

from us whatsoever; and in fact, again to my understanding, when 

we had requested that Congressional staff to be able to sit in on 

those meetings before the decision was made, staff was explicitly 

excluded from participating. Was there a reason why? 

Mr. MILLARD. The board of directors of PBGC is not subject to 

open meetings. I don’t know if your question was more about attendance or the actual policy. 

Mr. KIND. Well, take a stab at this. We understood that there 

was going to be review as far as the investment decisions at PBGC 

and the meeting was going to be held. We had requested that staff 

be able to sit in, and find out what was going on. They were excluded. Then you went ahead and made investment decision 

changes at PBGC with no consultation with Congress at all, without keeping us in the loop. 

You know, some of this obviously is a point for the hearing today. 

But why the lack of any type of lines of communication with the 

Congress when you’re making such potentially important decisions 

over the investment of these funds? 

Mr. MILLARD. I think since 1974 when PBGC was founded, the 

investment policy has been an issue that is in the purview of the 

board, and, as I said, the board is not subject to the openings law. 

Mr. KIND. So, you find no problem at all for you just to go ahead 

and make these type of decisions without any line of communication, without any consultation with Congress, and—— 

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Mr. MILLARD. I didn’t go ahead and make these decisions. The 

board along with the board reps along with the advisory Committee, along with a variety of consultants who were involved after 

an 8-month study, reached a conclusion about how better to enhance the likelihood that PBGC would be able to pay its liabilities 

over time. 

I think that that was a very, very good decision to put the PBGC 

on a sounder financial footing for the future. I think the executive 

branch’s obligation is to make those kinds of decisions and carry 

out the task that you give it. 

I don’t have any problem with consulting with Congress, and we 

did discuss this with some Congressional staff from time to time, 

and people knew it was in the works and that it was coming. Knew 

the varying points of view leading up to the decision. 

Mr. KIND. Mr. Chairman, I appreciate the indulgence with the 

time. I see my time has expired. But I for one am particularly comforted with the responses, especially the response surrounding the 

subpoena request for information. This has been a pattern that we 

have detected with this administration time and time again, and 

unfortunately I think there’s going to be required some followup 

with what just occurred earlier this year, with what I felt was a 

legitimate subpoena request for information, that was not complied 

with. 

But thank you, Mr. Chairman. 

Chairman LEWIS. Let me just say to the gentleman from Wisconsin, if necessary for another round of questions, we may be able 

to do just that. 

Now I turn to Mr. Linder for his questions. 

Mr. LINDER. Thank you, Mr. Chairman. Thank you both for 

being here. 

Mr. Millard, what percentage of the plans out there are still defined benefit? 

Mr. MILLARD. What percentage of the plans. I’m not sure. 

Mr. LINDER. Many plans are going from defined benefit to defined contribution. 

Mr. MILLARD. Well, they don’t necessarily go from one to the 

other—— 

Mr. LINDER. Some—— 

Mr. MILLARD. A defined benefit plan might freeze and someone 

might open or not open a new defined contribution plan. PBGC 

doesn’t have oversight of a defined contribution plan. 

Mr. LINDER. Correct. So, have you given any anticipation as to 

how many potential problems there are out there of defined benefit 

plans? 

Mr. MILLARD. Yes. We’re concerned about under-funded status 

and defined benefit plans. We’re concerned about the increase in 

freezing. Occasionally, I would even say frequently, when someone 

does freeze a plan, they will create a defined contribution plan. The 

distinction between those two is something that some people would 

say defined benefit plans are a better deal for the workers. Some 

people would say a defined contribution plan is a better deal for the 

worker. 

Mr. LINDER. That’s not the question I asked you. 

Mr. MILLARD. Okay—— 

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Mr. LINDER. I expect because of your role and your responsibility on failing defined benefit plans, that you would have some 

idea of how much risk there is out there in the benefit community. 

Mr. MILLARD. I’m trying to answer your question. But when 

you say ‘‘how much risk there is out there in the defined benefit 

community,’’ do you mean what’s the overall underfunding in the 

system? 

Mr. LINDER. Yes. 

Mr. MILLARD. Okay. Overall underfunding in the system. We 

had at the end of 2006, we published a number of $350 billion of 

underfunding in the overall system. That number in fiscal year 

2007 we believe went down, although we didn’t publish it in the 

annual report, because we’ve actually come to the conclusion that 

our ability to calculate that number, because it’s based on a lot of 

extrapolations and estimations, is probably something that we 

ought not to try to promise too much precision about. But our estimate—and it’s only an estimate—is that there was about $225 billion of underfunding in the overall defined benefit system at the 

end of 2007. That’s on a total system of about $2 trillion. So, an 

overall underfunding of approximately 10 percent as an order of 

magnitude in the overall defined benefit system. 

Mr. LINDER. Thank you. 

Ms. Bovbjerg, in your GAO report you pay some attention to the 

three-person board of directors and its oversight. Those three cabinet secretaries are pretty busy in doing other things, I assume. Did 

you make any recommendations as to what the board should look 

like? 

Ms. BOVBJERG. We did not make recommendations. We had 

some ideas. We thought it needs to be larger. Corporate governance 

standards suggest anywhere from five to 15 members. 

Mr. LINDER. Where should they come from? 

Ms. BOVBJERG. It should probably be more diverse. It should 

not be 100 percent government officials. It could diversify in terms 

of skill, in terms of representation. We do acknowledge that the 

original legislation that created the board did attempt to have diversity, so that the Department of Labor represents workers, Department of Commerce represents employers, Treasury represents 

finance. But taking that idea further, we think would be useful. 

