Wednesday, February 20, 2008

PBGC to diversify in effort to cover liabilities

The Pension Benefit Guaranty Corporation, the US government-sponsored guarantor for pensions, plans to step up its investments in riskier assets such as equities as it seeks to plug a $14bn deficit.  The move, quietly announced on the President’s Day public holiday in the US on Monday, will mean the PBGC will double its allocation of equity investments to 45 per cent of its total assets.  The PBGC, which in effect acts as a pensions insurance fund, guarantees the benefits of 44m workers and is currently paying benefits to 700,000 retirees. It holds approximately $55bn (€37.4bn, £28bn) in assets to invest under its new policy.  It has, however, no access to credit from the government. It relies only on insurance premiums paid by the companies whose plans it insures and the investment returns those premiums can earn. If it became insolvent, it would either have to slash benefits paid to retirees or seek a taxpayer bailout.  The PBGC did not have the resources to meet all its future commitments, Charles Millard, director of the corporation, said yesterday.

Source/more:  Financial Times, http://www.ft.com/cms/s/0/51023502-de5e-11dc-9de3-0000779fd2ac.html?nclick_check=1

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