[Senate Hearing 110-727]
[From the U.S. Government Publishing Office]
S. Hrg. 110-727
NOMINATION OF CHARLES E.F. MILLARD
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON RETIREMENT AND AGING
OF THE
COMMITTEE ON HEALTH, EDUCATION,
LABOR, AND PENSIONS
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
ON
NOMINATION OF CHARLES E.F. MILLARD, OF NEW YORK, TO BE DIRECTOR OF THE
PENSION BENEFIT GUARANTY CORPORATION
__________
SEPTEMBER 6, 2007
__________
Printed for the use of the Committee on Health, Education, Labor, and
Pensions
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
senate
----------
U.S. GOVERNMENT PRINTING OFFICE
37-827 PDF WASHINGTON : 2009
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800;
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC,
Washington, DC 20402-0001
COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS
EDWARD M. KENNEDY, Massachusetts, Chairman
CHRISTOPHER J. DODD, Connecticut MICHAEL B. ENZI, Wyoming,
TOM HARKIN, Iowa JUDD GREGG, New Hampshire
BARBARA A. MIKULSKI, Maryland LAMAR ALEXANDER, Tennessee
JEFF BINGAMAN, New Mexico RICHARD BURR, North Carolina
PATTY MURRAY, Washington JOHNNY ISAKSON, Georgia
JACK REED, Rhode Island LISA MURKOWSKI, Alaska
HILLARY RODHAM CLINTON, New York ORRIN G. HATCH, Utah
BARACK OBAMA, Illinois PAT ROBERTS, Kansas
BERNARD SANDERS (I), Vermont WAYNE ALLARD, Colorado
SHERROD BROWN, Ohio TOM COBURN, M.D., Oklahoma
J. Michael Myers, Staff Director and Chief Counsel
Katherine Brunett McGuire, Minority Staff Director
______
Subcommittee on Retirement and Aging
BARBARA A. MIKULSKI, Maryland. Chairman
TOM HARKIN, Iowa RICHARD BURR, North Carolina
JEFF BINGAMAN, New Mexico JUDD GREGG, New Hampshire
JACK REED, Rhode Island LAMAR ALEXANDER, Tennessee
BERNARD SANDERS (I), Vermont JOHNNY ISAKSON, Georgia
SHERROD BROWN, Ohio ORRIN G. HATCH, Utah
EDWARD M. KENNEDY, Massachusetts MICHAEL B. ENZI, Wyoming (ex
(ex officio) officio)
Ellen-Marie Whelan, Staff Director
(ii)
C O N T E N T S
__________
STATEMENTS
THURSDAY, SEPTEMBER 6, 2007
Page
Mikulski, Hon. Barbara A., Chairman, Subcommittee on Retirement
and Aging, opening statement................................... 1
Enzi, Hon. Michael B., a U.S. Senator from the State of Wyoming,
opening statement.............................................. 2
Kennedy, Hon. Edward M., Chairman, Committee on Health,
Education, Labor, and Pensions, opening statement.............. 3
Prepared statement........................................... 5
Millard, Charles E.F., Nominee to be Director of the Pension
Benefit Guaranty Corporation................................... 6
Prepared statement........................................... 8
Isakson, Hon. Johnny, a U.S. Senator from the State of Georgia,
statement...................................................... 13
Murkowski, Hon. Lisa, a U.S. Senator from the State of Alaska,
statement...................................................... 14
ADDITIONAL MATERIAL
Statements, articles, publications, letters, etc.:
Response to Questions of Senator Kennedy by Charles E.F.
Millard.................................................... 22
Response to Questions of Senator Clinton by Charles E.F.
Millard.................................................... 25
Questions of Senator Murkowski............................... 27
(iii)
NOMINATION OF CHARLES E.F. MILLARD
----------
THURSDAY, SEPTEMBER 6, 2007
U.S. Senate,
Subcommittee on Retirement and Aging,
Committee on Health, Education, Labor, and Pensions,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:05 a.m., in
room SD-628, Dirksen Senate Office Building, Hon. Barbara
Mikulski, chairman of the subcommittee, presiding.
Present: Senator Mikulski, Kennedy, Isakson, and Enzi.
Also Present: Senator Murkowski.
Opening Statement of Senator Mikulski
Senator Mikulski. The Subcommittee on Retirement and Aging
will come together. Today we meet in a confirmation hearing to
fill the post of the Executive of the Pension Guarantee
Corporation, and to hold a confirmation hearing for Mr. Charles
Millard.
Ordinarily, I'd wait for Senator Burr, my very able and
Ranking Member, but there are votes that will begin at 11 a.m.,
so in the interest of time, I am going to proceed with the
concurrence of the Ranking Member of the full committee.
What we're going to do is, I'll make a statement, I will
turn to Senator Enzi, and then Senator Isakson, if it is okay
with you, then I'll go right to Mr. Millard. We're going to go
under the 5-minute rule so we can all get our questions in. We
will not return after the 11 o'clock votes. Any other questions
that we have, I will suggest to my colleagues that we submit
them in writing. Does that sound like a good way to go? Because
we want to hear from you and have a chance for give and take.
This is a very important hearing because it's the first
time a nominee for PBGC Director has been up for confirmation
of the Senate. This is one of the reforms made by the Pension
Protection Act that we all passed last year, and it was part of
the promise to American workers to do a better job insuring
their pensions. And I am proud today that we are making good on
that promise.
PBGC has a very big job and insures pensions of 44 million
workers and pays benefits to 700,000 retirees, making sure that
the retirement benefits that they were promised, or at least a
retirement benefit will be given, not always what they thought
we were going to get. We are here today to evaluate Mr.
Millard's ability to fulfill these responsibilities.
PBGC has had some difficult years; it's assumed
responsibility for the largest failed pensions in American
history, both steel and airlines. It's dealing with challenges
of opportunities related to management, an $18 billion deficit.
And one, how are we going to meet the needs--the current
needs--the $18 billion deficit, some of the issues the GAO
responded in terms of management.
When I look at the criteria for confirmation, I always ask,
No. 1, does the nominee have integrity to lead the agency? Has
competence in the field for which the agency has jurisdiction?
And a commitment to the mission of the agency? And we'll be
talking about that with you, Mr. Millard.
Retirement security is one of the most important issues we
face today, and last year my colleagues and I fought hard to
really have a legislative framework that would deal with
protecting America's pensions. Strengthening the PBGC was a big
part of keeping this commitment to workers and retirees. And I
must say, we worked on a bipartisan basis and we did a darn
good job in moving that bill.
Well, as you know, PBGC has three goals: encourage more
companies to do defined benefits, provide pensions to retirees
when companies they work for go out of business--this has been
a big buck issue here--and keep premiums as low as possible.
We are going to listen to all that, and also there will be
some other issues of particular interest to me. In the interest
again of time, I am going to ask unanimous consent that my full
statement goes into the record.
Senator Enzi, do you wish to make a statement?
Opening Statement of Senator Enzi
Senator Enzi. Thank you, Madame Chairman.
Slightly more than a year ago, the President signed into
law the Pension Protection Act which made the most sweeping
changes in our Nation's retirement savings laws since the
enactment of ERISA and the establishment of the Pension Benefit
Guarantee Corporation (PBGC) in 1974.
The driving force for getting the law through Congress was
the pending funding shortfall of the PBGC, the spike in the
number of companies that were falling behind on funding their
pension obligations and the potential exposure of the Pension
Insurance Program. Even though there are provisions in the
Pension Protection Act that have yet to go into effect, there
is little doubt that the law has made a vast and fundamental
improvement in the soundness of employees' pensions throughout
the Nation.
Today, we review the nomination for the Director of the
PBGC, a newly-confirmable position, pursuant to the Pension
Protection Act. Now, part of that came about because we had
some difficulty--as the committee working on the Pension bill--
in getting the information we needed to do the bill. That has
nothing to do, of course, with the current nominee, but it does
have to do with the fact that we must now confirm the position.
We took the important steps to elevate the position because
the Director is the steward for the PBGC's very substantial
trust fund assets. The Director must possess the management
skills and financial background to look into the future and
position the Corporation on the right course to insure that the
billions of dollars of workers' retirement savings are there in
case they need them.
I do foresee events on the horizon that will determine
whether companies continue to offer defined benefit plans to
their employees. For example, the Financial Accounting
Standards Board will be releasing, later this year, proposals
to update and revise the accounting standards for pension plans
and retirement health care. These proposals could have broad
ramifications on how companies must account for pension plans
on their financial statements. Also, the PBGC Director must
take care to implement practices, policies and procedures that
do not discourage companies from offering defined benefit plans
to their employees.
With respect to its corporate structure, the PBGC is unique
within the Federal Government. It is a wholly-owned Federal
corporation with three Cabinet Secretaries comprising the Board
of Directors. This presents its own set of benefits and
challenges. When Senator Sarbanes and I drafted the Sarbanes-
Oxley Act, we recognized that strong corporate governance was
essential to the operation of any public corporation. I believe
the same is necessary of our Federal Government corporations,
as well.
With respect to the PBGC, keeping the board fully informed
and engaged is essential to the operation of the Corporation
and the role of an independent audit committee must be held by
the Inspector General of the Corporation.
When I met with you in July, you expressed your desire to
bring many of the private sector corporate governance practices
to the PBGC. Since your short tenure as Interim Director at the
Corporation, there is evidence that you're making corporate
governance a top priority, and I appreciate that.
I believe that you have the management and financial
background to be Director. I look forward to your testimony
today to hear your perspective on the implementation of the
Pension Protection Act and to hear your vision for the
financial safety and soundness of the Corporation so that
millions of workers covered by this insurance program can look
forward to their ``golden years'' of retirement, and I thank
you for being willing to take the job.