The McKinsey Report does have several suggestions about that as 

well. 

Mr. LINDER. Thank you both. Thank you, Mr. Chairman. 

Chairman LEWIS. Thank you. 

We will now turn to Mr. Pascrell for this questions. 

Mr. PASCRELL. Thank you, Mr. Chairman. 

Mr. Chairman, I was just looking at the chronology since July of 

2007 when the GAO issued its report critical of the PBGC in the 

governance, structure, and practices. Then all the way through to 

August of 2008, I think Mr. Kind, the gentleman from Wisconsin, 

was on target, and I don’t believe that the responses have been satisfactory. I think that this should cause greater concern for us. 

There is no reason to ignore requests from the Committee or anybody else, since this document is pertinent to us getting a good 

grasp on what’s happening. I hope the Ranking Member and the 

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Chairman feel as I do, that there should be at least followup on 

this, in going in that direction. 

Ms. Bovbjerg, the current market crisis has created a situation 

where the average taxpayer may soon find themselves bailing out 

some of this country’s historically wealthiest corporations. So, I 

have a very simple question. Probably deserves a complex answer, 

but whatever. What is the chance that the taxpayers will be asked 

to provide funds to the PBGC? What’s your gut feeling on this? 

Ms. BOVBJERG. It’s really hard to say. I’m going to have to give 

you the complex answer. Initially nothing. For some years to come 

PBGC is going to be able to pay benefits. 

Mr. PASCRELL. Right. 

Ms. BOVBJERG. You know, it’s because when you terminate 

plans, there are assets that come with those plans, even though 

those assets are insufficient to fund all the benefits guaranteed by 

PBGC. There are still assets there. 

Mr. PASCRELL. All right. 

Ms. BOVBJERG. So, PBGC will have funds for years to come. 

This is not an immediate problem; but it’s certainly one that in the 

PBGC context, you can see it coming way down the road. 

Mr. PASCRELL. You have an overview of all of this that’s going 

on in the pension systems. What do you think of the effort to 

change the foreign benefit plans into non-defined benefit plans? 

Does that have traction? What are the implications? 

Ms. BOVBJERG. Really more what is happening, there’s a little 

different dynamic. Very few defined benefit plans are newly created 

today. Employers are turning much more frequently to defined contribution plans. So, new plans are defined contribution plans, 401K 

type plans. Defined benefit plans are more likely today to be frozen 

than in the past; certainly that’s what some of our analysis suggests. Freezing can be a step toward termination ultimately. 

So, the defined benefit system really is shrinking. There are 

fewer new participants coming in. It’s more heavily laden with current retirees. So, that’s the dynamic you see out there. PBGC is insuring what over time is a shrinking system. 

Mr. PASCRELL. Mr. Millard, the PBGC Single Employer Pension Insurance Program has a deficit of over $13 billion. As of last 

September. You reported $1.2 billion in highly likely terminations. 

Companies with below-investment-grade credit for firms in the finance, insurance, and real estate industries. 

My question is: How much of Fannie Mae, Freddie Mac, Lehman, 

AIG’s pension promises went unfunded? 

My second question is: If these pension plans come into the 

PBGC, how would they affect your deficit and target date for reaching full funding? Two specific questions. 

Mr. MILLARD. Yes. The actual underfunding in the plans that 

you talked about in specific detail, we get a more up-to-date basis 

from the information that’s confidential that we’re no allowed to 

share. It comes from 4010 filings and other specific—sometimes 

there will be a transaction going on that requires that they give us 

additional information that we’re not actually permitted to disclosure company by company. But there are five companies that help 

me answer your question, I think. That would be AIG, Fannie Mae, 

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Freddie Mac, IndyMac, and Lehman, those five had a total underfunding in their plans of approximately $400 million. Mr. PASCRELL. $400 million? 

Mr. MILLARD. Yes. By the way, Bear Stearns had no plan, and 

Merrill, although it’s a different conversation, also had no plan. PBGC’s obligation to cover that $400 million would only to cover $100 million of that underfunding. As you know, we don’t pay the 

full amount of people’s benefits sometimes. We have a maximum 

of $51,000 a year, so someone who’s benefit might have been 

$70,000 would only get $51,000 with us. So, the hit to our deficit 

from those five companies would be about $100 million. 

Mr. PASCRELL. So, what—— 

Mr. MILLARD. If they came in, and of course they haven’t necessarily come to us yet. 

Mr. PASCRELL. If. Right. But in this past week, what is the 

new dollar estimate for what you and I would consider reasonable 

possible terminations in the finance, insurance, and real estate—— 

Mr. MILLARD. We had a figure for that in our annual report, 

which is a December 2006 figure, which we put—because remember, we get filings, the Form 5500 doesn’t get filed until 9 months 

after the plan year that it relates to. 

Mr. PASCRELL. Yeah, but you don’t get the estimates until 9 

months after. But the fact of the matter is you must be monitoring 

this very closely. I mean what’s happening in one market is affecting you every day. 

Mr. MILLARD. We would like to be able get more up-to-date information about plan status than we are currently permitted to get, 

by law. The 4010 filings that we get are less useful to us now than 

they used to be under the Pension Protection Act of 2006 and the 

Form 5500 is only required to be filed 9 months after the year is 

passed. We can’t require people to give us this information; although yes, we can extrapolate and try to update things. So I do 

have information for you that is based, I’m sorry to say, on December 2007. So, the number that your asking about was $1.2 billion 

of I believe it was reasonably possible exposure to the PBGC in December of 2006. That number dropped to $400 million in December 

of 2007. I don’t have up-to-date information on the overall 5,000 

companies in the financial insurance and real estate industries to 

tell you what that $400 million is as of today. 

