WASHINGTON U.S. pension insurer to change strategy on investing money

The agency wants to protect its assets in case of another stock market slump.
WASHINGTON POST
WASHINGTON -- The government's pension insurance agency, its balance sheet burdened by the recent failures of several large corporate pension plans, said it is changing the way it invests its money, placing more reliance on bonds and less on stocks.
The new investment policy, approved by the Pension Benefit Guaranty Corp. board Jan. 12, "takes into consideration our role as an insurer and as an annuity provider," said Steven Kandarian, the agency's executive director in a conference call with reporters. "... The shift would put us more in line with what private sector insurers do when they offer annuities to companies and individuals."
The new strategy would appear to limit the agency's potential benefit from a stock market rebound, though Kandarian said the agency would benefit indirectly because pensions it insures would become stronger. Also, he said, the agency will seek money managers who can actively manage a fixed-income portfolio as to slightly "outrun" the agency's liabilities.
At the same time, the shift would help head off further deterioration in the agency's portfolio if the market slump resumes.
PBGC's function
The agency stands behind traditional pension plans operated by employers. If the employer fails and assets in its pension fund are inadequate to provide benefits promised to workers, the agency takes over the plan and pays the benefits -- up to certain limits. In the last three years, the PBGC balance sheet has swung from a $9.7 billion surplus to an $11.2 billion deficit.
Currently, the agency has 42 percent of its assets in stocks, a share it expects to see decline to somewhere between 15 percent and 25 percent over the next two years, officials said.
The funding of traditional pensions, known as defined benefit plans, has been the subject of wide debate in the wake of the stock market swoon of 2000-2002. That decline, which eroded pension fund assets, was accompanied by a decline in interest rates that caused calculations of pension liabilities to rise. As a result, many plans that appeared healthy two or three years ago now appear badly underfunded.
Struggling industries
In addition, many of the weakest plans are concentrated in struggling industries, notably airlines and steel, where a number of employers have been unable to spare the cash to shore them up. In the past year or so, the agency has had to take over several plans, including those of Bethlehem Steel and the pilots of U.S. Airways, and it has expressed concern that others will follow.
The Senate approved a bill Wednesday that would allow airlines, steel companies and possibly some other companies to avoid making big cash contributions that would otherwise be required. The Bush administration opposes that, and the secretaries of the Treasury, Labor and Commerce departments -- who are the PBGC's directors -- have warned that they would recommend that the president veto legislation that would further weaken pension funding.