[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]




 
                  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       JIM MCCRERY, Louisiana
SER M. LEVIN, Michigan               WALLY HERGER, California
JIM MCDERMOTT, Washington            DAVE CAMP, Michigan
JOHN LEWIS, Georgia                  JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts       SAM JOHNSON, Texas
MICHAEL R. MCNULTY, New York         PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee            JERRY WELLER, Illinois
XAVIER BECERRA, California           KENNY HULSHOF, Missouri
LLOYD DOGGETT, Texas                 RON LEWIS, Kentucky
EARL POMEROY, North Dakota           KEVIN BRADY, Texas
MIKE THOMPSON, California            THOMAS M. REYNOLDS, New York
JOHN B. LARSON, Connecticut          PAUL RYAN, Wisconsin
RAHM EMANUEL, Illinois               ERIC CANTOR, Virginia
EARL BLUMENAUER, Oregon              JOHN LINDER, Georgia
RON KIND, Wisconsin                  DEVIN NUNES, California
BILL PASCRELL, JR., New Jersey       PAT TIBERI, Ohio
SHELLEY BERKLEY, Nevada              JON PORTER, Nevada
JOSEPH CROWLEY, New York
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama

               Janice Mays, Chief Counsel Staff Director

                   Jon Traub, Minority Staff Director

                                 ______

                       SUBCOMMITTEE ON OVERSIGHT

                     JOHN LEWIS, Georgia, Chairman

JOHN S. TANNER, Tennessee            JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts       ERIC CANTOR, Virginia
XAVIER BECERRA, California           JOHN LINDER, Georgia
RON KIND, Wisconsin                  DEVIN NUNES, California
BILL PASCRELL, JR., New Jersey       PAT TIBERI, Ohio
JOSEPH CROWLEY, New York

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 
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unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
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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]


                  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:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                       SUBCOMMITTEE ON OVERSIGHT

                                                CONTACT: (202) 225-5522
FOR IMMEDIATE RELEASE
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.''
      

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 
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or if you encounter technical problems, please call (202) 225-1721.
      

FORMATTING REQUIREMENTS:

      
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noted above.

                                 

    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.
    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 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.
    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 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 by-laws 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:]

  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 Pension 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:]

 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.
    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 2\1/2\ 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.
    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, well-known 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 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.
    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 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----
    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----
    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 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, 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 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.
    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----
    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 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----
    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 mark-to-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?
    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 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.
    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.]
    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 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 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 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.]
    [No submissions for the record]

                                  
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