Mr. PASCRELL. I would think that would be very critical, 

wouldn’t it, Mr. Millard? 

Mr. MILLARD. It would great if I could get it. 

Mr. PASCRELL. But can’t you, use your terms, ‘‘extrapolate’’ 

from what the information that you can gather right now in order 

to make your prognostications—— 

Mr. MILLARD. The best I can do is ultimately not reliable. 

But let me walk through with you a way to think about it. If you 

assume—and I don’t believe this is a reliable assumption—but let’s 

assume that all those plans are invested 60/40—60 percent equities, 40 percent fixed income. Let’s assume that in the last 9 

months the performance of the financial sector is down 10 percent, 

depending on how recently you want the numbers. In the last 12 

months it’s down 5, down 10, down 15, depending on what day you 

asked the question, so it’s so volatile. So, let’s say it’s down 10. If 

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you assume that their 60 percent is all in the S&P, the S&P is 

about 16 percent financials, so that 16 percent would have dropped 

by 10 percent, which would be a 1.6 percent drop in the portfolios 

of companies that are across the board invested in a 60/40 investment. 

But, as you can tell from my giving you that equation, it’s not 

really reliable for me to say now I know that I have a bigger or 

smaller risk. What I need is more real time information from the 

companies that we cover; because they’re all not all 60/40, and people are changing their portfolios all the time. 

Mr. PASCRELL. Thank you, Mr. Chairman. 

Chairman LEWIS. Sir, I don’t quite understand. If you can just 

respond to Mr. Pascrell. You say you don’t have the authority. It 

there some rule as to the law that keeps you from making certain 

information public? We’re not asking, Mr. Pascrell—— 

Mr. MILLARD. No, no—— 

Chairman LEWIS. I don’t think you were asking for the individual—— 

Mr. PASCRELL. I wasn’t. 

Chairman LEWIS. But—— 

Mr. MILLARD. There’s two things. 

Chairman LEWIS. Well, make it plain to the Members of the 

Committee. 

Mr. MILLARD. If I have information from a specific company 

that they’ve given us from a 4010 filing, I’m not allowed by law to 

sit here and say Merrill-Lynch has X–Y–Z going on its portfolio. 

That’s number—— 

Mr. PASCRELL. Mr. Chairman. 

Chairman LEWIS. Yes, sir? 

Mr. PASCRELL. Excuse me, if I may, with your permission. You 

may not be commanded to do that, but you certainly need that information in terms of what we’re going to be doing in the future. 

So, why don’t you have that information? 

Mr. MILLARD. There’s two points. We do get information from 

people who are on our reasonably possible list. You get on the reasonably possible list, for example, if you have a junk bond credit 

rating, if you have missed some of your contributions, if you have 

filed for a waiver, if you’re having some problems, not necessarily 

about to go bankrupt, but you’re having some problems. Then 

you’re on our reasonably possible list. Once you’re on our reasonably possible list, then you file a 4010 filings with us, and that 

gives us much more up-to-date information about those companies. 

But AIG is not on our reasonably possible list. They are actually 

still an A-rated company. I know that sounds counter-intuitive, but 

they are. So, they don’t have to file a 4010. So, I don’t get that kind 

of information from them. I get lots of information about them in 

the Form 5500, but under the law the Form 5500 isn’t filed until 

October of the year after. So, the information you would like to 

know about what’s happening in somebody’s plan right now, we 

will receive October a year from now. 

Mr. PASCRELL. Mr. Chairman, you can understand why that’s 

not very comforting to folks who have these pension plans. We’ve 

known what’s been going on in the pension system, regardless of 

what area they’re in. 

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These funds are in jeopardy. People who worked hard all of their 

lives—and I know you want to protect them just as much as want 

to protect them—and yet, for some reason we seem to be not doing 

what we should be doing. 

This is serious business. I mean people are planning this retirement income they can count on. Our answer is, ‘‘Oh, we’re 9 

months behind in getting you a specific answer about what’s going 

on right now’’—— 

Mr. MILLARD. No—— 

Mr. PASCRELL. You know, you make predictions based upon the 

data that you can get. No one’s saying that you can’t get the data. 

You’re saying you’re not commanded to get the data. 

Mr. MILLARD. I’m saying that the law requires that people file 

with us 9 months after the time that we’d be interested in the information, and the we do not have the right to insist that plans not 

subject to 4010 filing provide us that information. 

I think it would be irresponsible for me to try to tell you from 

extrapolated numbers, as I tried to demonstrate a moment ago, 

what underfunding is in specific companies or even industry sectors, simply by extrapolation of 9-month and 10-month and 12- 

month-old data, particularly in markets that are so volatile that I 

can tell you what something is today and tomorrow it could change 

by 10 percent. 

Mr. PASCRELL. Mr. Millard, let me tell you something, very 

clearly, very succinctly. I don’t buy that. I don’t buy it because this 

perfect storm didn’t happen 2 weeks ago. It’s been gathering. It 

would seem to me in the position that you’re in—and who is the 

head of the your board?, the Secretary of Labor?—I would be absolutely honed in, focused on what is happening in the general economy, what is happening on Wall Street, so that I can prepare for 

what is happening. 

Pensions have been under attack for many years now. This is 

nothing new we’re talking about here. 

Mr. MILLARD. Yes, Congressman—— 

Mr. PASCRELL. We didn’t invent the discussion. 

Mr. MILLARD. That is why in the Pension Protection Act, we 

asked for better 4010 filing information on a more current basis, 

and we didn’t get it. 

