The current assets of PBGC exceeded the liabilities attributable to plans that had already Comm benef turn requ many see its. Th ittee also worked with the the ir m es ingly health DB plans is not en e tota much larger l obligation pension contributions w represented f n Executiv couraging, as com or the e Directo PBGC is hen rates are sm r Jam highly volatile from m eitted plan sponsors have s Lockhart, now the h oothed over 3 to 5 month to T-159 ead Chairman Kohl, Senator Martinez, and m embers of the committee: My name is terminated at the end of FY 2007, but today’s testimony suggests that is no longer the case. years instead of 20, 30 or 40. Provisions taken action to freeze their plan of the agency overseeing Fannie Mae and month and year to year. For exam s at least tem ple, the PBGC 2008 actuari in the P Freddie Mac, on ref porarily due to ension Protection Act of 2006, large contributions being al report stated: orm proposals that Dallas Salisbury. I am president and chief executive officer of the Employee Benefit However, annual net negative cash flow is about $2.5 billion, providing for nearly two required due to extraordinary investm ultim comFor the singl bately b ined with cu ecam e-em e law in 1986, 1987 and 1994, which chang rren ploy t interes er program t rate policy, , the liability ent and interest ra will likely com as of Septem te volatility. bine to caus e ber 30, 2008 consisted of: d the PBGC prem e harm to the ium Research Institute (EBRI). I am pleased to appe ar before you today. All views expressed decades of p (1) $57.32 bi ayments at current asset l llion for the 3,850 plans t evels. hat have terminated; and Conclusion structure and the circumstances defined benefit system and the PBGC in th under which a plan sponsor could term e years immediately ahead. That does not inate a plan and Statement are my own, and should not be attributed to EBRI, or any other individual or The longer term issue relates to what one (2) $12.61 billion for 27 probable terminations. expects for the future in terms of terminations pass the liabilities to th speak to the m Defined benefit plans in the erits of the po e PBGC. These changes took st licies, ju private sector currently provi st the results. for the eps towards relating prem de annuity income to about iums to organization. Established in 1978, EBRI is co mmitted exclusively to data dissemination, and net liabilities related to them. For the multiemployer program, the liability as of September 30, 2008 consisted of: 23 percent of those over age 65. For those the level of unfunded exposure a plan presented to the PBGC, and towards m Sixth: What are the future liabilities (unhealthy DB plans) for the PBGC? between 65 and 69, 18.8 percent report such aking United States Senate Special Committee on Aging policy research, and education on financial security and employee benefits. EBRI does The PBGC has the abi (1) $1 million for 10 lity to return to pension plans that term the Congress at any time with a request to raise inated before the passage of the incom voluntary term PBGC annually reports num e, with average paym ination contingent upon the in ents of $2,491 and median paym bers on a broader set of possible te solvency of the plan ents of $9,180. These are sponsor, unless the rminations by industry, not lobby or advocate specific policy reco Hearing on the mmendations; the mission is to provide Multiemployer Pension Plan Amendments Act (MPPAA) and of which PBGC is premiums on insured defined benefit plans. The issue is not the ability to do so, but rather im PBGC determ portant additions to ined that it was in the intere Social Security. st of PBGC to approve a termination based without naming firms. At year-end 2008, PBGC estimated its exposure from underfunding objective and reliable research and information. All of our research is available on the trustee; and the implications in the longer term future of defined benefit plans and their ability to pay upon term by plan sponsors whose credit ratings were be The average pension paid by PBGC in s negotiated to protect the agency (and May 20, 2009 2006 was $6,372. W low i thus the defined benefit system nvestment grade or who met one or more hile there is much focus and its Intern (2) $1.768 bi et at www.ebri.org llion for probable and estim and our savings and financia able post-MPPAA losses due to financial l education material is at premiums. The total number of participants has continued to increase slowly on which financial distress criteria at approximately $47 billion in 2008, down from $66 billion in 2007. on the fact that PBGC pays a m participants and beneficiaries). aximum benefit of about $54,000, it is important to note “The Pension Benefit Guaranty Corporation” assistance to 90 multiemployer pension plans that were, or were expected to become, www.choosetosave.org premiums are paid, even as the number of plans