Use access key #2 to skip to page content.

Pensions...Yuck and "No Man's life, liberty, or property is safe while Congress is in session"



March 31, 2009 – Comments (3)


If you aren't annoyed with the government and what's been happening lately, this should get you good and riled up:

Just months before the start of last year's stock market collapse, the federal agency that insures the retirement funds of 44 million Americans departed from its conservative investment strategy and decided to put much of its $64 billion insurance fund into stocks.

Switching from a heavy reliance on bonds, the Pension Benefit Guaranty Corporation decided to pour billions of dollars into speculative investments such as stocks in emerging foreign markets, real estate, and private equity funds.

The agency refused to say how much of the new investment strategy has been implemented or how the fund has fared during the downturn. The agency would only say that its fund was down 6.5 percent - and all of its stock-related investments were down 23 percent - as of last Sept. 30, the end of its fiscal year. But that was before most of the recent stock market decline and just before the investment switch was scheduled to begin in earnest.

If this wasn't so sad, it would be hilarious.  Not only are tons of pension funds across the country severely underfunded, but the federal agency that insures pension funds is screwed up at a time when it is needed the most.  Good grief what a comedy of errors. 

This is like the Keystone Cops.  If pension funds are allowed to invest in whatever sort of risky assets they want, wouldn't it make sense that the agency that insures them be required to invest in something completely different and much more conservative.  What the PBGC did is like me going to the racetrack and having someone pay me to insure their bet on a horse and then me turning around and betting the money that they gave me on the exact same freaking horse.

Oh this opinion on the subject makes me feel much better.  Charles E.F. Millard, the former Pension Benefit Guaranty Corporation director (until Bush left office) who implemented its current riskier strategy, dismissed concerns saying "the new investment policy is not riskier than the old one."  Guess what Mr. Millard's job was before he revamped the agency's investment plan...wait for it...managing director of Lehman Brothers.  Are you serious.  You couldn't make this stuff up if you tried.  This is like an episode of the Simpsons or a Dilbert cartoon.

I smell another bailout coming.  What's another couple hundred billion dollars between friends?

Pension insurer shifted to stocks


I came across a funny sidebar in Forbes today.  It starts out with the classic line from Mark Twain "No Man's life, liberty, or property is safe while Congress is in session."  The blurb talks about a new mutual find called The Congressional Effect Fund.  This $2 million fund invests in T-Bills when congress is in session and in the S&P 500 when they're in recess.  HA, I love it.

In the ten months that the fund has been around it has returned -6%, which doesn't look very good until one compares it to the -44% that the S&P 500 returned over the same period.  The founder of the fund claims to have back tested his strategy's performance and that over the past 44 years, during the 7,244 days that Congress was in session the S&P experienced an average annual gain of 0.3%.  During the 3,821 days that Congress was not in session, the S&P experienced an average annual gain of 16.1%.


3 Comments – Post Your Own

#1) On March 31, 2009 at 3:23 PM, phalkor (65.28) wrote:

Wow, just wow.  Compounding interest is nothing compared to compounding absurdity.  Too bad absurdity is rediculously difficult to model or I would find a way to profit from this circus.

Report this comment
#2) On March 31, 2009 at 3:38 PM, Imperial1964 (95.59) wrote:


Gotta give one for the Congressional Effect Fund.

Report this comment
#3) On March 31, 2009 at 5:27 PM, nottheSEC (81.34) wrote:

Yep this is out right stupidity to fraud. 

According to the LA Times PBGC is currently runnning at an 11 billion dollar deficit .The agency has $63 billion in assets. But it is obligated to spend $74 billion on pension benefits in the coming years. From WIKIpedia in the past PGBC was not funded by general tax revenues. Its funds come from four sources:

Insurance premiums paid by sponsors of defined benefit pension plans; Assets held by the pension plans it takes over; Recoveries of unfunded pension liabilities from plan sponsors' bankruptcy estates;[2] and Investment income.  

Taking over the pension plan of General Motors Corp., would more than double the PBGC's current $11 billion deficit. But the PBGC also would inherit substantial assets from the automaker's pension fund. In fairness PGBC has run on a deficit for much of its 35 year existence but A) it was cash positive just 2-3 years ago b) 22 billion is huge!,0,159740.story?track=rss

Report this comment

Featured Broker Partners