Spotlight: Pension Benefit Guaranty Corporation

PBGC LogoWe recently discussed the Bipartisan Budget Act of 2013’s (BBA) symbolic significance and implications for federal leasing. About $7.9 billion of the savings in the BBA are expected to result from asking companies with pension plans guaranteed by the Pension Benefit Guaranty Corporation (PBGC) to pay higher premiums for those guarantees. The PBGC is an independent federal agency, with a mission to protect retirement incomes of workers in defined benefit pension plans. In 2012, the PBGC paid monthly benefits for about 887,000 retirees from 4,500 plans that could not fulfill promised benefits; the agency is responsible for about 1.5 million current and future pensions. PBGC’s staff of about 912 employees works from 10 locations throughout the U.S. Its headquarters is in a leased, 12-story building at 1200 K Street, N.W., D.C.

PBGC was created when President Gerald Ford signed the Employee Retirement Income Security Act of 1974 on Labor Day. Pension reform became a cause célèbre in 1963, when the Studebaker Corporation closed its plant in Indiana, leaving behind an underfunded pension plan and thousands of workers who received little or none of their earned pension benefits. The 1974 law did not require private companies to establish pension plans but regulated their operations once established. PBGC was established to step in with coverage if a terminated defined benefit pension plan lacked sufficient assets to fulfill promised payouts to retirees and future retirees. The agency is not funded by taxpayer dollars but from four other sources: insurance premiums paid by defined benefit pension plan sponsors, assets held by any plans taken over, recoveries of unfunded pension liabilities from sponsors’ bankruptcy estates, and investment income. Participating pension plans pay PBGC yearly insurance premiums, indexed to inflation. In FY 2013, PGBC had $2.9 billion in premium income and $2.7 billion in investment earnings, and was able to pay all claims while increasing its assets. Notably, however, the agency has a $36 billion deficit when future obligations are considered.

In a 2013 PGBC report, “Strategic Sustainability Performance Plan,” the agency identified three strategic goals: protecting the federal pension insurance system, providing excellent service to customers and stake holders and exercising effective and efficient resource stewardship. The report focuses on resource stewardship as reflected in the agency’s efforts to comply with executive orders, statutes and regulations requiring energy conservation and other environmental improvements. From low-toxicity pest management to water-conserving landscaping, the agency is implementing sustainable practices inside and out, in collaboration works with Brookfield Properties—owner/operator of the 389,000 SF headquarters building. Other accomplishments noted in the report include telework participation by 73% of PBGC employees, participation in the federal Bike to Work challenge (team name: “Friends with (Pension) Benefits”), and numerous energy efficiency improvements at the data center. PBGC’s headquarters, where it is the sole tenant, has reduced energy use since 2008 by about 16.8%. The report also notes, however, that energy reductions at multi-tenant facilities are more challenging to achieve.

Josh Gotbaum was confirmed by the Senate as PBGC director in 2010. Presidential appointment and confirmation have been required only since the passage of the Pension Protection Act of 2006. Under the first Senate-confirmed director, Charles E. F. Millard, the agency endured significant losses of equity asset value in 2008 and the assumption of large pension obligations of Circuit City, Lehman Brothers and other companies that failed during the Great Recession. Under Gotbaum’s leadership, PBGC has successfully opposed American Airline’s efforts to foist their underfunded pension plans onto the agency and has worked for reforms that preserve struggling pension plans whenever possible. The American Airline bankruptcy-restructuring alone would have obligated the agency with $9 billion in debt, expanding PBGC’s already-hefty deficit by 1/3. Concern about the agency’s deficit is sited by many supporters of the BBA’s sharp hike in insurance premiums, including Paul Ryan (R-WI). In a House Budget Committee statement, Ryan said, “Increasing the premiums will begin to reduce that unfunded liability. Otherwise, the PBGC could be unable to meet its obligations to pensioners or all taxpayers would have to bail out private-sector pension plans.”