decreases. Given current conditions, as reported by PBGC today, this number is moving back up. As that for m Under Title IV of the Em ost defined benefit plan particip ployee Retirem ants th ent Incom at limit repre e Security Act of 1974 (ERISA) sents a dream, not a insolvent. I have personally worked on retirement and pension issues since joining the Labor Third: What are the future challenges facing the PBGC? the PBGC notes, dropping interest rates added an estimated $7 billion to PBGC liabilities problem PBGC insures, subject to statutory lim . its, pe By nsion benefits of participants in covered Today’s testimony by PBGC suggests that the $12.61 billion has now increased to $23.61 Department in 1975 as it was organizing to fulfill its responsib ilities under the Employee The major future issue for PBGC is what happens to defined benefit plans. As long since the end of September. private defined benefit pension plans in th There has been a great deal of discussion e United States. The Corporation’s goals about the advent of 401(k) plans and what Dallas Salisbury billion, and the $57.32 billion to about $67 billion due to interest rate changes ($7 billion) Retirement Income Security Act of 1974 (ERISA). I was later on the staff of the Pension as an employer or group of employers maintains the plan until it is pays its last benefit, Seventh: How will this affect the PBGC moving forward? that m include safeguarding the federal ay mean for workers. Data on current pension insurance system IRA and 401(k) account balances from for the benefit of participan the ts, and investment losses ($3 billion). These changes underline the volatility experienced by Benefit Guaranty Corporation, before joining EBRI in 1978 as its first employee. While President & CEO PBGC is fine. The risk is underfunded terminations due to business failures or Were both Chrysler and GM plans to move to the PBGC, which may not happen, plan sponsors, and other stakeholders, pr Federal Reserve that individuals near retirem oviding exceptional service to custom ent age have sufficient balances to provide ers and Employee Benefit Research Institute all defined benefit pension plans tied to both interest rates (liability swings) and at the PBGC I served as a special assistant to the Executive Director, as Acting Director reorganizations. The revised figures discus thsed today by PBGC suggest that this is a total assets of the agency would move towards $200 billion. Liabilities would grow large stakeho median annual incom lders, and exercis e of between $7,000 ing effective and e 1100 13and $9,000 for m fficient stewardship of PBGC r Street NW arried individuals, and $3,000 esources. investments (asset swings), and the reason plan sponsors have generally argued against of Communications, and as Director of the Congressiona Washington, D.C. 20005 lly mandated study of he major challenge should the current economic crisis continue for some time, including as well, but cash flow on those plans would be easily covered for many years. The (PBGC 2008 Annual Report) and $5,000 for single individuals. 202-659-0670 mark to market accounting and for smoothing both interest rate and investment return Multiemployer Insurance System, the results of which led to drafting and enactment of their estimate of potential auto industry net exposure of $42 billion were all plans to end ongoing risk for PBGC also relates to premium payments, as terminations move Given lim Defined benefit plans are im ited time I will respond the three sets of portant for many, as they were to m specific questions provided to m y father throughout e volatility in order to smooth contributions. the Multiemployer Pension Plan Amendments Act. While at PBGC I participated in up with the PBGC. participants onto the books of the PBGC. Thus, the PBGC has strong motivation to have his 93 years, as well as to m and then would be pleased to respon y sister-in-law d to any add since my brother passed itional questions. away at the age of 64 www.ebri.org How many pensions is it insuring? many meetings with the “Board reps,” the individuals designated by the Secretaries of Fourth: What does the current DB pension system environment look like? firms that survive bankruptcy to keep their pension plans, even if then frozen. and left a joint and survivor pension. First: What are the current obli www.choos Defined contribution plans are as well, as gations facing etosave.org the PBGC? The Pension Benefit Guaranty Corporation (PBGC) insures the pensions of about Labor, Treasury and Commerce to work with PBGC executives on an ongoing basis. The current system environment is mixed to bad. Plan terminations have accelerated. Eight: Are companies with healthy DB plans likely to retain their plans and remain individuals like m PBGC estimates that, m e depend only on a 401(k) account easured on a termination basis, total underfunding in single- balance