Senator Mikulski. Senator Kennedy.
Opening Statement of Senator Kennedy
The Chairman. Thank you, Chairman and thank you for
chairing these hearings. Thank you, Senator Enzi and our
colleagues for the strong cooperative work and atmosphere that
we have developed here in terms of protecting pensions.
I understand, Mr. Millard, that your wife is not here
because she is having your ninth child.
Mr. Millard. She is not having yet, but she is due any
moment.
The Chairman. Well, then you are both enjoying the
potential or possibility of having that done. And, as the ninth
child myself, I have special good wishes.
[Laughter.]
Mr. Millard. We're thinking about Teddy.
[Laughter.]
The Chairman. You've got my vote now so what else do you
want?
[Laughter.]
I understand you attended college up our way and know some
of our relatives.
Let me thank you for being willing to take this position.
This is enormously important I think as all of us understand,
there are sort of three pegs to growing old in this country.
One is Social Security, two is the savings and three is the
pensions and we know what has been happening, the savings have
gone down and is the real issue in question in terms of, for so
many workers about whether those pensions are going to be there
and you have enormous responsibility in terms of workers in
this country.
They believe and have trust and have confidence and have
participated and paid through this, so it's an extraordinary
responsibility and I agree that it is incredibly complex, and
we are going to be interested in your responses.
I'm going to have my whole statement included in the
record. We're meeting in the Armed Services Committee with
General Jones, and all of us are on different challenges this
morning.
But, I am going to ask you questions about your interest in
preventing pension failures before they happen. I think this is
something that we had talked about, we had in our bill actually
that went to Conference to pass the Senate and there was a
provision that was actually dropped during the course of the
Conference but I am interested in how you are going to try and
anticipate these needs and what kind of interventions that you
are going to have.
There's enormous interest in the time that it takes in the
processing of these pension claims. We know that in the interim
time there are payouts, but there's a long period of waiting
time and we would like to know what you're going to do to be
able to deal with some of those issues.
Third, I'm interested in who you're consulting in the
Agency's investment policies. You know we've seen more toward
the bonds than in other areas this is going to be--this is
complex, and I don't pretend to have the knowledge to make
precise recommendations. But I think it will be useful for us
to understand who you're talking to, who you're listening to,
who you're consulting with, and what advice you're getting so
that we know what we can expect and we can at least make some
judgments in terms of your own kind of leadership.
Finally, I'd be interested--we have a limitation on the
payment for people working in the PBGC. Congress has authorized
other financial agencies, the SEC Federal Reserve Board to pay
above these standards, the GS schedule. If this is a real
problem in getting really key people to try and work in very
responsible positions. I, for one, am very open to try and make
sure you are going to get the very best people to try to be
able to deal with this, if you are having those kinds of
difficulties.
You may comment on some of those items during your formal
statement. I'll have questions on those priority items, maybe a
few others but those are areas where we are particularly
interested in, and I know you are going to comment about how
your own financial background relates in terms of the
responsibilities as the head of the Agency. And now, what you
think has been helpful to you in terms of your own financial
background, what do you really expect to learn, where you
think, perhaps, your weaknesses are, where you are going to try
and get additional kind of help and assistance to make sure
that we're going to get the kinds of protections for workers'
pensions that they deserve. I thank you.
[The prepared statement of Senator Kennedy follows:]
Prepared Statement of Senator Kennedy
Today we are considering the nomination of Charles Millard
to be Director of the Pension Benefit Guaranty Corporation. Let
me start by thanking Senator Mikulski for agreeing to help
Chair this important hearing. She had a vital role in the
passage of the Pension Protection Act last year, and has shown
impressive leadership as Chair of our Retirement and Aging
Subcommittee.
I'd also like to thank Senator Enzi for his continuing
leadership and partnership on these issues, and to recognize
Senator Burr as the new Ranking Member of the subcommittee.
The Pension Benefit Guaranty Corporation has a main role in
our retirement safety net. Forty-four million American workers
and their families rely on it to insure their hard-earned
pensions. This agency was established so that never again would
employees who gave a lifetime of service to a company be left
with nothing when their company pension plan failed. The
agency's director is not only the chief steward of Americans'
retirement, but also the leading advocate for defined benefit
pensions.
This is a time of great change in our retirement system.
Only 50 percent of American workers have any type of retirement
plan through their job. In the last 25 years, the percent of
workers with a secure, defined benefit pension has been cut in
half, so that today only one in five workers is earning a
traditional pension. As we know from the many pension failures
in recent years, even these workers aren't secure.
In this climate of uncertainty, the PBGC is more important
than ever. When pensions fail, workers and retirees are left
unsure about their future. The agency is responsible for
ensuring that retirees and workers know what has happened to
their pensions and receive their payments in a timely manner. I
look forward to hearing from Mr. Millard about how he intends
to work to increase the agency's advocacy on workers' behalf.
The Pension Protection Act enacted last year created new
rules to improve pension funding, thus lowering the risk to
workers and the agency. It will be some years before the full
effect of this legislation is known; in the meantime, the
agency continues to face serious financial challenges. It has a
projected deficit of $18.9 billion--a decrease from recent
years, yet a stark difference from 2001 when it had a surplus.
Retirees' benefits are in no immediate danger, but there is
obviously cause for concern.
It's vital that the agency make its investments, in ways
that are consistent with providing the maximum benefit to
retirees. In recent years, the agency has changed its policies,
shifting more toward investments in bonds. I understand that
Mr. Millard is in the process of reviewing these decisions. I
believe he should conduct his review with an eye toward best
protecting the retirees under the agency's care.
Finally, the best strategy to protect workers' pensions is
to act early to prevent pension failures. That's why I have
long supported enabling the agency to negotiate with struggling
companies--before their pensions fail--to keep pensions afloat.
A provision establishing such an alternative funding
arrangement program was included in the Pension Protection Act
passed by the Senate, but unfortunately it was dropped in
conference.
I strongly believe that it is in the best interests of
workers, retirees, and the PBGC to explore this and every other
available means to protect and preserve workers' pensions and
prevent future losses.
As Interim Director, Mr. Millard has no doubt already
become aware of the challenges faced by the agency. As director
he has the demanding job of safeguarding Americans' security in
their retirement. It takes someone with knowledge, experience,
and determination to lead the agency at this critical time, and
I look forward to hearing Mr. Millard's views on all of these
issues.
Senator Mikulski. Mr. Millard we're now going to turn to
you.
And I would just say to my two colleagues, Senators Isakson
and Murkowski, we are going to go by the 5-minute rule because
of the votes at 11 o'clock. Any additional questions, submit in
writing and any comments for an opening statement, you could
incorporate into your question.
Mr. Millard, would you please go ahead and proceed and then
we will get to the questions.
STATEMENT OF CHARLES E.F. MILLARD, NOMINEE TO BE DIRECTOR OF
THE PENSION BENEFIT GUARANTY CORPORATION
Mr. Millard. Thank you, Madame Chairwoman.
I will try to gloss over a few things in the written
statement because I understand that time is short.
Thank you for giving me the opportunity to appear before
you today, Madame Chairwoman, Chairman Kennedy, and Ranking
Member Enzi. I am honored and humbled that President Bush has
nominated me to serve as the Director of the Pension Benefit
Guarantee Corporation, and I appreciate your consideration of
my nomination.
Public service is a privilege which I hold dear and I am
sincerely grateful for this opportunity to serve.
For as long as I can remember my parents taught my siblings
and me that loving our neighbor meant taking action. My first
experience of that action was marching for civil rights with my
parents 40 years ago in Newark, NJ. And the desire to serve has
stayed with me since that time. And I certainly hope that my
children experience a similar example from my wife and me.
I have also had the chance to serve as a VISTA Volunteer in
Crown Heights, Brooklyn as a community organizer, and as a
Board member of the New York Urban League. In 1985, I worked in
Chile for the Vicariate of Solidarity, a church-based human
rights organization in Santiago. I have served as a New York
City Councilman and was then appointed by Mayor Rudolph
Giuliani to be the President of the New York City Economic
Development Agency and the Chairman of the New York City
Industrial Development Agency (IDA). I worked as a Legislative
Assistant in the early 1980s for Congresswoman Millicent
Fenwick of New Jersey.
My work in New York as head of EDC is worth noting because,
like PBGC, EDC--the Economic Development Corporation--was
created as a corporation to manage governmental programs that
are principally business-like in nature, produce self-
sustaining revenue, involve numerous negotiated transactions,
and require greater budget and other flexibility than a
traditional government agency.
In addition to public service, my career in private life
also helps me bring relevant knowledge and experience to PBGC.
I have been a practicing Wall Street attorney representing
large financial institutions, and I have been a Managing
Director involved in investment banking, public finance and
investment management with such firms such as Lehman Brothers
and Prudential Securities.
Most recently, I have been a partner in a more
entrepreneurial real estate enterprise, dealing with large
individual and institutional and pension investors regarding
their investment allocations to real estate.
This diverse background has given me experience in managing
hundreds of people in a public environment and directing a
large organization to higher achievement. I have also come to
understand how individual corporations reach financial
decisions, and how many large institutions and pension funds
make investment decisions.
PBGC and the defined benefit system face considerable
challenges in coming years. At the end of fiscal year 2006,
PBGC's deficit stood at $18.9 billion. The corporation controls
assets worth $61 billion and faces liabilities of $80 billion
on a present value basis. Also, PBGC estimates that total under
funding in ongoing plans stood at $500 billion at the end of
fiscal year 2006.
The Pension Protection Act, passed last year, made some
significant improvements in the system that will enhance the
soundness of the defined benefit system for millions of
American workers and the corporation is currently implementing
the PPA, including the development of a comprehensive set of
regulations and other guidance as mandated by Congress.
