Election Unlikely to Spur Change Affecting Pension Insurer

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By David B. Brandolph

Nov. 9 — The new Republican-controlled federal government that will take office in January isn’t likely to significantly affect the health or operation of the financially beleaguered PBGC, which insures defined benefit pension plans.

That’s the view of a number of industry observers in the wake of a breathtaking election-night sweep by president-elect Donald J. Trump and the Republican Party in Congress.

“I’m honestly not sure the election results will have a material effect on Pension Benefit Guaranty Corporation policy,” Michael P. Kreps, a principal at Groom Law Group in Washington, told Bloomberg BNA in an email. “The PBGC is almost entirely a bipartisan issue,” he said.

Kreps, who previously served as senior pensions and employment counsel for the Senate Health, Education, Labor and Pensions Committee, said that the divide on policy affecting the agency hasn’t been between the political parties in Congress, but between Congress and the administration.

For example, he said that “presidents from both parties have supported giving PBGC premium setting authority, and members of Congress from both parties have rejected that idea.”

George M. Kraw, a partner with Kraw Law Group in Mountain View, Calif., also doesn’t see the election outcome much improving the plight of the federal agency that backstops pension plans that can’t pay their benefit obligations. The election will likely lead “to more bad policy and bad outcomes” for the agency, he told Bloomberg BNA in an e-mail.

“It would be nice if the election resulted in greater concern for retirement security, but since most of those running for office said nothing, it’s hard to see a mandate for progress,” Joshua Gotbaum, guest scholar at the Brookings Institute in Washington, told Bloomberg BNA in an e-mail.

“Improving retirement security has always required compromise and today’s Washington seems to have put compromise on the endangered species list,” Gotbaum added.

Lame-Duck Session Action

Independent of the Nov. 8 election results, the best chance for passage of legislation in the near-term that will affect the PBGC is likely to come during the lame-duck session that begins next week.

That’s because it’s widely believed that House Education and the Workforce Committee Chairman John Kline (R-Minn.) will seek to have Republican Party House leadership include composite plan draft legislation in a must pass year-end omnibus bill.

Kline, who will be retiring at the close of the present Congress, has made passage of composite plan structures a priority.

Such plans are designed to incorporate the best features of defined benefit and defined contribution plans. They would permit certain multiemployer plans to establish, in addition to existing legacy defined benefit plans, composite-defined contribution-type plans.

Composite plans, like defined contribution plans, would relieve plan sponsors of investment and interest rate risk. They wouldn’t, however, participate in the PBGC’s plan insurance system.

No Multiemployer Fix Consensus

Gotbaum, who formerly served as the PBGC’s director, said there’s “no consensus on what to do to preserve multiemployer plans.”

Such plans are generally collectively bargained and involve more than one employer.

With the election over, “there is likely to be additional attempts but ultimately incomplete and inadequate reforms that will still not provide multiemployer plans with the tools necessary to adjust to today’s low-growth, poor investment environment,” Kraw said.

Furthermore, he said that the “idea that the PBGC’s multiemployer program’s financial problems can be solved by a bail-in that boosts plan premiums is absurd.” This is because plan premiums can’t be raised high enough to prevent the agency’s multiemployer plan program’s insolvency “without collapsing the entire Taft-Hartley pension structure,” he said.

In a report to Congress in June, the PBGC said that multiemployer pension premiums need to increase by more than 4.5 times what they’re set for under current law to keep the agency’s insurance program for multiemployer plans from going insolvent.

The report suggested implementation of strategy included in the Obama administration’s last proposed budget that would give the PBGC’s board authority to carefully assess variable rate premiums based on a plan’s funding and exit premiums so as not to affect a plan’s solvency.

Budget Gimmick to Continue?

Both Gotbaum and Kraw said they were skeptical that the new Congress will pass proposed legislation that seeks to amend House and Senate budget rules to prohibit PBGC premiums from being counted as general revenue.

The Pension and Budget Integrity Act of 2016 ( S. 3240; H.R. 4955) would also ensure that any future single-employer pension plan premium increases are only used toward retiree payments from the agency.

Even with the Republicans taking control of all three government branches, the “PBGC will for many remain more important as a budget gimmick than a means to preserve retirement plans,” Gotbaum said.

PBGC Shake-Up Possible

The Trump administration could decide to shake-up the PBGC’s leadership if it so desired.

PBGC Director Tom Reeder is serving a five-year term that expires in October 2020. The agency’s board of directors, however, has the authority to remove the PBGC director for any reason, Kreps said.

The board consists of the secretaries of Labor, Commerce and Treasury, all presidential political appointees.

Kreps said he believed it was unlikely that Reeder would be removed.

To contact the reporter on this story: David B. Brandolph in Washington at dbrandol@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.

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