Labor chief wants pension insurer on less risky path

The Boston Globe reports:

Labor Secretary Hilda Solis, chairwoman of the federal agency that insures the pensions of 44 million Americans, has urged its board to suspend a controversial strategy under which the majority of a $64 billion investment fund was to be shifted out of bonds and into riskier stocks, according to documents obtained by the Globe.

The investment strategy is important because the Pension Benefit Guaranty Corp. announced last week that it faces a $33 billion deficit - triple the amount six months earlier - and could face an even greater crisis if it has to take over the pension fund of an automaker or other large business.

In February 2008, at the urging of its then-executive director, Charles E. F. Millard, the pension agency's board unanimously approved a plan to put 55 percent of its portfolio in stocks, private equity, and real estate, up from 15 to 25 percent in stocks. Millard argued that the change in strategy would pay off over the long term and possibly avoid the need for a taxpayer bailout. The gradual move into stocks started late last year.

But earlier this month, the agency's inspector general reported that Millard violated rules by playing a role in awarding contracts to Wall Street firms that would implement part of the strategy dealing with real estate and private equity. The inspector general also said Millard had discussed his Wall Street job prospects with an official at one of the firms. As a result, the pension agency indicated it would freeze three contracts that had gone to Wall Street firms.

The struggles of non-free market economics.