Madame Chairwoman, I would like to emphasize my personal
commitment to PBGC's mission and purpose. It is PBGC's job to
promote and maintain healthy plans, to negotiate in bankruptcy
and other proceedings, to protect workers and their benefits
and, of course, when a plan must terminate, it is PBGC's job to
pay those benefits.
This requires constant vigilance of various corporate
transactions, securities filings, and bankruptcy court
proceedings. It requires steadfast negotiations by PBGC on
behalf of workers, and their families, to help avoid plan
terminations or minimize their impact. And it requires
responsible and effective investment and stewardship of the
assets that are used to pay benefits to the insured
beneficiaries of trusteed plans.
The Corporation carries a tremendous responsibility because
the ``insured beneficiaries of trusteed plans'' I just
mentioned are actually real, individual human beings--people
who have worked their whole lives to receive the retirement
benefits that they have been promised and have earned, people
who support families, and who wait for the check from PBGC so
they can sit at the kitchen table and pay their bills, people
who are counting on PBGC to carry out its mission as given to
it by you.
If confirmed in this position, I would welcome the
opportunity to work with members of the Senate and House, as
well as your staffs, to make sure that we do the best job we
can for these workers.
I would be happy to answer any questions you may have.
Thank you.
[The prepared statement of Mr. Millard follows:]
Prepared Statement of Charles E.F. Millard
Chairman Kennedy, Ranking Member Enzi, and members of the
committee, thank you for giving me the opportunity to appear before you
today. I am honored and humbled that President Bush has nominated me to
serve as the Director of the Pension Benefit Guaranty Corporation, and
I appreciate your consideration of my nomination. Public service is a
privilege which I hold dear and I am sincerely grateful for this
opportunity to serve.
Before my formal statement, and with your indulgence, I would like
to introduce members of my family who are here with us today. My son
Egan, daughter Christine and son Conor.
For as long as I can remember, my parents taught my siblings and me
that loving our neighbor meant taking action. My first experience of
that action was marching for civil rights with my parents 40 years ago
in Newark, New Jersey. And the desire to serve has stayed with me since
that time. I certainly hope that my children experience a similar
example from my wife and me.
I have had the chance to serve as a VISTA Volunteer in Crown
Heights, Brooklyn, and as a Board member of the New York Urban League.
In 1985, I worked in Chile for the Vicariate of Solidarity, a Santiago-
based human rights organization. I have served as a New York City
Councilman and was then appointed by Mayor Rudolph Giuliani to be the
President of the New York City Economic Development Corporation (EDC)
and Chairman of the New York City Industrial Development Agency. I also
worked as a Legislative Assistant in the early 1980s for Congresswoman
Millicent Fenwick of New Jersey.
My work in New York as head of EDC is worth noting because, like
PBGC, EDC was created as a corporation to manage governmental programs
that are principally business-like in nature, produce self-sustaining
revenue, involve numerous negotiated transactions, and require greater
budget and other flexibility than a traditional government agency.
In addition to public service, my career in private life also helps
me bring relevant knowledge and experience to PBGC. I have been a
practicing Wall Street attorney representing large financial
institutions, and I have been a Managing Director involved in
investment banking, public finance and investment management with firms
such as Lehman Brothers and Prudential Securities. Most recently, I
have been a partner in a more entrepreneurial real estate enterprise,
dealing with large individual and institutional investors regarding
their investment allocations to real estate.
This diverse background in public and private life has given me
experience in managing hundreds of people in a public environment and
directing a large organization to higher achievement. I have also come
to understand how individual corporations reach financial decisions and
how many large institutions and pension funds make investment
decisions.
PBGC's insurance program currently protects the pensions of over 40
million Americans. The corporation receives no funds from general tax
revenues. Rather, it is financed by insurance premiums paid by plan
sponsors as well as by assets from terminated plans, recoveries from
companies that sponsored those plans, and investment income from these
assets.
When an underfunded plan terminates, PBGC becomes trustee, taking
over the assets and paying benefits. The corporation is now trustee of
approximately 3,700 terminated plans. In fiscal year 2006, the
corporation paid more than $4 billion to over 612,000 retirees and
beneficiaries in trusteed plans. There are about another 550,000 people
who will receive payments in the future upon retirement. These are
workers who depend on the PBGC, and I fully appreciate the necessity
for prudent decisions and management of this agency. Workers who
receive benefits from the PBGC have already been let down by their
pension plan; they should not be let down again by the pension
guarantor.
PBGC and the defined benefit pension system face considerable
challenges in coming years. At the end of fiscal year 2006, PBGC's
deficit stood at $18.9 billion. The Corporation controls assets worth
approximately $61 billion and faces liabilities of approximately $80
billion (on a present value basis). Also, PBGC estimates that total
underfunding in on-going plans stood at $500 billion at the end of
fiscal year 2006.
The Pension Protection Act, passed last year by Congress and signed
by President Bush, has made some significant improvements in the system
that will enhance the soundness of the defined benefit system for
millions of American workers. The corporation is currently implementing
the PPA, including the development of a comprehensive set of
regulations and other guidance as mandated by Congress.
Mr. Chairman, I would like to emphasize my personal commitment to
PBGC's mission and purpose. It is PBGC's job to promote and maintain
healthy plans, to negotiate in bankruptcy and other proceedings to
protect workers and their benefits and, of course, when a plan must
terminate, it is PBGC's job to pay those benefits. This requires
constant vigilance of various corporate transactions, securities
filings, and bankruptcy court proceedings. It requires steadfast
negotiations by PBGC on behalf of workers and their families to help
avoid plan terminations or minimize their impact. And it requires
responsible and effective investment and stewardship of the assets that
are used to pay benefits to the insured beneficiaries of trusteed
plans.
The Corporation carries a tremendous responsibility because the
``insured beneficiaries of trusteed plans'' I just mentioned are
actually real, individual human beings--people who have worked their
whole lives to receive the retirement payments that they have been
promised and have earned, people who support families, and who wait for
the check from PBGC so they can sit at the kitchen table and pay their
bills, people who are counting on PBGC to carry out its mission as
given to it by you.
If confirmed in this position, I would welcome the opportunity to
work with members of the Senate and the House, as well as your staffs,
to make sure that we do the best job we can for these workers.
I would be happy to answer any questions you may have.
Thank you.
Senator Mikulski. Thank you very much, Mr. Millard. I thank
you for being so crisp in presenting the testimony.
I would like to go to experience and qualifications for a
moment. First of all, I read your resume--your extensive
resume--in preparation of the hearing and you also noted in
your own testimony a VISTA Volunteer, you shared that your
worked for the Jesuit Corps, even toward Baltimore's Little
Italy with Nick D'Alesandro, speaker Pelosi's nephew which
should have been enough to have you reinvest there. Your own
work in Chile, I am also very familiar with the solidarity
program that the Cardinal ran during that time, during the dark
days of Pinochet, your civic engagements, your philanthropy.
When I read this background I thought, ``You know this guy
belongs at HUD or running National Service,'' but I don't see--
I mean excellent background and your ongoing civic engagement
in philanthropy as well as public service. I thought, ``This
guy would be a natural for HUD or national service,'' but
nothing jumped out about the pensions. And as you said, we are
finding as the era of defined benefits might be coming to an
end, of the looming bankruptcies of some of our iconic
corporations--we need somebody who really understands pensions.
And could you share with us--there's no doubt that you were
involved in very important--your Wall Street experience. But
commitment and dedication is one thing, but skills also are
another. So could you share with us, with that, where your
experience would be? And also in your writings, you had that
interesting op-ed column or something in the Post. Some of
those articles were quite interesting but I only saw one about
pensions and that's when you were a little prickly about the
New York pensions negotiations.
So could you elaborate on your experience? As I said, I
think you are committed to the mission of the Agency, and your
integrity I have no doubt of, but let's go to that experience
and competence level. Could you elaborate, please?
Mr. Millard. The underlying purpose, obviously, is to meet
the needs of workers and retirees. And if I could share a
little anecdote, when I ran the Economic Development
Corporation my kids used to ask me, ``What do you do for a
living, Dad? '' I would say, ``Well, I try to make sure that
more people have jobs,'' and I would try to explain to them why
that was so important. And I see the mission of the PBGC as
very, very similar to the mission of the agency that I ran in
New York City.
And our focus, the specific focus, the measurement that I
would brag about when I ran that agency was jobs. Was being
able to make sure that more people in New York City could
support their families. And in many ways, that is the same
mission that the PBGC has, which is to make sure that retirees
receive the benefits that they worked their whole lives for,
that they bargained for, and were promised. And that mission is
carried out in lots of ways that has nothing to do with
pensions, although I will get to pensions in a moment.
It has to do with making sure that our IT is secure, it has
to do with making sure we continue to get the checks paid on
time, making sure that our contracting works right so that we
get the right kind of people in place, the right kind of
systems in place, to make sure that the hundreds of thousands
of people that we are paying the checks to, get those checks on
time, every time. And we have a very, very strong record of
doing that. We do need some improvements in some of our IT and
that's something that I have been pushing very hard already.
When it comes to pensions themselves, I would say Madame
Chairwoman that, clearly, I have never run a pension plan. But
I don't think that--the PBGC doesn't run a pension plan. The
PBGC makes sure to negotiate properly in court. I've been an
attorney and I have worked in bankruptcy cases myself as an
attorney. It makes, it negotiates, sometimes, before court. I
have negotiated with large corporations as head of the Economic
Development Corporation in New York. On a repeat basis, much of
what we did was to negotiate with New York City's largest
employers to make sure that they maintained jobs in New York
and brought new jobs to New York.
