Ex-Pension Chief in Contracts Probe

A federal watchdog agency says ex-PBGC boss Charles Millard got job-hunting help from a Goldman Sachs executive after awarding the firm work

The former head of the federal pension insurer inappropriately interfered in a contracting process that ultimately led to the hiring of Goldman Sachs (GS), JPMorgan Chase (JPM), and others to manage billions of dollars in assets and earn $100 million or more in fees, a federal watchdog concludes in a draft report distributed on May 14.

The report calls into question the process used to award contracts for managing some $2.5 billion in assets at Pension Benefit Guaranty Corp. The report's author, the PBGC's inspector general, recommends that the Cabinet secretaries who oversee the agency consider whether the contracts should be revoked.

Among other things, the report says Charles E.F. Millard, who stepped down on Jan. 20, improperly contacted some of the firms potentially bidding on the contracts and later sought and received job-hunting help from an unnamed executive of Goldman Sachs after the company had been awarded a contract to manage up to $700 million. The report also says Millard was warned not to engage in much or all of the activity it calls into question. The inspector general's inquiry was already under way before Millard's departure. Millard said earlier this month that he has been doing some consulting work while exploring different job opportunities.

Representative George Miller (D-Calif.), chairman of the House Labor Committee, which released the draft report, announced that the committee will launch an investigation of its own, calling the questions over Millard's conduct "very serious." The inspector general's office is also investigating. Herb Kohl (D-Wis.), chairman of the U.S. Senate's Special Committee on Aging, also announced a hearing, to be held on May 20, looking into the allegations and into broader concerns about the PBGC. Senator Charles Grassley (R-Iowa) said in a statement that he and three fellow senators—Edward M. Kennedy (D-Mass.), Max Baucus (D-Mont.), and Michael Enzi (R-Wyo.)—also support further investigation.

In a brief e-mailed statement, Millard's attorney, Stanley Brand, said Millard's efforts to improve the PBGC's financial health were "carried out in a transparent and ethical manner."

The report says it didn't find evidence of criminal activity by bidders for the contracts. Spokesmen for JPMorgan and Goldman couldn't immediately be reached for comment.

The PBGC's board—Labor Secretary Hilda Solis, Treasury Secretary Timothy Geithner, and Commerce Secretary Gary Locke—has asked the agency's interim director to determine whether the contracts in question should be reevaluated.

The PBGC insures defined-benefit pension plans—traditional pensions that pay retirees a set monthly amount for life—and as of Sept. 30 managed nearly $50 billion in assets for plans that have been abandoned by the companies that originally sponsored them, usually after bankruptcy or insolvency.

At the heart of the inspector general's inquiry is a controversial decision made in early 2008 to gradually shift billions of dollars from bonds, which make up the bulk of the agency's assets, into stocks, real estate, and private equity investments. The goal, supporters say, was to improve returns and therefore the odds that the agency's gap between its assets and its potential obligations—about $11 billion, currently—would close, avoiding the need for a government bailout at some point down the road. Critics called the move hasty and ill-informed and said it would subject the agency's assets to too much additional investment risk.

Although the shift was approved in February 2008, a PBGC spokesman said no assets have actually been moved yet.

Francis is a correspondent in BusinessWeek's Washington bureau. Byrnes is a senior writer for BusinessWeek in New York.