Mr. PASCRELL. When was that? 

Mr. MILLARD. Pension Protection Act 2006. 

Mr. PASCRELL. Oh—— 

Mr. MILLARD. Because we knew that there was a problem. 

Mr. PASCRELL. You have a different Congress, you have a different—— 

Mr. MILLARD. We asked Congress to give us more information 

on a more timely basis. Congress did not do so. 

Mr. PASCRELL. Well, I think that’s the direction we should be 

going in. You should be doing it without our command. 

Thank you. 

Chairman LEWIS. Thank you very much. 

Mr. Johnson, I know you’ve been waiting so patiently. We turn 

to you for your questions. 

Mr. JOHNSON. Thank you for allowing me to join you today. I 

appreciate it—— 

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Chairman LEWIS. Delighted to have you, Mr. Johnson. 

Mr. JOHNSON. You know, when we put that Pension Benefit 

Act together, there were some ideas that if a company was doing 

okay and not, you know, in trouble, we didn’t there to push them 

for information. It’s the ones that declare bankruptcy before we’re 

in a bankruptcy status that had to start reporting to him. I think 

you remember that. The problem we got today with these guys is 

they didn’t ever get classed as bankrupt. You know that. AIG, for 

example. 

Let me ask you a question, Mr. Millard and Ms. Bovbjerg. The 

Pension Protection Act required companies to match the asset investment horizon to their liability or benefit payment horizon. Do 

either of you have any feedback on how this is working for pension 

plans?, and does the new investment strategy of PBGC follow its 

predicted liability payment horizon? If not, why not? 

Mr. MILLARD. I’m sorry. I missed the first part of that question. 

Would you mind just repeating it please? 

Mr. JOHNSON. Sure. The Pension Act required companies to 

match their asset investment horizon to their liability or benefit 

payment horizon. Do you have any feedback on how that’s working? 

Mr. MILLARD. Hmm, I think if I could comment, let me take it 

to the PBGC’s investment policy. I think that in 2004 the prior investment policy at PBGC was more asset liability matching, as 

you’ve mentioned, and the new investment policy is more targeted 

over the long term to try to make sure we increase the chances 

that we will be able to pay our liabilities over time. 

The principal guideline or the principal objective of the new investment policy is to say, ‘‘Look, we know that Congress has said 

the U.S. Government doesn’t stand behind PBGC’s liabilities, and 

we need to do the best that we can without taking undue risk to 

maximize the chance that we will be able to pay those bills, so we 

won’t have to come to Congress for a $14 billion bailout.’’ If you have $82 billion of liabilities and $68 billion of assets, and 

you engage in excellent asset-liability matching, then you will have 

of course retained for the future the $14 billion deficit. Each will 

go up together, each will go down together, and then some day we’ll 

come to Congress and say, ‘‘How about the $14 billion?’’ The new 

investment policy is designed to increase the likelihood that we will 

not need to come to Congress for that money without taking undue 

risk in the portfolio. 

Mr. JOHNSON. Ms. Bovbjerg, do you have a comment? 

Ms. BOVBJERG. Well, let me just summarize GAO’s work on the 

investment policy. Our concern about the policy is that while, in 

fact, returns seem likely to rise, so too does risk, and that we did 

not feel that the risk level represented in the new policy was adequately acknowledged or analyzed appropriately. We thought that 

that was information that the board should have had in making 

this decision. 

Mr. JOHNSON. Thank you. 

Mr. Millard, in the Pension Protection Act there were special provisions granted to the airline industry regarding their funding. I 

wasn’t a big fan of industry-specific relief at that time, but an ardent supporter of making sure Congress didn’t pick winners and 

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losers, once the decision was made. Could you tell me whether the 

additional time the airlines were given to fund their pension obligations has caused problems so far for the PBGC?, and have all the 

major airlines that were turned over to you taken advantage of the 

additional time Congress gave them to fund their pension obligations? As you know, most of the major airlines—United, USA, 

Delta, Pan American, and Trans World, are all under you now, and 

it seems to me there are only two that are still sitting out there 

with pension plans—American and Continental. 

Mr. MILLARD. Right. The ones that have folded, obviously, you 

know, have not been able to take advantage of any of those provisions; but the ones at issue have taken advantage of the provisions. 

But you ask if it’s posed any problems for PBGC. In a sense I have 

to say ‘‘not yet,’’ because the amount of underfunding, without 

being too specific in those plans, remains very high, and their required contributions remain at low or zero, because of those provisions. 

That means that the workers who are the intended beneficiaries 

of those plans face a situation in which the amount of underfunding, should those airlines file for bankruptcy again and not be 

able to support those plans, that amount of underfunding is likely 

to be substantially higher than it would be if they were meeting 

the provisions that other companies have to meet in the Pension 

Protection Act of 2006. 

Mr. PASCRELL. Well, about 41 percent of your claims or responsibility is from the airline industry, I think. Are you able to meet 

those without worrying about defaulting? 

Mr. MILLARD. Well, 76 percent of all the claims we’ve ever 

taken in are steel and airlines. So we have been able to meet our 

obligations over all that time, yes. 

But if you calculated the airline relief, if you calculated the airlines who were subject to airline relief the same as we calculate 

every other company, then our deficit wouldn’t be $14 billion; it 

would have been at the end of 2007 about $22 billion. 

Mr. JOHNSON. Thank you, Mr. Chairman. I appreciate the 

time. 

Chairman LEWIS. Thank you, Mr. Johnson. 

We now turn to Mr. Pomeroy for his questions. Welcome, Mr. 

Pomeroy. 