I also have to, in this position, have effective
stewardship of our assets. As you pointed out, we had
approximately a $20 billion deficit at the end of the last
fiscal year. That's a huge challenge. And the job of the person
in this seat is to make sure we do the most that we can with
those assets.
My investment background--not running a pension plan--but
my background in investment allocation and advising investors
about how to invest and understanding the different roles that
different assets can play in an allocation, in looking at
whether 30 percent equities and 70 percent fixed income,
whether that's really the right allocation for us, I have the
background to do that very powerfully. And that is one of the
most important roles at PBGC, what do we do about the deficit?
That's not the same question as, ``Have I ever run a pension
plan? '' I would say that the PBGC is unique in government in
the way that, as Senator Enzi pointed out, it's a corporation.
Also, that it is a little bit like a pension plan, it is a
little bit like an insurance company, it is a little bit like
the Economic Development Corporation that I ran once before. It
is a little bit like a law firm, constantly negotiating in
bankruptcy court, and many of those areas I think I have
extensive experience.
Senator Mikulski. Well, thank you for that robust answer.
You raised a very important issue related to deficits and
if there is the opportunity for the second round or should we
address questions from my colleagues, I'll come back to that.
The looming deficit is really a very big juggernaut that
this committee is concerned about, both our responsibility to
those who expect their pensions or some type of safety net from
PBGC, as well as our responsibility to the taxpayer, because
we're concerned again of some tremendously unfunded Federal
mandate. So I'd like to come back to and discuss that more, but
I'd like to turn now to Senator Enzi.
Senator Enzi. Thank you, Madame Chairwoman.
And Mr. Millard, I am real pleased that you are here today.
I know that there are a lot of things happening in your life, I
know that your wife and you are expecting a baby at any moment,
and we certainly wish you a safe, successful delivery.
Senator Mikulski. You had a better memo than I had, so you
are really up on it.
Senator Enzi. Speedy delivery.
Senator Mikulski. Is that where your wife is this minute?
Mr. Millard. She is not delivering. She is due at any time
and since we live in New York she did not come down.
Senator Mikulski. Well, God Bless.
I'm sorry sir. Go ahead, we'll add a few more minutes.
God Bless.
Senator Enzi. It's exciting.
When you and I met before, we discussed the corporate
governance reforms of the private sector and what needs to be
done to strengthen publicly-traded companies.
Now, in our meeting you told me that you'd be strengthening
the corporate governance standards of the PBGC so that the
Corporation's Board of Directors is more fully informed and you
assured me that Congress would be more fully informed, too, and
more engaged in the corporations activities and operations.
What steps have you taken to strengthen the PBGC's corporate
governance standards since you've been the Interim Director,
and what additional reforms do you have planned?
Mr. Millard. Thank you, Senator. The GAO report pointed out
a few things. One, if you were starting the PBGC today, you
might not necessarily create a corporation with three Cabinet
Secretaries as the entire Board. That's an interesting and
important point but went outside my control.
What's in my control--or at least an area that I can have
more effect on--is by-laws and guidelines. There were a lot of
things that have happened in the PBGC in the last couple of
years, where the Board became much more engaged, the Board reps
were getting information more regularly, and one of the things
the GAO pointed out was, ``Well that's all fine, but none of
that's in a by-law, none of that's in a guideline, none of
that's really laid out like a real corporate Board would have
those real corporate procedures.'' And so, we are now in the
midst of a comprehensive draft of new by-laws and guidelines.
So one example, every Friday we send to the Board reps a
summary of the significant activities of the week. A case was
dismissed in bankruptcy court, we decided to grant a waiver to
a company to, perhaps, keep its pension plan alive while trying
to exit from bankruptcy with its bankruptcy plan intact. Those
kinds of things. So the Board is informed pretty much of
everything that's going on.
That was a great thing, but it wasn't written as a
guideline from the Board that that should happen all the time.
So we are redoing the by-laws, we're probably going to allow
the Board reps to be even more engaged, and we are putting into
written form many of the things that have already begun
happening. One of those will be much more regular meetings or
calls with the Board Reps and me, interfacing directly, rather
than just sending the occasional
e-mail.
Senator Enzi. I appreciate you having gotten the message
about more involvement by the Board representatives and the
work on the guidelines and standards.
Now, as I mentioned in my opening statement there are
events coming down the road that will have a significant affect
on whether companies continue to offer defined benefit plans,
and the prime example of course is the current initiative by
the Financial Accounting Standards Board, FASB, to update the
accounting standards for pensions and retirement health care.
What other events do you see that will have a significant
affect on whether companies will continue to have defined
benefit plans?
Mr. Millard. Well, obviously the strength of the economy is
going to be a very, very important issue no matter what other
questions arise. As you know there are some new FASB actions
that may be taken as what's called Phase 2 that may put
additional pressure on Corporate CFOs to mark things, to mark
it on their balance sheets and show even more of what's going
on with their pensions.
I think what the PPA did that's very, very useful here is--
and when you combine FASB--it puts corporate CFOs in a position
of having to tell everybody where they really stand. So workers
have more information, that's very good. Investors have more
information, that's very good.
Interestingly, the threat to that is that corporate CFOs
who are now being marked to market and subject to the
vicissitudes of the ups and downs in their pension plan, may
decide that they want to immunize themselves against that.
Sometimes that can mean freezing their plans--obviously they
are in negotiations with their workers so often when they
freeze they will offer some other 401K or cash plan--or they
may immunize them, taking out some form of annuities, which can
give a lot of security to workers if the pension plan is fully
funded.
Senator Enzi. Thank you.
I've almost used my time. I have some other questions that
are a bit more technical. I'd prefer those as written answers,
so I yield the balance of my time.
Senator Mikulski. Thank you, Senator Enzi.
Senator Isakson.
Opening Statement of Senator Isakson
Senator Isakson. Thank you, Madame Chairman.
And welcome and congratulations on number nine. That's
terrific. It was my feeling that in the past--the most recent
past of PBGC--there was somewhat of an attitude that PBGC's job
was to take over pensions. I personally think in terms of PBGC,
FDIC, FSLIC--those were intended to be last resorts, and in
fact, people could help avoid pensions being defaulted upon.
So I would like to hear how you approach your
responsibility at PBGC with regards to pensions of, say,
bankrupt companies that are in trouble that you may be forced
with considering at some point down the line. How are you going
to approach dealing with those companies?
Mr. Millard. One of the most important jobs of the PBGC is
to promote and maintain defined benefit plans. Obviously there
is a marketplace of retirement offerings that businesses give
to workers: some offer 401Ks, some offer cash plans--defined
benefit plans are a very, very important part of that
marketplace, and it is difficult for me to cause one company to
go to one option versus the other.
But, to make sure that young workers understand the value
of defined benefit plans is one of the important roles of the
position of Director of PBGC, and to make clear to companies
that just because you go into bankruptcy doesn't mean we are
going to let you off the hook on your pension plan. Sometimes
they want to dump a pension plan. If they can afford to
maintain that plan we are going to fight having them dump the
plan. If it looks like they are willing to try to maintain
their pension plan and that's happening in a case that we're
dealing with right now, where I've made some decisions just
recently with our staff to say,
``All right, we'll agree to grant a form of waiver
because we want this company to have a chance to exit
bankruptcy with the plan intact, so that those workers
still have their defined benefit plan available.''
Doing that not only helps maintain that company's plan, and
retirement security for those workers, but it says to all the
other people who are thinking, ``Hey, maybe I'll go into
bankruptcy court and figure out a way to dump this plan,'' but
it's not going to be so easy because unless you can prove that
you really can't afford it, PBGC is not going to be your ally
in helping you off-load that plan.
Senator Isakson. Well, I really appreciate that answer.
Madame Chairwoman one of the reasons I ask that question--
you and Senator Enzi remember when we did the airline
provision, Delta was in bankruptcy, but willing to honor their
pension, but had to have some flexibility both in terms on
interest rate, and in terms of amortization. And, in its
wisdom, the committee did that, thanks to you, Senator Kennedy,
Senator Enzi and others.
I just want to make the point that instead of PBGC having
taken that plan over, Delta has honored the plan and this year
put in a quarter of a billion dollars into the plan,
voluntarily, now that they are back and profitable.
So that attitude is critically important, I think, for you
to have and I appreciate it.
My only other question is, $500 billion is the estimated
unfunded liability at the end of 2006. What is the total
liability--as a percentage of the total liability, how much is
that $500 billion? Is it 10 percent, 5 percent?
Mr. Millard. I'd have to get you that number. The probables
that we see where there's a deficit, in what we see coming down
the pipe of a company that might go bankrupt, to us is a net
present value of something like $10 billion at the end of 2006
but I would rather get you that number exactly.
Mr. Millard. And understand that total under funding in the
system, it's a very, very large system so it is not a number
like 50 percent or 60 percent.
Senator Isakson. That's why I asked the question, because
$500 billion is a big number, but in the scheme of things it
may not be as big----
Mr. Millard. Right.
Senator Isakson [continuing]. As it's perceived to be
standing alone.
Mr. Millard. Good point, and I will get you the exact
number.
Senator Isakson. Thank you.
Thank you, Madame Chairwoman.
Senator Mikulski. Senator Murkowski.
Statement of Senator Murkowski
Senator Murkowski. Thank you, Madame Chairman.
And thank you, Mr. Millard, for being here this morning. I,
too, wish you and your wife well with your newest.
Mr. Millard. Thank you.
Senator Murkowski. I appreciate your willingness to serve
in this capacity. You and I had an opportunity to speak before
about an issue that is very close to me in terms of my
constituents in a multiple-employer pension plan that was
established by the timber industry in Alaska in the late 1960s.
