PBGC Director: Budget Proposal Passage Would Rescue Agency

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By David B. Brandolph

April 29 — After less than seven months on the job, the Pension Benefit Guaranty Corporation director says he sees potential salvation for the agency's financial woes and is working to ensure pension plan sponsors keep their plans.

PBGC Director W. Thomas Reeder on April 28 discussed a number of topics with Bloomberg BNA. Among them were the multiemployer pension insurance system's financial plight, a guidance initiative under the agency's early warning program and the PBGC's collection of risk transfer information from defined benefit plan sponsors.

“Multiemployer plans are struggling” and, if nothing is done, the agency's insurance system covering them is “likely to run out of money by 2025,” Reeder said.

The multiemployer insurance program can remain solvent for at least 20 years, however, if the administration's budget proposal is enacted, Reeder said. The proposal would give the agency's board of directors the authority to increase premiums from plan sponsors to the aggregate tune of $15 billion over 10 years, he said (27 PBD, 2/10/16).

“Care has to be taken in structuring the increase,” Reeder said. The proposal takes such care by using a variable-rate premium that imposes higher premiums on plans the more they are underfunded, he said. It also raises premiums over 10 years, he said.

Reeder said he recognizes that assessing higher premiums on plans the worse off they are is in a sense “hitting people when they are down.” But there's a “need to increase the incentive to better fund the plan,” he said.

There are ways to deal with the potential impact on unhealthy plans, Reeder said. There can be a “cap to keep premiums from getting too high,” or premiums can be assessed on plans that exit the system, he said.

As to the prospects of the budget proposal being enacted, Reeder said he thinks “there’s a consensus on the Hill that an increase is necessary.”

However, he said he is concerned that “there’s not as great a sense of urgency as there needs to be to address this.” The longer you wait to address the problem, the greater will be the percent premium increase needed, and the more difficult it will be to impose such an increase, he said.

Better Communication

When Reeder was confirmed by the Senate in October, representatives of both plans and participants expressed their approval (197 PBD, 10/13/15).

Reeder was greeted at the end of the year, however, by a report from the PBGC's participant and plan sponsor advocate that criticized the agency. According to that report, the PBGC needs to “noticeably improve its relations with plan sponsors” to avoid further encouraging sponsors to abandon their plans (02 PBD, 1/5/16).

Addressing some of the advocate's concerns, Reeder said in the interview that the agency's high customer satisfaction rating among premium payers—tied with the Internal Revenue Service for best among government agencies—belied the accusation that the agency was too adversarial.

Reeder said it is in the PBGC's best interest to negotiate with plan sponsors and “keep them in business.”“Generally,” he said, the agency is “not too adversarial.” But if “there are instances of incivility,” he said he would address them.

Reeder did, however, acknowledge that agency communication to premium payers regarding the PBGC's early warning program needs improvement. He said the agency is “working on guidance that would make the program more transparent.”

Under the program, the PBGC monitors large companies with underfunded plans to identify transactions that could jeopardize their plans and may act to protect the plans and the pension insurance system.

The proposed guidance will explain to premium payers what the agency is looking for under the program, how sponsors get in and out of the program, and what actions will be a tripwire for a PBGC review, Reeder said. He said he expects the guidance to be issued by the end of year, and hopefully “much sooner.”

Risk Transfer

Reeder also has his eye on plan sponsor risk transfer activity. In December, the PBGC reported that more than 1 million defined benefit plan participants in larger plans were affected by pension risk transfer activities from 2009 through 2013, and more than half of those were involved in 2012 transactions (238 PBD, 12/11/15).

Reeder said the report reflected the agency's analysis of plan sponsor risk transfer activity. He said more information is needed to determine its effect on the health of the PBGC. Such activity includes the purchase of annuities on behalf of participants and the offer of lump-sum payouts to participants.

Although risk transfer activity will reduce premium dollars to the agency, Reeder said it could be that such activity is, overall, transferring risks away from the agency. The agency also needs to know what type of employer is more likely to make such transfers, he said.

Whatever the result of the risk transfer analysis, Reeder said part of the agency's mission is to do what it can to make it easier for employers to sponsor a defined benefit plan. As an example, he cited the PBGC's recently issued proposed rule that would cut in half the penalty for late premiums (82 PBD, 4/28/16).

Reeder said it is also important for the agency to educate workers so that they realize the value of defined benefit plans.

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

Request Pension & Benefits Daily