Mr. POMEROY. Mr. Chairman, thank you for having this hearing and thank you for allowing me to participate. So, many issues, 

so little time. 

Let’s continue to focus on this asset-liability match question, because I really do think it’s important for us to get a handle on that, 

as well as evaluation whether in responding to the financial crisis, 

if we care about keeping pensions, we need to give some relief to 

the terms of the Pension Protection Act, which is essentially a 

mark-to-market proposition. 

Now you mentioned that in 2006 you reported a $350 billion 

underfunding, and that’s out of how big a fund? 

Mr. MILLARD. Out of a total universe of approximately $2 trillion. 

Mr. POMEROY. Out of a $2 trillion fund. You also—— 

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Mr. MILLARD. Not a fund, that’s the overall universe. That’s the 

universe of all defined benefit plans in the United States, not our 

fund. 

Mr. POMEROY. Oh, thank you for that clarification. So, out of the defined benefit universe of $2 trillion, the snapshot on a markto-market accounting basis, shows a $350 billion underfunding and 

the very next year that had dropped to $225 billion because the 

market had recovered somewhat. Is that correct? 

Mr. MILLARD. Estimated numbers, but yes. 

Mr. POMEROY. So, basically, the pension obligations, which are 

owed over many years, will in some ways be—this mark-to-market 

doesn’t make a lot of sense, because basically mark-to-market 

means you essentially would have to liquidate your assets and 

match against presently payable liabilities. But the reality is the 

pension liability goes over many years. So, mark-to-market snapshots are going to be up, they’re going to be down, they’re going 

to vary. But they may not have a lot to tell you about the strength 

of the fund. Is that correct? 

Mr. MILLARD. I think that’s a fair characterization. 

Mr. POMEROY. The discussion today has gone far and wide. 

There are so many issues of concern I’d like to talk to you about 

regarding governance, regarding the Secretary of Labor not having 

the slightest notion about what an investment policy is, the tendency to sell low and buy high in the management of the investment 

fund. On and on. 

But I’m not going to get into that, and I’m not going to get into 

the really slimly looking appearance of your predecessor, the 

former PBGC director, who pushed the Pension Protection Act because all these pensions were insolvent, and now wants to go and 

run off those pension liabilities as part of a hedge fund profit-making proposition. I won’t talk about any of that. 

[Laughter.] 

Mr. POMEROY. Because we have issues that are more important 

to focus on, and that is these pensions. 

I quote from yesterday’s front page New York Times stories on 

how retirees are doing in the middle of this financial storm. ‘‘As 

companies have switched from fixed pensions to 401K accounts, retirees risk losing big chunks of their wealth and income in a single 

day’s trading, as many have in the past month.’’ Article goes on to 

say, ‘‘Today’s retirees have less money and savings, longer life 

expectancies, and greater exposure to market risk than any retirees since World War II.’’ Do you agree with that sentence? 

Mr. MILLARD. I don’t think I can take a position on the sentence. I’m following your point—— 

Mr. POMEROY. Okay. We’ll, I’ll tell you why I agree with it. I 

agree with it because we’ve had the number of pensions declining, 

and now only have about 20 million workers covered; but it represents a substantially smaller share than were covered earlier, 

and that those who have defined benefit pensions today don’t really 

to have to worry about this financial crisis in the same those that 

are self-managing their 401K account, because they’re going to get 

an annuity payment, come what may. That annuity payment is insured by the Pension Benefit Guaranty Fund. Now, do you agree 

with that? 

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Mr. MILLARD. Yes. 

Mr. POMEROY. I note that in the ERISA law that establishes 

your position, there is a provision, and I quote, ‘‘to encourage the 

continuation and maintenance of voluntary private pension plans 

for the benefit of their participants.’’ So, do you view as part of 

your responsibilities doing what you can to keep pensions functioning and healthy? 

Mr. MILLARD. Yes. What we can, certainly. 

Mr. POMEROY. The pension study of the GAO indicates that the 

two main reasons driving the freezing of pension plans is the cost 

of funding the pensions, and the volatility of funding the pensions. 

Do you agree with that? 

Mr. MILLARD. I think those are two very important considerations, yes. 

Mr. POMEROY. Here’s what worries me about the time we’re in. 

Market valuations are depressed, severely depressed. You might 

say hysterically depressed. One of the reasons the Secretary of the 

Treasury is up on Capitol Hill, working on this so-called bailout 

proposition, is to try and infuse liquidity and confidence into the 

marketplace, because present valuations really don’t reflect the 

value of the assets. Do you agree with that? 

Well, let me put it this way. Do you agree that market valuations 

today may be below the highly probable value of the assets? 

Mr. MILLARD. They may be below? Sure, I’ll agree with that. 

Mr. POMEROY. Well, I’d even say they’re probably likely to be 

below. I believe one of the reasons the Secretary of the Treasury 

continues to talk about potential upside of the taxpayer helping is 

because he expects them to perform better than market valuation. 

Here’s what’s worrying me. If on the more or less mark-to-market accounting rules now passed by Pension Protection Act, we 

take a snapshot of what these companies are going to owe to fund 

their pensions this year, they’re going to see that the pension assets held have diminished in value in light of the market problems, 

and that therefore they’re going to have to fund more highly. 

There are two provisions that fell short in the Pension Protection 

Act of 2006. One is smoothing—this business of where amounts 

owed is levelized somewhat over time. Congress should have 

passed it in the Technical Corrections Act. It has not passed it yet. 

I believe there’s an imperative to pass the smoothing on funding. 