I hate to take this from the global perspective to a very
parochial perspective but, I think it is important to not only
talk about this smaller Alaska plan because I have to assume
that there are other plans out there that are in a similar
situation. So, I will take you to the specifics on this
particular plan.
As you know, this plan is operating in a region of the
State where the Federal Government controls the timber supply.
The Government drastically reduced that timber supply and that,
in conjunction with the decline in the financial markets, we
saw a drop in the interest rate, forcing the employer plan
sponsors to make deficit reduction contributions to the plan to
put this on a financial footing that was somewhat even at that
time.
But with the timber shortage in the region, it really is
impossible--or certainly next to impossible--for the few
surviving employers to afford the mandated deficit reductions.
We've got somewhere between 600 and 1,000 jobs that are at risk
and about 2,500 current retirees that will be affected if this
plan is not saved. As you mentioned in your opening statement,
these are real people that are trying to pay their bills, they
are counting on what they had put into this plan.
Bearing in mind that the Federal Government, in this case
it is the U.S. Forest Service, controls all of the timber
supply that is needed to allow the employers to participate in
this plan, does this plan deserve any special consideration,
has it been treated adequately and fairly based on your
analysis to this point?
Mr. Millard. I think there's been so much around this plan
it would be hard to get into all the details here and because
its a matter of----
Senator Murkowski. And I don't expect you to get into those
details.
Mr. Millard [continuing]. Litigation obviously is hard to
do, as well.
One of the very good things that's happened is when you
asked us to look at this, your office and you, have brought
parties together to move things forward a little bit more
without insisting that anybody do anything. Your own promotion
of, ``Hey isn't there a settlement here? '' has proven very
valuable.
The PBGC's policy, generally, is:
``Look, if you really can't pay for this plan, then
we will take it over, but you must show us that you
really can't pay, because of course everyone in this
room would rather have the employers pay the pension
plan than the PBGC.''
We regularly insist, as we talked about before, for
example, in bankruptcy court, I want to know that someone can't
afford it before we say, ``OK.'' As is the case, sometimes, in
litigation, some people got information to us quickly to show
us that they could or couldn't pay, other people were slower, I
think there was probably some delay on the PBGC side at one
point in the past, as well.
But in the last couple of months things have moved better,
we are in some good settlement conversations, people have
provided us information that they hadn't before. So, I think we
are in a more positive stance with them than we were before
your actions. Beyond that, I can't really tell you whether
we'll get a settlement or how litigation will work out, but
we've been very attentive to it and I think are in an improved
situation now, compared to a couple of months ago.
Senator Murkowski. Tell me how the PBGC determines what the
interest rate will be when they are determining the unfunded
liabilities for these ongoing defined pension benefit plans?
And where I'm going with the question is, there seems to be an
impression--if you will--that if the PBGC is using an interest
rate that is less than what is appropriate, I guess, for the
unfunded liability that, in effect, you're forcing healthy
employers to pay more for their share. Explain to me how you
get to that interest rate number?
Mr. Millard. The interest rate PBGC uses is part of a
regulation that was adopted at PBGC a number of years ago and
has been in place for quite some time. And it is a double blind
survey of insurance companies conducted by the American Council
of Life Insurers, basically asking, ``What would you charge if
we had to take these liabilities and go and purchase an
annuity?'', in order to, in essence, immunize or put them to
bed. Once you know the charge, you can then figure out the
interest rate. So they don't know what their competitors are
saying, and knowing what it would cost to put annuities in
place is the way that we calculate the interest rate, and is
founded on the assumption that it should be no less or more
expensive to terminate a plan by putting it to PBGC than it is
to purchase annuities. And that interest rate has been held up
in court frequently.
Not surprisingly, the people who challenge it are often
people who are in bankruptcy court with us, who would like to
make our claim smaller or someone who's afraid that they might
be in litigation with us who would like our claim to be
smaller. But the reason that we do it that way is the
assumption that it shouldn't be any cheaper to dump it on PBGC
than it is to buy annuities from an insurance company.
Senator Murkowski. Madame Chair, I'm out of time, but I do
have some additional questions that--because they are so
specific to the Alaska issue--we'll submit in writing.
Mr. Millard. And the interest rate calculation, I'd be
happy to spend more time on. I mean it's highly complex but
that's the basic overview.
Senator Murkowski. I think it helps us in understanding----
Mr. Millard. Sure.
Senator Murkowski [continuing]. What it is that we have to
deal with.
Thank you.
Senator Mikulski. Senator Murkowski, of course, submit any
of your questions in writing. But as you indicated, these are
very technical things. We went through this during the actual
writing of the bill, and Senator Enzi's expertise in business
and accounting was immeasurably helpful to all of us. I mean,
we really went through it but came up with a good bipartisan
agreement.
And I might add, Mr. Millard, this is such a welcome tone
and we appreciate the tone of this hearing--of course our
colleagues are always civil--but I get a sense from you, that
you really want to work with Congress to make sure that there
is this safety net, that we don't encourage dumping of
pensions, and we are a safety net. And, I want you to know that
I appreciate this tone.
Mr. Millard. Thank you.
Senator Mikulski. And because at times we felt we were in
an--even working on the Legislation--an adversarial
relationship with the top team at PBGC, and we feel we're all
on the same side.
Mr. Millard. I wouldn't want to take this comparison too
far but I've been a legislator myself. City Council is a far
cry from the room we are in.
Senator Mikulski. Well, I was on the Baltimore City Council
too; they called us the ``Pothole Parliament.''
[Laughter.]
But, you understand.
Let me go to my question, though, because the deficit is an
important issue, and other colleagues have raised it. Which is,
how do we deal with the deficit? And your thoughts on that. And
at the same time not look forward to some dump on the taxpayer.
When we began our hearings on the bill itself, there was
concern, as Senator Isakson said, airlines were coming in,
steel had come in. We were concerned like an--almost like an
S&L crisis. Then the other issue Senator Murkowski and others
have raised is, we can't be penalizing the good pensions, or
the viable pensions, for the weak. So, we don't want the
survival of the weakest in that sense by penalizing the
strongest. Could you share with us your thoughts, and the
direction now in which you would like to take the Agency, and
any recommendations, I would presume, that you would come back
and talk to the Congress about?
Mr. Millard. One of the first things that I did when I came
into PBGC, to the role as Interim Director was to put out a
RFP, pay for an investment consultant who has invested with
dozens and dozens of pension plans in the past, and other
similar institutional investors who has not worked with PBGC in
the past, in order to review our investment policy from top to
bottom. Our investment policy currently is conservative in the
extreme. It is designed to match assets and liabilities, and
that poses two problems.
One, as a mathematical and investment matter, because of
the way that we calculate our liabilities it is very difficult
to find assets that can really be matched with those
liabilities. Second, no matter how well we do that, we have
only $60 billion in assets that can't possibly match $80
billion in liabilities. And I use the analogy of--you're
familiar with the parable of the talents in the gospel----
Senator Mikulski. Oh yes.
Mr. Millard. The master goes off and he leaves everybody
with one talent, and one guy says, ``Well, here I've got you
10,'' the next guy says, ``Here, I've got you 5,'' and the last
guy says, ``I know you're a tough man, so I buried it, here
I've got you 1.'' Well, our current investment policy is, ``At
least I kept the one.'' And I think that without pre-judging
the results of what will be a very extensive review, one of the
things that I want to make sure of is that we are being good
stewards and recognizing that the dynamism of the American
economy could help increase those assets, within reason. I'm
not talking about taking tremendous risk, but, for example, the
PPA requires that the PPGC----
Senator Mikulski. If I could jump in here, when you are
talking about investment are you talking about the fact that
right now all of the PBGC funds that are coming in are in T-
Bills?
Mr. Millard. Well, they aren't all but yes, I am saying--70
percent of our current allocation is to fixed-income and almost
all of that is to treasuries.
Senator Mikulski. Could you refresh my memory? Is that an
administrative decision, or is that a statutory mandate that
all go into----
Mr. Millard. That's a policy.
Senator Mikulski [continuing]. Is it a policy, or is it a
statutory one?
Mr. Millard. It's a policy adopted by the Board. It is
reviewed by the Board every couple of years, and the PPA
requires that we compare our investment performance to a
hypothetical portfolio of 60-percent equities and 40-percent
fixed income.
And the comparison to that over the past 4 years is a stark
contrast. There's more risk in a 60/40 portfolio, and how much
risk we should be taking on behalf of retirees is a very
important question, so I don't know if 60/40 is the right
answer--I don't know what the right answer is yet. But I know
that we need to look very carefully at where we are, because
our current plan essentially locks in the deficit. It says,
``At least I've matched my assets to the liabilities that I
know of, but I am not increasing the assets.''
Senator Mikulski. Well, I'd like to make the request, as
you look at this. And, you're going about it in a businesslike
way, but before that asset allocation was changed, that you
would share with us--and perhaps we would have a hearing--
because it would be a big shift.
That also takes me to your Board. As you know, GAO has
raised concerns over the fact that you have only a 3-member
board, ``you'' meaning PBGC, and that there are three Cabinet
Secretaries, all three who are enormously busy. And being in
touch with them has been at the will of the Chair without the
by-laws. We welcome that idea of having actual procedures and
by-laws for the Board. But, do you envision, taking the GAO
report, and perhaps coming back to Congress with some
legislative initiatives on this? I'm not taking a position on
whether it should be expanded or not, but essentially you don't
have an operational Board as you're accustomed to in your own
work in the private sector.
Mr. Millard. Obviously, the Administration will ultimately
have a position on whether some action should be taken, but I
would welcome the chance to go into that subject in more
detail. I think that it is a very, very important matter for
the Corporation and I'll give you the following example.