and 30 years of 33.8 million workers and retirees in about 28,000 private-sector defined benefit pension These individuals had most of the direct dealings on behalf of the PBGC with these Plan freezes have accelerated. And, the current economic crisis holds the potential for paying premiums into the future? contributions and investm employer defined benefit plans that P ent earnings. BGC insures was approximately $225 billion as of plans under its single-employer insurance program, and 10.1 million participants under Cabinet members who make up the Board of Directors of the PBGC. more plans to shift liabilities to the PBGC. Companies and unions that continue to believe that the plan helps them achieve Decem In all cases, the objective should be to keep ber 31, 2006. An April 2009 report from all prom Milliman estim ises that are m ated that the larg ade, and to help est 100 its multiemployer program in about 1500 plans. After leaving the PBGC, I was appointed to a special PBGC task force by President Fifth: What plans may default to the PBGC in the future (i.e. auto companies)? workforce and retirement objectives at a justifiable cost will do so. But, recent years individuals spend and save and invest on an in plans were slightly overfunded as a group at year end 2006, while a total system formed basis. Or as we say so often, estimate What are the basic demographics of this group? Reagan to study a proposal to “privatize” the PBGC. The group concluded that The PBGC provides estimates of probable terminations in multiple industries. Its have seen many companies that are healthy and have healthy DB plans make the decision choose to save if you do not want to work forever! from Ryan Labs Asset Management found the total system to be 88 percent funded at Workers with a defined benefit plan are predominately union, and older. About 13 privatization of the PBGC was infeasible as corporate insolvency was not seen as an 2008 reports suggested significant exposure in transportation, retail, financial services, to freeze them, and in some cases terminate them. The level of volatility that mark to year end 20 Thank you for the invitation to be with you today. 06. By April of 2009 Milliman estimated that the 100 largest funds were 80 The views expressed in this statement are solely those of Dallas L. Salisbury and should not be attributed to percent of all private workers are in a single employer defined benefit plan and 4 percent th insurable event under term e Employee Benefit Research s that woul Institute (EBRI), t d be acceptable to Congress. he EBRI Education and Research Fund, any of its and health care. Its testimony today underlines the dramatic erosion in the economy market accounting / funding introduces, particularly in recent years when market percent funded, and Ryan estimated that the entire system was just over 70 percent programs, officers, trustees, sponsors, other staff, or any other individual or organization. The Employee in a multiemployer plan. About half the insured participants are active, about one quarter A decade after leaving the PBGC, I was appointed by President George H. W. Bush since the end of September, and the possible consequences for PBGC. The longer the Benefit Research Institute is a nonprofit, nonpartisan, education and research organization established in volatility has been significant, serves to decrease the incentives for many sponsors to funded, suggesting total system underfunding of as much as $500 billion. Washington, DC in 1978. The testimony draw from research publications of the Employee Benefit retired, and about one quarter separated and vested but not yet retired. to represent the general public on the PBGC Advisory Committee, and participated in economic recession continues, the higher unemployment goes, and the longer the Federal Research In continue the stitu ir defined be te, and other onefit plans. Recen rganizations, but any erro t cons rs oulting firm r misinterpretatio surveys sugg ns are those of th est th e witn at the ess. The PBGC protects the benefits of most private single and multi-employer pension Second: How prepared is the PBGC in paying out existing pensions and what that group’s interviews of many investment managers during quarterly reviews, and Reserve holds down interest rates, the worse the situation for defined benefit plans and movement away from open defined benefit plans by strong companies will continue. plans in the event that the plans are terminated without sufficient assets to pay all limitations does PBGC face in securing revenue for this (i.e. inability to raise m eetings with those applying to become investment managers. That Advisory the PBGC will become. Low interest rates cause pension liabilities to rise, and that in And, the affect that the rules of the Pension Protection Act of 2006 are already having on Written Testimony of Dallas Salisbury premiums, etc.).