May 20 (Bloomberg) -- The former head of the federal agency that guarantees the pensions of 44 million Americans invoked his Fifth Amendment rights at a Senate hearing, refusing to discuss his contacts with Wall Street firms bidding for business.

Charles E.F. Millard is being investigated by Congress over his relationships with JPMorgan Chase & Co., Goldman Sachs Group Inc. and other firms while he led the Pension Benefit Guaranty Corp. during the Bush administration.

Millard cited the constitutional right against self- incrimination three times today during a session of the Senate Special Committee on Aging. The pension agency reported a $33.5 billion deficit earlier today.

“Congress’s recent actions and statements have created a biased and hostile environment toward Mr. Millard,” his attorney, Stanley Brand, said in a statement. “Certain members of the United States Congress appear to already have reached adverse conclusions.”

Senator Herb Kohl, who heads the Senate panel that explored the future of the PBGC at today’s hearing, said the agency should reopen bidding on contracts issued last year to manage $2.5 billion in assets.

Kohl, a Wisconsin Democrat and chairman of the Senate committee, said the bidding process was “improperly influenced.” Labor Secretary Hilda Solis, who has jurisdiction over the PBGC, has said she may cancel the contracts, according to Kohl.

Inspector General

A report by the PBGC’s inspector general alleges that Millard had inappropriate communications with eight of 16 Wall Street firms that bid last year to manage $2.5 billion of the agency’s $48 billion investment portfolio.

Six senators today sent the report to Attorney General Eric Holder asking for an independent review of the matter.

Millard, who ran the agency from December 2007 through January 2009, may have violated “blackout” rules that prohibited him from contacting bidders on three contracts for “strategic partnerships” that were to involve investments in stock, real-estate and private equity assets, the report said.

Fees on the contracts were expected to exceed $100 million, according to the report, which was released last week by the House Education and Labor Committee.

Goldman was awarded in October a contract to invest $700 million of PBGC assets in private equity, and JPMorgan and BlackRock Inc. were each given contracts to invest $600 million in real estate and $300 million in private equity, according to the report.

‘Transparent and Ethical’

Brand has said his client acted in a “transparent and ethical manner.” Millard, in a letter to the PBGC included in the report, said the conversations he had were personal and unrelated to the contracts.

Millard said his conduct was “appropriate as a policy matter, based firmly on agency regulations.” He is a former Lehman Brothers Holdings Inc. managing director and had worked for New York Mayor Rudolph Giuliani’s administration.

The PBGC, a government-owned corporation set up to protect the employee pensions of bankrupt companies, must be put “back on track” or taxpayers may face the burden of having to absorb its obligations, Kohl said before excusing Millard from the hearing.

Acting Director

Vince Snowbarger, the PBGC’s acting director, said the agency’s deficit tripled to $33.5 billion in the past six months as companies canceled retirement plans in the U.S. recession. About $11 billion is for “completed and probable terminations” of company plans and $7 billion is from a decrease in interest rates that boosted liabilities, Snowbarger told the committee.

The financial condition of the PBGC may worsen amid the likelihood of more pension-plan failures, he said. In the first half of the fiscal year that began in October, the PBGC took on almost four times the number of participants as it did in all of 2008.

The potential for General Motors Corp. and Chrysler LLC to end their plans leaves the PBGC facing the prospect of adding 900,000 current and future beneficiaries. The PBGC estimates that $77 billion of the automotive industry’s pensions are underfunded, with about $42 billion of that guaranteed by the agency for retirees.

Auburn Hills, Michigan-based Chrysler filed for bankruptcy protection on April 30. Detroit-based GM is facing a U.S.- imposed June 1 deadline to reduce its costs and debt obligations or face bankruptcy.

Created by Congress

The PBGC, created by Congress in 1974, also faces the risk of increased responsibilities from companies in other sectors of the economy, including retail, financial services and health care, Snowbarger said.

Barbara Bovbjerg, associate director of the Government Accountability Office, told the committee that the PBGC’s board is failing to provide adequate oversight and direction.

The three-member board includes Treasury Secretary Timothy Geithner, Commerce Secretary Gary Locke and Labor Secretary Hilda Solis. The three have yet to meet since joining the board this year.

“These board members have numerous other responsibilities, and are unable to dedicate consistent and comprehensive attention to the PBGC,” Bovbjerg said.

Representatives of the board members did meet as recently as November and there have been telephone calls and other contacts with PBGC senior management, said Jeffrey Speicher, an agency spokesman.

New Strategy

The previous board last met in February 2008, according to Bovbjerg. That’s when the board approved a new investment strategy pushed by Millard to shift more money from safer Treasury securities to stocks, real-estate and private-equity considered to have the potential for greater returns.

Millard never fully implemented the less conservative investment strategy before he left the agency in January, the PBGC has said. About 30 percent of the agency’s $48 billion investment portfolio is in equities, 69 percent in fixed-income, and less than 2 percent in alternative assets.

To contact the reporter on this story: Holly Rosenkrantz in Washington at hrosenkrantz@bloomberg.net

Last Updated: May 20, 2009 18:22 EDT