The Pension Benefit Guaranty Corporation is a government entity that provides mandatory insurance to private pension plans.
The PBGC’s multiemployer program deficit—estimated to be between $65 billion and $101 billion—and looming insolvency threatens workers who stand to lose their insured pension benefits, as well as taxpayers who could be forced to pick up the tab.
In response to troubled union-run pension plans, Congress created a Joint Select Committee on Solvency of Multiemployer Pension Plans.
With this committee now up and running and scheduled to report a proposed plan for addressing multiemployer pensions and the PBGC’s multiemployer program to Congress in November, President Donald Trump’s move to appoint Gordon Hartogensis as the new PBGC director likely signals the White House’s intent to have a role in the future of the PBGC and troubled union-run pension plans.
The administration’s budget called for nearly $16 billion in additional multiemployer premiums for the PBGC over the next 10 years. The current premium of only $28 per year is far less than private insurers would charge and is not sufficient to cover the program’s costs.
According to the president’s budget, its proposed premium increases would keep the PBGC solvent for 20 years, instead of running out of funds in 2025 as is currently projected.
Without premium increases, workers and retirees of failed union-run pension plans could lose as much as 90 percent of their insured benefits when the PBGC’s multiemployer program runs out of money.
The insolvency of many multiemployer pension funds and the PBGC that insures them threatens the future financial security of millions of workers and retirees. And calls for federal bailouts of private pension plans threaten the future financial security of taxpayers.
Moreover, a federal bailout of private pensions could set the stage for a multi-trillion-dollar bailout of state and local pension plans and might discourage more pension plans from properly funding their promised benefits.
Although it’s too late to save many troubled plans, and although the most significant changes to multiemployer pensions must come from Congress, the PBGC director has some latitude to impact pension reforms.
For example, the PBGC director could use the corporation’s authority to take over failing plans and reduce benefits before the plans run dry.
He could also suggest an alternative premium structure—including both higher premiums as well as risk-based premiums that reward responsible plan administration and penalize reckless management. The director could ask for—and Congress should grant—authority for the PBGC to adjust premiums as it sees necessary and fit to ensuring the corporation’s solvency.
Troubled multiemployer pensions threaten millions of workers and retirees and hundreds of millions of taxpayers across the U.S. The president’s nomination of a new PBGC director signifies that the administration cares about the future of these private pension plans and wants to have a role in working toward an outcome that will minimize pension losses and taxpayer costs.
If confirmed, Trump’s nominee, Hartogensis, will replace current Director W. Thomas Reeder Jr., who was appointed by President Barack Obama in 2015. Hartogensis has a background in financial management and also co-founded and ran Auric Technology.
As former PBGC Director Joshua Gotbaum commented, “What the retirement community needs now is an active, creative PBGC to help figure out how to preserve multiemployer plans and the hundreds of businesses and millions of people who depend on them. If Mr. Hartogensis takes on these challenges with the energy he showed in private business, he’ll turn out to be a good choice.”
This piece originally appeared in The Daily Signal