But there’s another provision as well, and this is: If the fund falls 

below the target for the year, if the funding of a plan falls below 

certain levels, they have to fund it even more to get it back up to 

100 percent. I believe that this year’s funding requirement is 94 

percent. Those under 94 percent will have to fund up to 100 percent, as opposed to 94 percent. Are you aware of that provision of 

the Pension Protection Act of 2006? 

Mr. MILLARD. Yes. 

Mr. POMEROY. Do you believe that it’s possible that could have 

a draconian impact on companies in light of the depressed market 

valuations of their pensions?; they’re going to be below that 94 percent, and at a time when their own business is challenged by this 

challenging economic environment, they’re suddenly going to have 

to pay more for their pension, because they’re going to have to 

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bring it up to 100 percent, even though it’s 100 percent of very depressed asset valuations in their portfolio. Do you agree with that? 

Mr. MILLARD. Well, I think that the potential for market volatility, you know, as was stated a moment ago, we’ve known about 

lots of these issues for a long period of time—— 

Mr. POMEROY. Come on, give me a straight answer to this one. 

Give me a straight answer to this one. Is it highly likely—— 

Mr. MILLARD. My straight answer to you is: We knew there 

was going to be volatility when the Pension Protection Act passed, 

knowing that some times there is a lot of volatility, nonetheless, 

adopted as a policy that we want people to fund up. If we want to 

change that policy, that’s a whole discussion that goes beyond, I 

think—— 

Mr. POMEROY. Okay. Mr. Director, if you knew that we were 

going to be in this situation, I sure in the world wished you’d have 

told the Fed and I wished you had told the Treasury, and maybe 

even bother to call President Bush while you were at it, because 

I believe most of us are highly surprised about the economic environment we are in. 

Now, given the economic environment we are in, do you want 

these plans to fund up to 100 percent? 

Mr. MILLARD. I think the people should comply with the terms 

of the Pension Protection Act as Congress wrote it. 

Mr. POMEROY. I think that you might want to comply with the 

law, which you are sworn to uphold. Let me read it to you one more 

time. ‘‘To encourage the continuation and maintenance of voluntary 

private pension plans for the benefit of their participant.’’ Do you 

think that asking them to fund up in this market environment to 

100 percent of what the market is evaluating their assets to be 

worth is consistent with your sworn responsibility to encourage the 

continuation and the maintenance of voluntary pension plans? 

Mr. MILLARD. Congressman, my job is to enforce the law as 

Congress passed it. Congress passed a law that requires this. 

Mr. POMEROY. Now this is very interesting. Do you believe that 

we repealed this part of your law? 

Mr. MILLARD. No, sir. 

Mr. POMEROY. You know, here’s the point—— 

Mr. MILLARD. But—— 

Mr. POMEROY. I know you have to enforce what you have to enforce. But it would seem to me that you might be offering us some 

counsel, some leadership, some guidance relative to the imperative 

of getting smoothing passed. 

I think it’s abhorrent that Congress has failed to smoothing. It’s 

ridiculous that we have failed to do that. So, we’ll certainly accept 

our share of the burden. 

But in addition to that, this business of funding up, which you 

seem to indicate is still a realistic pension-funding policy, even 

with the mark-to-market issues relative to depressed asset valuation, are you still in favor of this part of the Pension Protection 

Act? 

Mr. Chairman, just if you’d indulge me so he can answer this 

last part of the question. 

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Mr. MILLARD. I think if you’re asking me: Does the administration have a position on changing the Pension Protection Act?, no 

we do not now have a position on changing that act. 

Mr. POMEROY. Do you believe the 100 percent is appropriate in 

this market valuation, as a matter of counsel to Congress, being 

the pension expert in the Federal Government? 

Mr. MILLARD. As I just said, I don’t think the administration 

currently has a position on changes like that—— 

Mr. POMEROY. As the director being the expert—so you’re precluded from offering your expertise? 

Mr. MILLARD. Well, so far I’ve been aware of this general idea 

of a change for approximately an hour and 25 minutes. So, I think 

it’s probably better if I gave it a little bit more thought than that. 

Mr. POMEROY. I encourage your thinking on it, and I’m a little 

distressed to hear that this is such a fresh notion to you. 

I yield back, Mr. Chairman. 

Mr. MILLARD. If I may, Mr. Chairman, I’d like to take exception 

to two things. I do not believe that the characterization of the 

Chairman of Board, Elaine Chow, as not having the slightest idea 

about investment policy is objectionable and not consistent with my 

experience. 

Mr. POMEROY. As a matter of record before the Committee on 

Ways and Means and a question that I asked the Secretary of 

Labor as to whether the investment policy of the board had been 

changed to move to a more conservative position in equities, and 

she said it had not been changed. That was controverted by signed 

minutes that she signed as Secretary of Labor. Now she either actively misrepresented—and that’s a possibility, I wasn’t thinking 

about that—or I thought it reflected just abject ignorance of what 

was going on in her responsibilities as trustee. 

I yield back. 

Mr. MILLARD. In my experience, there is no abject ignorance or 

purposeful misrepresentation by the Secretary of Labor. 

Mr. POMEROY. Why would she give an answer like that? 

Chairman LEWIS. Maybe at another time and another place, we 

can have maybe the director and the Secretary of Labor both to 

come before the Committee. 

Mr. POMEROY. I’d welcome that opportunity, Mr. Chairman. 

Chairman LEWIS. Let’s work on that. 

Thank you very much. 

Now turning to Mr. Tiberi for this questions. Welcome. 

Mr. TIBERI. Thank you. Thank you, Mr. Chairman. 

Chairman LEWIS. I haven’t seen you in a while. 

