U.S. Pension Agency Reviewing Investment Contracts

WASHINGTON (Reuters) – The U.S. agency that insures traditional pensions said on Thursday it would consider ending partnerships with BlackRock (BLK.N), Goldman Sachs (GS.N) and JPMorgan Chase (JPM.N) after questions were raised about the hiring process.

The firms were hired under former Pension Benefit Guaranty Corp Director Charles Millard to manage real estate and private equity investments for the PBGC.

A draft report by the PBGC’s inspector general says phone records and emails show Millard was communicating directly with some bidders at the same time he was evaluating their proposals, in “a clear violation of the prohibition of contact with potential offerers.”

PBGC Acting Director Vince Snowbarger said no assets had yet been transferred to the three firms.

“We will work with our board to decide whether these contracts should be terminated and whether strategic partnerships fit into the board’s investment approach going forward,” Snowbarger said in a statement.

The PBGC insures “defined benefit” pensions for about 44 million workers and retirees in over 29,000 private-sector plans. Companies pay premiums to the PBGC, which steps in when pension plans become insolvent.

Representative George Miller, the Democratic chairman of the House Education and Labor Committee, said the panel was opening an investigation into Millard based on the inspector general’s report.

Efforts to reach Millard were not immediately successful.

Millard became PBGC director in late 2007 under the Republican administration of President George W. Bush and left the agency in January as Bush left office.

In an effort to boost investment returns, the PBGC in February of 2008 approved investing in a broader range of instruments, including more international equities and forays into other areas such as private equity and real estate.

Congressional auditors issued a report last August saying the change in investment policy was riskier than acknowledged and needed stronger oversight.

Snowbarger said the PBGC board had accepted the inspector general’s recommendation that future directors refrain from involvement in the procurement process.

According to the inspector general’s report, there were nine phone calls between Millard’s phones and Goldman Sachs, a firm awarded a contract to invest up to $700 million in private equity.

Six phone calls were made with BlackRock, a firm contracted to invest up to $600 million in real estate and up to $300 million in private equity.

Ten phone calls were made in the blackout period with JPMorgan, awarded a contract to invest up to $600 million in real estate and up to $300 million in private equity.

“While our audit did not identify evidence of criminal activity by any of the bidders, the former director’s improper contacts cast serious doubt on the integrity of the procurement process,” Inspector General Rebecca Batts said in the draft report posted on the website of Miller’s committee. (Reporting by Tim Dobbyn; Editing by Gary Hill)