Any three-member board--no matter whether they're Cabinet
Secretaries or not--may have a hard time saying, ``Well, who's
the Audit Committee? Who is the Investment Committee? Who is
the Contracting Committee?'' So, we have an IG who reports
directly to the Board, and in a three-member Board format, that
seems quite appropriate. So, he functions somewhat like an
Audit Committee, and in the by-laws we're now drafting we've
called for that.
But, no matter what the Board is, there needs to be robust
communication, there needs to be clear lines of responsibility,
there needs to be accountability and guidelines that everybody
knows what they are supposed to be doing, and that's what we're
trying to put in place right now. As to changes, I'd welcome
the conversation, but I don't think that I can yet say,
``Here's what it ought to do.''
Senator Mikulski. Right. But I think what you want to do is
more of a fresh start here, in other words keeping the
statutory mandate of the Agency, but looking at management
reforms using the GAO report as kind of a starting point for
even discussion and evaluation. Am I on the right track here?
Mr. Millard. I welcome the conversation. Obviously the
Administration would ultimately take a position that we do or
don't want change. But I think as of the moment I could say
that it's a conversation that a lot of people are open to
having.
Senator Mikulski. You've got one Administration saying,
``we'll manage it,'' but then you're going ahead with changes
in investment policy.
Mr. Millard. Correct.
Senator Mikulski. And who would okay that?
Mr. Millard. Well, the Board approves a new investment
policy, if there is one, and the Board is highly involved--or
the Board reps are--in the step-by-step they--I went and
checked with them first and said, ``Here's what I plan to do to
get an outside consultant, who's never worked for us before.''
``Good.'' ``Here's who it is.'' ``Good.'' ``Here's the building
blocks of how we want to go about analyzing what we currently
do and what are the foundational aspects of knowing what we
should do.'' ``Good.'' And so, sometime in the spring, we
probably will have some new investment policy.
That's not a statutory question. Changing the Board is a
statutory question which obviously, your opinion is more
important than mine.
Senator Mikulski. Right. Thank you for that answer but, as
I turn now to Senator Enzi, I really am requesting as Chair of
the committee that, before any Board decision is even taken,
that you share the results of your extensive evaluation when
changing investment policy with us, so that we could also have
a conversation about it. Do I have your commitment on that?
Mr. Millard. Yes, I will absolutely be happy to discuss any
aspect of investment policy with this committee any time you'd
like, in detail.
Senator Mikulski. Thank you. No, I'm pretty firm about this
and I want to be very clear with my colleagues--a change in the
investment policy of the funds of the Pension Guarantee is a
very significant public policy step. We acknowledge that the
statutory authority relies on the three-member Board that meets
unevenly, has had no clear by-laws or procedures, under any
Administration--and this is a pretty big deal, if in fact,
you'll do it in the final year of this Administration. And I
want Congress actively involved in the conversation.
Mr. Millard. That's fine with me. I would welcome your
involvement.
Senator Mikulski. Thank you.
Senator Enzi.
Senator Enzi. Madame Chairman, the rest of my questions
I'll submit, especially since we are nearing the 11 o'clock
hour for the vote.
Senator Mikulski. OK, Senator Isakson.
Senator Isakson. Senator Murkowski.
Senator Murkowski. I'll defer to you.
Senator Mikulski. Thank you, colleagues.
Before we wrap up, we didn't give you the opportunity to
introduce any family members that you might have.
Mr. Millard. Well, thank you.
Senator Mikulski. We acknowledge that your wife is in New
York and again, we wish her all the best in God's speed and
God's protection at this fragile hour here. Did you want to
introduce any of your family?
Mr. Millard. Actually, my oldest is only 16, and it's the
first week of school, and they're all in New York and my wife
wasn't going to bring the other seven down, so they're at home,
but thank you.
Senator Mikulski. You're more than welcome.
And then my last point just goes to something else that
again goes to what I think is the philosophy and values that
you bring to the Agency and it will require management reform
and stewardship.
I just want to tell you an anecdote about Bethlehem Steel.
I share that same passion about jobs that you do, and it's one
of the reasons I went as a social worker to the Baltimore City
Council, and came to the Congress. Bethlehem Steel went into
bankruptcy; it broke our hearts. It just broke our hearts, and
there were people who had worked all of their lives for their
pensions in hot, dirty, and often even dangerous circumstances.
You'd be familiar with it and I work with Rick Santorum, we all
worked on it.
OK, so it went to Pension Guarantee. So, when people
started to get their benefits, PBGC made a math mistake--a math
mistake. So, to add insult to injury, workers who were forced
to accept pensions below what they thought they had earned were
then told that PBGC--through PBGC's fault, not at the
Corporation and the way they filed the papers, and so on--had
made an overpayment to them as individuals, and that they had
to then pay it back.
Well, I went to bat for them because I felt the PBGC had
made the mistake; that's the way it was. It was very early in
the payout, so it wasn't big money. But to the families it was
big money, because it was in the individual family checkbook.
Well, they had to pay it back. And it was very serious
hardships on families in my hometown. But in dealing with
pension, the Pension Guaranty fund at the time, was really one
royal pain. I can tell you as a Senator trying to be an
advocate, we really ran into the worst of the bureaucratic
attitudes and rigidity.
So, all I'm saying to you, because we cannot un-ring that
bell, but I would hope, given I think, that you do want to
bring corporate experience, but I do believe you also bring to
your life and your work, values--that you're a value-driven
administrator. That this not happen again. Not only the math
mistakes, but the attitude in dealing with the people that we
have. I'd sure love to get those people a different pay, but we
are where we are. But looking ahead to where we are, I would
hope that we would never have to face that again.
Mr. Millard. I appreciate your point very much and I
couldn't be more proud to have the chance to work in an
organization that is trying its best to help people, in a
human--not only financial--but human way, who really need the
help. They've been betrayed by somebody already, their pension
promises are not being fulfilled, many of the people don't get
what they were expecting and they're very, very real human
beings. And if I could give you an insight into me, that's what
makes me tick--the ability to make a difference in peoples'
lives, and to take whatever skills I have and hopefully run
this agency even better than it's been run before is a very,
very motivating factor to me.
I've already taken some actions in that regard, to ask for
some numbers about, by how much do we tend to overpay people
and how can we make sure that we're more exact, by how much do
we, if we--when we underpay people--and how can we be more
exact. And also, how do we communicate this to people? Because
part of your point is not only, okay even if you grant--of
course, sometimes there will be math mistakes, the question is,
``Well, then how do you deal with whatever those math mistakes
may be?'' And often--by the way--they're not necessarily
mistakes, we make an estimated payment, and it takes a long
time for actuaries to find out the exact payment.
But in any event, I've actually changed some of the wording
in the letters that we send to people to try to make it a
little bit more humanly clear what's going on, than some
bureaucratic letter that they can't understand. Because they're
real people whose paycheck just changed, and I fully understand
that.
Senator Mikulski. I appreciate that answer.
Since there are no further questions and those that we will
submit will be in writing and at 11 o'clock, the vote will
begin shortly. This committee stands in adjournment. Thank you.
[Additional material follows.]
ADDITIONAL MATERIAL
Response to Questions of Senator Kennedy by Charles E.F. Millard
Question 1. The PBGC appears to have continuing difficulty
recruiting enough highly qualified candidates to serve as attorneys and
financial analysts. Congress has authorized other financial agencies
that compete with much higher salaries in the private sector--like the
SEC and Federal Reserve Board--to pay above the standard GS schedule.
Having served as Interim Director for several months, do you believe
that PBGC would benefit from being able to offer similar salaries to
attract financial professionals? If so, what barriers exist that would
prevent you from raising these salaries if you are confirmed?
Answer 1. In my 4 months as Interim Director, I already have
encountered the difficulty of recruiting a senior financial officer in
a market where other Federal agencies can offer substantially higher
pay. This includes not just the agencies that are above the GS
schedule, but also the majority of agencies, whose executives are
members of the Senior Executive Service (``SES''). Because the
executives of government corporations are not eligible to be in the
SES, but are Senior Level (``SL'') employees, our executives have
fallen behind the SES agencies, which received an increase in the pay
cap that was not extended to SLs. I understand the Office of Personnel
Management is working with Congress to remedy this discrepancy;
remedial action would aid PBGC in executive recruitment and retention.
In addition, I am aware that PBGC has lost professional staff to other
agencies that pay above the GS Schedule. GAO is currently conducting a
review of the Corporation's compensation system and the challenges PBGC
faces in recruiting and retaining talented professionals. I look
forward to reviewing GAO's recommendations when its report is complete.
Question 2. In 2005, a new Office of Chief Counsel was created at
PBGC; before that time, the General Counsel's Office handled all legal
matters. The GAO has reported that there is confusion over each
office's authority and that this has led to conflicting legal opinions.
Furthermore, the PBGC's Inspector General found that in a multimillion
dollar business transaction, the PBGC put itself--and retirees under
its care--at risk because the General Counsel did not have an
opportunity to review the deal. Have you reviewed this situation? Do
you believe there should be a single chief legal officer directly
reporting to the Director? What steps have you taken to ensure that the
PBGC is not placed in such a position of risk again?
Answer 2. I have reviewed the GAO report on PBGC's legal services
structure, and I have worked with that structure since my appointment
as Interim Director. The Corporation has instituted processes and
procedures for its legal offices that facilitate greater communication
and cooperation and are designed to address the risks you mention. I
will continue to monitor the situation closely and will consider
restructuring the organization if I feel I am not getting appropriate
legal advice in an effective and efficient manner.
