Q: What is the Pension Benefit Guarantee Corporation?
A: Created in 1974 with enactment of the Employee Retirement Income Security Act, the Pension Benefit Guaranty Corporation insures certain private pension plans to protect the nest eggs American workers are counting on once they leave the workforce. The federal agency promises 44 million American workers and retirees covered by roughly 32,500 insured defined benefit pension plans that they have a guaranteed pension for life even if their employer goes out of business or their pension plan runs out of money. Congress created the federal agency to safeguard the retirement security of hard-working Americans and promote increased sponsorship of the voluntary defined benefit pension plans offered by employers. These private-sector retirement plans offer workers a guaranteed monthly benefit upon their retirement, typically based on salary and years of service. If a company underfunds its defined benefit pension program, files for bankruptcy or goes out of business, the PBGC assumes the pension obligations for its workforce and retirees. The PBGC receives no tax dollars. It uses the money it collects from the insurance premiums paid by employers, assets earned from investments and any funds recouped from pension plans for which it assumes control.
Q: Why is Congress considering making policy changes to the pension insurance program?
A: Reforms are necessary to strengthen the system that for nearly 30 years has paid out billions of dollars in benefits to workers and retirees whose employer-sponsored pension programs fell short of their obligations. Debate on Capitol Hill has intensified this year in response to the agency’s record $8.8 billion deficit and its projected exposure to shoulder the risks of troubled private pension systems in the steel and airline industries. In the last fiscal year, the PBGC assumed responsibility for more than 3,200 private pension plans paying out $2.5 billion in benefits to U.S. workers and retirees. All told, the agency insures $1.5 trillion in pension benefits. As chairman of the Senate Finance Committee, which bears legislative jurisdiction over pension laws, I steered through the committee comprehensive policy changes in September that would alleviate the short-term funding pressures affecting employer-sponsorship and address the financial stability of traditional defined benefit pension plans in the long run. Solvency of the PBGC is a long-term problem that needs a permanent, long-term solution. My bill would protect the millions of people in PBGC-insured plans because it provides for a more accurate, more conservative, statement of pension plan liabilities. It also protects U.S. taxpayers because ultimately they're on the hook for the PBGC plans. Although the government-created pension insurer receives no tax dollars to operate, the federal government in the end would serve as the insurer of last resort. And I certainly don’t want to get to the point where we have another taxpayer-financed bail out similar to the Savings and Loan situation in the 1980s. Relaxing the funding rules to ease pressure on employers may encourage sponsorship but open the door to even greater financial instability. On the other hand, dictating investment decisions, increasing insurance premiums and re-calculating pension liabilities could drive more companies to drop defined benefit pensions altogether. The number of such plans has dropped significantly in the last two decades from more than 100,000 to about 32,500. As legislation makes its way through Congress, I’ll work to strike a balance that reinforces the safety net created by the PBGC, encourages employers to continue sponsorship of traditional pension plans and shields taxpayers from inheriting another bail out.