Legislation was introduced today to overhaul the government agency that insures private sector pensions and pays out benefits if the plan fails. The bill proposes new oversight of the Pension Benefit Guaranty Corporation (PBGC) including expanding the board of directors and requiring regular meetings.
The PBGC posted a $33.5 billion deficit for the first half of 2009, the largest amount in the agency’s 35-year history and triple fiscal year 2008’s $11 billion shortfall. The agency came under further scrutiny in May when an inspector general report found that former director Charles Millard had inappropriate communication with several Wall Street firms that bid to manage the agency’s investments. Last week, PBGC assumed responsibility for the pension plans of 70,000 Delphi Corp. workers and retirees. The shortfall in the 6 automotive part-maker pension plans is expected to increase the PBGC's claims by approximately $3.5 billion.
“The PBGC is simply too large, complex, and important for us to keep the governance system that was set in place when the organization was expected to be small and simple to operate,” writes Brookings Institution fellow Douglas Elliott, in an analysis of the PBGC’s structure published yesterday. “It is reasonable to have significantly greater oversight to provide the effectiveness and transparency the taxpayers deserve, given the likelihood that they will eventually be called on to rescue the PBGC.”
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The Pension Benefit Guaranty Corporation Governance Improvement Act proposes expanding the PBCG Board of Directors from 3 to 7 members, requiring them to meet at least 4 times a year, and staggering each member’s term instead of changing board members with each incoming administration so that institutional knowledge can be maintained. The current board, made up of the Secretaries of Labor, Treasury, and Commerce, has not met since February 2008. The board has only met 20 times since 1980. “Decisions made by PBGC management and a lack of oversight and governance by previous PBGC Boards have contributed to the agency’s financial situation,” said Senator Herb Kohl, a Wisconsin Democrat and sponsor of the bill along with Democratic Senators Michael Bennet of Colorado, Claire McCaskill of Missouri, and Russ Feingold of Wisconsin. The PBGC’s advisory committee, which evaluates the corporation’s investment strategy among other responsibilities, would be required to meet with the board at least once a year. Provisions of the bill would also prohibit members of the PBGC board of directors from serving on panels or participating in matters where they may have a conflict of interest.
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The PBGC insures pension benefits up $54,000 annually in 2009 for a 65-year-old retiree. The maximum is lower for those who retire earlier or elect survivor benefits, and increases for those who delay retirement. Another pension study released today and coauthored by Frank Porell, a gerontology professor at the University of Massachusetts-Boston and Beth Almeida, executive director of the National Institute on Retirement Security, found that poverty rates for senior citizens are six times greater for households without a traditional pension than for retirees with a steady stream of income above the amount Social Security provides.