Question 3. In your testimony, you addressed concerns that PBGC's
assets may be too heavily invested in Treasury securities and bonds,
noting that you had begun a review of these investment policies. What
experts are you consulting in reviewing the corporation's investments,
and what is the timeline for the review's completion? Have you reached
any conclusions thus far? Will you commit to providing the committee
with regular updates about this review process and also to consulting
with the committee before PBGC takes any action based upon these
recommendations or conclusions?
Answer 3. PBGC has recently contracted with Rocaton Investment
Advisors, LLC to review the corporation's assets and liabilities and
the best investment practices and asset allocations of other like
institutions. There are no constraints placed on that review other than
those currently imposed by current law related to the investment of
PBGC's revolving fund. Because the review has just begun, there are no
results to report at this time, so no conclusions have been reached.
These results will be shared with the Corporation's Advisory Committee
and its Board. As promised, I will share these results and enter into
discussions with Congress as this deliberative process goes forward. By
statute, ultimate responsibility for setting PBGC investment policy
rests in its Board. Based on the current policy set by the Board, this
final review and any resulting changes in policy could be determined by
next spring.
Question 4. A significant portion of your experience in financial
management has focused on investments involving real estate. Do you
believe real estate should be a part of the PBGC's investment of the
assets in its trust fund? If so, do you anticipate any potential
conflicts of interest with former employers or clients? How would your
experience translate to managing nearly $60 billion in stocks and bonds
that must be safeguarded so they can pay workers' pensions?
Answer 4. PBGC currently has about $100 million in real estate
assets. These are properties that the corporation has taken in as the
result of becoming trustee of terminated pension plans. While I may
have personal opinions about the appropriateness of real estate, I will
be guided by investment advisors with a broader perspective. As part of
PBGC's investment program review, real estate will be evaluated as a
possible active asset class. Ultimately, any decision about using real
estate as an active asset class will be made by the PBGC Board. If my
former company were to approach PBGC about any financial dealings, I am
required to and would recuse myself from any such discussions or
transactions. We have processes in place to prevent any inappropriate
interactions.
The investment policy adopted by the Board sets the broad framework
for the handling of PBGC's portfolio. Those assets are managed by third
party contractors who are hired to achieve certain investment results
based on that policy. My various experiences in the financial world
have well-prepared me to oversee the review of our policies, the
setting of investment benchmarks for each segment of the PBGC portfolio
and the hiring of appropriate asset managers for the corporation.
Question 5. The Senate-passed Pension Security and Transparency Act
included a provision directing the PBGC to negotiate alternative
payment plans with struggling companies before their pensions fail.
Unfortunately, this provision was stripped in conference between the
House and Senate. Do you agree that it is in the PBGC's interest to
prevent pension failures before they happen? Do you believe that PBGC
should have as many tools as possible at its disposal to stop pensions
from failing and being dumped on the agency?
Answer 5. PBGC strongly encourages plan sponsors that face
financial hardship to explore every alternative to plan termination.
Among other things, plan sponsors facing temporary financial hardship
can request a waiver of their annual funding obligations from the
Internal Revenue Service (IRS), and PBGC is actively engaged with IRS
and plan sponsors in that process. Other plan sponsors obtain breathing
room by obtaining IRS approval to stretch out the amortization period
for funding benefits, and PBGC also plays a role in that process.
Most underfunded plans terminate because the employer has gone out
of business, liquidated, or sold its assets in an insolvency situation.
In those situations, there is generally no alternative to plan
termination. In other instances, lenders or other investors who are
funding a bankruptcy work-out will not participate in the
reorganization unless the pension plan is terminated. As you are likely
aware, the Deficit Reduction Act of 2005 (DRA) imposed a new, post-
reorganization premium of $1,250 per participant for 3 years on a plan
sponsor that terminates its pension plan in bankruptcy and later
emerges from bankruptcy. This change, which was made permanent under
the Pension Protection Act of 2006 (PPA), may deter some terminations.
I would welcome the chance to work with the committee on possible
additional authorities for PBGC in this regard.
Question 6. In the last 25 years there has been a steady decline in
the portion of private-sector workers with defined benefit pensions.
This has shifted more retirement risk to individuals, instead of
promoting secure pensions for all workers. A core part of the PBGC's
mission is to ``encourage the continuation and maintenance'' of private
defined benefit pension plans. In last week's hearing, you testified
that you are committed to promoting defined benefit pensions. What
specific activities do you plan to pursue, if confirmed? Will you
commit to taking specific actions to increase the number of such plans
in the U.S.?
Answer 6. Defined benefit (DB) plans play an important role in the
pension system, both as a source of retirement income for workers and
their beneficiaries, as well as a workforce recruitment tool for
businesses. These plans typically pay benefits as an annuity for life,
and thus, they reduce the risk that a worker will outlive his
retirement income.
For a number of reasons, DB plans have been covering a declining
share of the work force over the past 25 years. Still, more than 20
million wage and salaried workers in private industry are covered today
by defined benefit plans. These plans remain a key source of retirement
income for 44 million workers and retirees. Congress took important
steps in PPA--such as encouraging cash balance and other hybrid plans--
that can help to strengthen DB plans.
In administering the termination insurance program, PBGC monitors
corporate transactions and bankruptcy proceedings that may threaten
funding or continuation of ongoing plans. PBGC negotiates financial
protections to keep these plans ongoing for workers and retirees and to
limit losses to those individuals and PBGC, if termination does occur.
This activity also sends the important message that employers have a
duty to fund their plans.
For example, when Daimler Chrysler was nearing agreement on the
sale of its Chrysler operations, PBGC initiated discussions with
Daimler and Cerberus that led to their agreement to provide significant
financial commitments to strengthen Chrysler pensions. Similarly, when
Tower Automotive entered bankruptcy, PBGC made known its analysis that
the company could afford to maintain its pension plan. Unlike many
other pension plan sponsors, Tower Automotive met all financial
obligations to its pension plan during the course of the bankruptcy and
exited bankruptcy with the new Tower Automotive maintaining the pension
plan. I commend these companies on their willingness to work with PBGC
to protect the retirement security of their workers and retirees. When
PBGC publicizes its efforts on these cases, it reminds all plan
sponsors that PBGC is committed to making sure that sponsors maintain
their plans whenever possible.
A strong pension insurance program is also important in making DB
plans more attractive. Premium increases contained in both the DRA and
PPA will help strengthen PBGC, and I intend to work further to
strengthen the program. In addition, I will publicize DB plans so that
workers and employers are more aware of their many advantages. However,
PBGC's role in encouraging private pension plans should take place as
part of discussions about how to promote retirement income security.
Each company must determine if the costs and benefits of voluntarily
providing a defined benefit plan are appropriate for, and best suited
to, the firm achieving its business model goals. For many companies, a
DB plan is an important compensation tool that allows them to attract
and retain workers with needed skills. For workers, DB plans provide a
predictable and secure retirement income.
Finally, a PBGC working group recently found that there were
approximately 1,000 new DB plans with about 7,500 new participants
created in 2005. I have been briefed on this study, and I have asked
for further study of the factors that led the companies involved to
begin new DB plans. This information should prove useful in identifying
the policies worth promoting in order to encourage the creation of more
DB plans.
Question 7. Millions of workers and retirees rely on the PBGC to
safeguard their retirement. If their employer goes bankrupt or their
pension plan fails, they are left unsure about their future. It is the
responsibility of the PBGC to let them know what is happening with
their pension and to begin paying them their benefits. Your past
experience has been primarily financial, not working with pension
plans, but the agency's top priority is in fact protecting and serving
retirees. What steps have you taken since taking over as Interim
Director to meet with retirees and hear their concerns?
Answer 7. PBGC must never forget that its principal stakeholders
are the pension beneficiaries it serves. Many of these individuals have
been let down by an employer and often receive less in benefits than
they expected. Understanding these facts and these individuals' needs
is crucial for a successful leader of this corporation.
For this reason, I went to the first meeting that PBGC held with
participants in a terminated plan since I became Interim Director. In
August, I attended meetings with the Delta Airlines pilots in Atlanta
concerning the termination of their pension plan earlier this fiscal
year. I not only had the opportunity to address the group, but I was
also available to meet with individual pilots about their specific
concerns.
Also in August, PBGC received notice that in the most recent survey
using the American Customer Satisfaction Index (ACSI), the corporation
scored an 88 from benefit recipients, up 3 points from last year's
score of 85, which was one of highest scores in the Federal Government
for 2006. The ACSI is the nationally recognized indicator of customer
satisfaction for both private- and public-sector organizations.
Retirees give us high marks for timely delivery of benefits each month
and an efficient payment process. Credit for our success should be
shared broadly across PBGC, among staff in many departments who
contribute to getting accurate benefit checks out on time. I am
committed to continuing the corporation's longstanding reputation for
exceptional customer service.
I am committed to PBGC's mission and purpose. The corporation
carries a tremendous responsibility to protect workers and their
benefits in ongoing plans and to pay those benefits when a plan must
terminate. Workers who receive benefits from PBGC have already been let
down by their pension plan; they will not be let down again by the
corporation. As stated in my testimony before the committee, PBGC's
insured beneficiaries are ``real, individual human beings--people who
have worked their whole lives to receive the retirement payments that
they have been promised and have earned . . . people who are counting
on PBGC to carry out its mission as given to it by [Congress].''
Question 8. In the past, PBGC has been criticized for taking too
long to process pay claims to plan participants. Recently, this
timeframe has been reduced, but it can still take years to make final
determinations. Numerous retirees have also encountered mathematical
errors stemming from these determinations. What is the average length
of time for processing and paying pension claims after the PBGC takes
over a company's pension plan? What do you plan to do to shorten the
amount of time needed to issue final determinations, improve the
accuracy of PBGC's calculations, treat retirees more sensitively, and
more generally improve service to participants?