Mr. TIBERI. I’ve been around. 

Chairman LEWIS. We haven’t been meeting, I guess. Good to see 

you. 

Mr. TIBERI. Yes. Good to see you, Mr. Chairman, 

Chairman LEWIS. I miss seeing you. 

Mr. TIBERI. I miss seeing you, and I will also miss seeing Mr. 

Ramstad next year. 

Mr. RAMSTAD. Thank you. 

Mr. TIBERI. It’s been a pleasure to be with you. 

Chairman LEWIS. Let me share some things about him—— 

[Laughter.] 

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Chairman LEWIS. We’re all going to miss him. 

Mr. TIBERI. Thank you. 

Thank you both for testifying today. Just a question for both of 

you. Are there any changes to ERISA that GAO would recommend 

to help minimize underfunded plans? 

Ms. BOVBJERG. I was thinking it might just stop with ‘‘Are 

there any changes to ERISA that we would recommend?’’ 

Mr. TIBERI. We could stop there too. 

Ms. BOVBJERG. We’ve recommended many. With regard to underfunded plans—— 

Mr. TIBERI. To help minimize the underfunding of plans? 

Ms. BOVBJERG. Honestly, I think that we did learn from the 

experiences with Bethlehem Steel and United Airlines, and the 

way that the funding rulers played out in those instances. Those 

were the two largest claims ever made on PBGC. It was all done 

within the funding rules. So, you know, I’ve listened to the funding 

rule discussion with a lot of interest, because I think the intent in 

PPA is to balance the clear needs of the PBGC to have better funding and plans, but at the same time trying not to drive employer 

sponsors out of the defined benefit business. I think what we’re 

really talking about here is where do, how do you calibrate that 

balance? 

The reason I don’t have direct advice for you on this today is I 

think that in this particular economic environment we really have 

to step back and see what is going to happen out there, what is 

going to happen as the funding rules start to really bite for employers and their contributions, what will happen to some of the businesses that may be teetering and are on the probables or the reasonably possible lists. 

Mr. TIBERI. Director, any thoughts from your perspective? 

Mr. MILLARD. I really would reiterate what Ms. Bovbjerg said. 

The real effect of the Pension Protection Act, which did have the 

goal of balancing, as she just described, really isn’t something that 

we can tell yet. Those provisions are really just beginning to kick 

in. I think it did try to say we don’t have more Bethlehem Steels 

in the future, and as we see people fund up, hopefully we won’t. 

Obviously making them too expensive, if that’s the right expression, is not a goal either; and I think it’s too early to tell the results 

of that bill. 

Mr. TIBERI. How long do you think it should take before we 

know? 

Mr. MILLARD. At least a few years. I mean it’s not the kind of 

thing that you can tell; because the markets are so volatile, it’s 

hard to say what effect 1 year or 2 years is going to have on an 

overall system complying with the new law. 

Mr. TIBERI. Do you agree with that? 

Ms. BOVBJERG. Actually, I wanted to jump in a little bit different issue; which is I think that the defined benefit issues that 

we’re going to see in response to the current economic turmoil actually won’t happen as fast as some of the things that have happened 

in the last 2 weeks. It will take a while to see that play out and 

to affect participants. 

But as Mr. Pomeroy just pointed out in the article in the New 

York Times, they got it right on 401Ks. Particularly older people 

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don’t have patient capital; they may not be able to wait all this out. 

We have been concerned for a long time that people are not saving 

enough in 401Ks, and now discover that what they were saving is 

being eroded by market change, which is, you know, what risk is 

all about. 

So I guess I just wanted to take the opportunity to remind the 

Subcommittee that there is a big world of defined contribution pensions out there and that those are going to be the places where people are going to feel the most direct pain the most quickly. 

Mr. TIBERI. Thank you. Thank you, both. I yield back. 

Chairman LEWIS. Thank you very much. 

Mr. Pascrell is recognized for an additional question. 

Okay. It’s my understanding that Mr. Kind is prepared and 

ready to yield to you, and then we will come back to him for a short 

question. 

Mr. PASCRELL. Thank you, Mr. Chairman. Thank you, Mr. 

Kind. 

Mr. Millard, so please tell me. Currently the PBGC needs more 

negative financial triggers in order to demand financial information 

from companies, correct? 

Mr. MILLARD. Yes. 

Mr. PASCRELL. So, the law as it stands only allows you to do 

so at the point where bankruptcy occurs, correct? 

Mr. MILLARD. Not only then, no. But that’s the kind of—— 

Mr. PASCRELL. Well, where else? 

Mr. MILLARD. Hmm, we get 4010 data based on certain transactions that might happen—— 

Mr. PASCRELL. What changes actually? Which transactions? 

Give me an example. 

Mr. MILLARD. The purchase of Chrysler by 

Mr. PASCRELL. I’m sorry? 

Mr. MILLARD. The purchase of Chrysler by Cerberus. 

Mr. PASCRELL. What happened there? 

Mr. MILLARD. We did engage. We got the information. We insisted that—— 

Mr. PASCRELL. But what triggered it off? 

Mr. MILLARD. Sale, the change of control. 

Mr. PASCRELL. Change of control. So, every change of control 

you have the authority to review that? 

Mr. MILLARD. Yes. They have to file with us. 

Mr. PASCRELL. Under the law? 

Mr. MILLARD. Yes, sir. 

Mr. PASCRELL. So, have you asked for the authority to demand 

such financial information? Have you asked for that? 

Mr. MILLARD. I don’t believe we’ve asked for that specific authority. We did ask for substantially greater author in the Pension 

Protection Act and were denied it. We also did not way—by the 

way, the 4010 information that we now get after the Pension Protection Act is less useful to us than the 4010 information that we 

used to get, because now people file based on a percentage of 

underfunding. Well, if you have the $100 million plan and you’re 

20 percent underfunded, that’s far less concern to me than if you 

have a $10 billion plan that’s 10 percent underfunded. But the first 

company I just described has to file a 4010, and the second does 

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not, because Congress changed the provisions under which people 

have to require a 4010. 

Mr. PASCRELL. So, if you did have the specific authority that 

we’re talking about here—and we each understand each other—it 

would seem that it would assist us in the Congress, it would assist 

you in taking a preventative measure—and this is what I was trying to get at before—against future potentially damaging 

downturns in the economy, wouldn’t it? 

Mr. MILLARD. Yes. I mean I don’t know how much it can help 

us, but of course it can help us some. If someone is having a problem and we know the information, we can try to go in and insist 

and negotiate, use whatever leverage we have to try to get them 

to increase their funding—— 

Mr. PASCRELL. Particularly if there are a lot of companies having the problem at the same time. 

Mr. MILLARD. When we get that information, we frequently do 

take that kind of action to try to get more money into pension 

plans—and the Daimler-Chrylser situation is a very, very good example—we persuaded them because they wanted us to agree to certain provisions of their transaction, to put $200 million more into 

their pension plan than the law required. 

Mr. PASCRELL. Would you ask for that authority today? 

Mr. MILLARD. Would I ask for which authority? 

Mr. PASCRELL. The very authority I talked about. You know, 

the authority to demand specific financial information? 

Mr. MILLARD. I think if we had that authority, that would be 

great. 

Mr. PASCRELL. So, you’re asking for it? 

Mr. MILLARD. Yes. 

Mr. PASCRELL. I didn’t ask you if you thought it would be 

great. 

Mr. MILLARD. Yes—— 

Mr. PASCRELL. I asked you would you ask us to do it? 

Mr. MILLARD. Yes. 

Mr. PASCRELL. Well, would you ask us? 

Mr. MILLARD. I would ask you for the ability to demand certain 

information of certain companies, based on our view that they may 

have some underfunding problems. 

Mr. PASCRELL. Well, good, we’re going to accomplish something 

today, Mr. Chairman. Thank you. 

Thank you, Mr. Millard. Appreciate that. 

Chairman LEWIS. Thank you very much. 

Now I turn to Mr. Kind for his question. 

Mr. KIND. Mr. Chairman, I don’t have any further questions for 

the panel, but I do appreciate their indulgence today, and hopefully 

we will receive better cooperation from a legitimate requests for information in the future, whether it’s PBGC or any other Federal 

agency that we’re requesting information from. 

But I want to conclude by echoing the sentiments that you expressed, opening the hearing. Now this is Mr. Ramstad’s last hearing as a Member of Congress, and I have had great pleasure serving with him. It was way too short. He has been the model of civility and class and hard work and reasonableness, all the character 

traits you want to see more of rather than less of in Congress. We 

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are going to miss you, Jim. We love you. But we wish you all the 

best and God speed in your future endeavors. Hopefully you’re not 

going to be a stranger around these places. 

Thank you. 

Mr. RAMSTAD. Thank you. 

Chairman LEWIS. Now I turn to Mr. Pomeroy for a short question. 

Mr. POMEROY. Mr. Chairman, not even a question, just a comment to you and for our Committee colleagues. I had an estimate 

done by a pension expert, and it assumed a 12.5-percent decline in 

asset values for the top 100 defined benefit plans from last year to 

this year. 

Given what’s happened to their market holdings, I believe that 

that’s fairly realistic or maybe even conservative that the value of 

their portfolio in light of market valuations would have declined 

12.5 percent—what impact that would have on funding levels? 

Well, compared to last year, we would have of the top universe of 

100, 15 in that 80–93 percent funded category. This would move it 

up to 44 of the 100, at which time draconian funding requirements 

would trigger, that not only require them to fund up to the 94 percent but require them to fund up to the 100 percent of funded level, 

based on severely depressed values of their stockholdings. 

So, we know what’s happened to the stock market. It’s substantially declined. So the value of the pension reflects the diminished 

values. So, we’re asking the employer on a voluntary funding basis 

to put cash in so you’re all the way up to the 100 percent, even 

at depressed market values. 

Now the Pension Benefit Guaranty Corporation has told us this 

morning, they haven’t looked at this, they haven’t thought about 

this. I’ll tell you, I’ve looked at it and I’ve thought about it, and 

I think that it’s going to cause plans to freeze all over the country 

at a rate we’ve never seen before. A frozen pension plan hurts its 

participants. 

So, as we look at how we respond to the financial crisis in the 

next few says, I believe we have to look at some relief under this 

pension funding, or the very thing we’ve been talking about that’s 

giving retired workers stability in this market, will be going away 

for workers that are still in the workforce and counting on their 

pension plans. 

So, I’ll add this staff memo to me, reflecting these matters to the 

record, with your permission, and look forward to working with 

you, Mr. Chairman. 

Chairman LEWIS. Same to you, Mr. Pomeroy. 

Mr. POMEROY. You bet. 

Chairman LEWIS. Thank you very much for bringing it to our 

attention. 

I want to thank the witnesses for their time and their testimony. 

The Subcommittee appreciates your views. 

Is there any other business to come before the Subcommittee? 

There being no further business, the hearing is adjourned. Thank 

you very much for being here today. 

[Whereupon, at 11:35 a.m., the hearing was adjourned.] 

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[No submissions for the record] 

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