Answer 8. Calculating benefits for participants in terminated plans
is one of the more important things that PBGC does and one on which we
spend significant resources. One of the first things I did at PBGC was
to look into the accuracy and communication of these amounts and we
have changed the wording to ease understanding of what is a very
complicated process. As you note, the corporation has reduced the
timeframe for producing final benefit determinations from a high of 7-
10 years in the 1990s to our current average of under 3 years (even
with our higher than normal workloads). Provisions in PPA will allow us
to continue to reduce the average time over the next few years as it
changes the method of averaging our recoveries for smaller plans. As we
realign processes under PPA, we expect to increase accuracy as well--
most of our mathematical errors are caused by participant data
challenges that we have in taking over trusteed pension plans. It is
often a challenging task to assemble and organize the records of a
pension plan of a company that is in financial distress to collect the
amount of participant data required for our legislated calculations. We
are working on processes and methodologies to better collect this data.
These efforts focused on accuracy and timeliness of final
determinations should have a measurable positive impact on service to
participants.
Question 9. Last year PBGC's annual report noted a significant drop
in customer satisfaction among workers who contacted the PBGC by phone.
How can you explain the recent drop in customer satisfaction in the
service and responses they received when calling the PBGC? What steps
do you plan to take to address this?
Answer 9. While the 2006 Annual Report did note a drop in customer
satisfaction for participants who contacted PBGC by phone, I am happy
to report that our most recent ASCI score for this group of customers
has increased to 78, an improvement of three points from the previous
year.
As noted in my response to question 7 above, the people who most
depend on PBGC--retirees who receive a monthly benefit check--give the
corporation high marks. As measured on the ACSI, PBGC scored an 88 from
benefit recipients, up 3 points from last year's score of 85, which was
one of highest scores in the Federal Government for 2006.
Meanwhile, the corporation continues it efforts to improve
communications with its customer base. We recently produced an
interactive DVD, which provides answers to the most frequently asked
questions of people who receive PBGC benefit payments. It is now
included as part of the information packet sent to all participants in
newly-trusteed plans. PBGC holds participants meetings for recently-
trusteed plans, and as referenced in the response to Question 7 above,
I attended the Delta Airlines pilots meeting in Atlanta last month. Our
newsletters reach all 1.3 million individuals in PBGC-trusteed plans
with information about such services as MyPBA (My Pension Benefit
Account), which allows customers to transact business with us securely
and on line.
Excellent customer service is a PBGC core value. In the most recent
edition of our participant newsletters, I have given my personal
customer service pledge to our beneficiaries. If confirmed, I will keep
a vigilant eye on the corporation's performance on metrics such as the
ACSI and will insist that we meet the high standards the public
deserves.
Response to Questions of Senator Clinton by Charles E.F. Millard
Question 1. What do you regard as the proper role of the PBGC in
negotiating with companies and helping them to consider less drastic
alternatives to abandoning their defined benefit pension plans?
Answer 1. Under ERISA, part of PBGC's mission is to ``encourage the
continuation and maintenance of voluntary private pension plans for the
benefit of their participants.'' Therefore, within its limited powers,
the corporation works closely with plan sponsors to find ways of
keeping their DB plans ongoing. For example, under the Early Warning
Program, we seek protections for plans as part of business transactions
that might otherwise significantly increase the risk of termination.
This has included persuading potential purchasers to assume pension
plans. PBGC also encourages sponsors to explore all possible funding
avenues that would facilitate continuation of their pension plans.
Where a sponsor claims it can no longer afford to fund its plan,
PBGC requires the sponsor to prove that the statutory criteria for plan
termination are met, whether the sponsor is in or outside of
bankruptcy. The statutory criteria generally require that the sponsor
will not be able to successfully reorganize or continue in business
unless the plan is terminated.
Question 2. What is your view on the proper use and scope of the
restoration funding authority? Are you familiar with the December 10,
2002 letter from General Counsel James J. Keightly to then-Executive
Director Steven A. Kandarian on the topic and do you have any views on
the opinions in the letter?
Answer 2. ERISA contains exacting criteria for plan termination,
and restoration of a terminated plan (a completely separate process) is
a highly unusual step that PBGC has undertaken only once. The statutory
minimum funding rules in the Internal Revenue Code determine the
assumptions used to measure plan liabilities and the length of time
over which an employer must fund its pension liabilities.
Since ERISA's enactment in 1974, Congress has made several major
reforms to protect pension plan participants and the pension insurance
program. Restoration funding, created by IRS regulation and implemented
under a parallel PBGC regulation, is available only to plans that have
been terminated and are later restored by PBGC. The purpose of the
restoration funding rules is to deal with the unique circumstances of a
restored plan, which has not been funded during the period it was
terminated. It does not provide a mechanism for PBGC to grant funding
relief by lengthening a plan's amortization period through termination
and restoration. Rather, funding rules are established by Congress in
ERISA and by IRS in its implementing regulations. The December 10, 2002
letter (PBGC Opinion Letter 2002-1, http://www.pbgc.gov/oplet/02-1.pdf)
recognizes this allocation of authority and provides an accurate
summary of the law. I would be happy to work with the committee to
explore this issue in greater detail.
Question 3. Do you believe the PBGC needs additional regulatory
authority in order to play a more active role in negotiating with
companies regarding their defined benefit pension plans?
Answer 3. Regulatory and enforcement authority over ongoing plans
is primarily the responsibility of the Employee Benefits Security
Administration (EBSA/DOL) and the Employee Plans office (IRS/Treasury).
PBGC does have certain regulatory and enforcement authority, including
the ability to initiate plan termination to protect the pension
insurance system. In addition, the corporation has authority to seek
protections in certain ``downsizing'' cases, and to perfect and enforce
liens for missed minimum funding contributions. The latter two
provisions are of limited effect, and termination is a blunt instrument
that may have adverse consequences for plan participants.
Certain items within the Administration's February 2005 pension
reform proposal that were not enacted in PPA would have strengthened
PBGC's ability to exercise its existing regulatory tools, such as
permitting the corporation to perfect its liens for missed
contributions after a plan sponsor has filed for bankruptcy, and
providing PBGC's Board with authority to set the variable rate premium
(``VRP''). I look forward to working with all the appropriate
congressional committees and the PBGC Board on these issues.
Question 4. Are there any other ways in which you believe the PBGC
can play a more active role to ensure that companies approaching
bankruptcy or in bankruptcy retain worker benefits?
Answer 4. PBGC's experience has been that well-funded pension plans
commonly survive a bankruptcy reorganization of the plan sponsor, so a
well-funded plan is the best means of ensuring that workers' benefits
are protected and continued when a company approaches or enters
bankruptcy.
In cases where a plan sponsor fails to fund its plan adequately
before getting into financial difficulty, several additional tools
would help the corporation reduce the risk of loss for plan
participants and the pension insurance program. As noted in my response
to Question 3 above, certain bankruptcy-related proposals made by the
Administration in 2005 were not enacted as part of PPA. These
provisions would permit PBGC to perfect liens for missed contributions
during bankruptcy. Another area of concern--companies failing to make
required minimum contributions during bankruptcy--could be addressed by
expressly mandating that required minimum pension contributions be paid
as administrative expenses during bankruptcy.
Question 5. Another major issue affecting the health of defined
benefit plans in this country involves a provision in our tax code that
allows companies to revoke employees' accrued pension benefits when
ownership changes. So, for example, when a company sells a subsidiary,
the company can choose to treat each of the subsidiary's employees as
if they had resigned. The company can then deny those employees their
full pensions from their defined benefit plan. One pension expert has
referred to this loophole as ``scandalous.'' Are you familiar with this
issue? Do you have a view on whether companies should be able to strip
pension benefits in this situation? Do you have a view on whether
legislation would be appropriate to address this issue?
Answer 5. Under our voluntary pension system, employers have the
right to terminate, freeze, or prospectively amend their DB plans. In
general, Titles I and II of ERISA, which are administered by EBSA (DOL)
and IRS (Treasury), respectively, prohibit reductions of benefits that
a participant already has earned--referred to as accrued benefits--but
allow an employer to amend a plan to cease accruals with respect to
future years of service. If an employer amends its plan to eliminate an
early retirement benefit or retirement-type subsidy, employees can
still receive the portion of the early retirement benefit or subsidy
attributable to benefits accrued before the amendment was adopted, as
long as they subsequently meet the age and service requirements for the
early retirement benefit or subsidy. Unfortunately, if ownership of the
company changes, employees may lose the opportunity to meet those
requirements.
Companies should be held accountable to make good on the pension
promises they have made to their workers and retirees, and PBGC will do
all it can to protect the interests of workers and retirees, to ensure
compliance with the statutory and regulatory requirements, and to
discourage irresponsible behavior. At the same time, we must not create
any new disincentives for companies to maintain their pension plans.
Questions of Senator Murkowski to Charles E.F. Millard
Question 1. Has PBGC ever worked with another pension plan where
the larger employer participants left the plan and left the smaller
companies with the responsibility for paying into the pension plan?
Question 2. Please explain how the PBGC determines what interest
rate will be used for plans that are unable to afford the deficit
reduction contribution and thus are forced to terminate.
Question 3. How much does the PBGC actually earn on the investments
that it manages? My understanding is that the agency generally earns
more than 8 percent.
Question 4. Is it correct that the PBGC typically uses interest
rates that are far less than 8 percent to establish the unfunded
liability for defined benefit plans that must terminate? For a
multiple-employer plan, doesn't this effectively force healthy
employers to pay more than their share (their current and past
employees' share) of the liability for a multiple-employer plan?
[Editor's Note: Responses to the questions above were not available
at the time of print.]
[Whereupon, at 11:00 a.m. the hearing was adjourned.]