Ablessing has been bestowed on sponsors of defined benefit plans insured by the Pension Benefit Guaranty Corp. That agency has thoughtfully provided a notice for them to complete and distribute to their employees whenever plan funding falls below 90%. The notice tells employees what the funding level is and that "your benefits may be at risk if the company faces a severe financial crisis or is in bankruptcy," and "some people may lose certain benefits that are not guaranteed." It concludes with where to get more information.
Wonderful, I thought. But how can grateful employers reciprocate and repay the PBGC for its generosity in mandating more employer disclosure? Why, of course: prepare a disclosure notice for the PBGC to pass out to its own staff. The PBGC will be delighted - once it distributed the notice, no one could then say it wasn't practicing the greater openness it preached. One suggested text might read as follows:
NOTICE TO THE STAFF OF THE PBGC
While the law doesn't require the PBGC's management to reveal its machinations to its employees, PBGC has nonetheless concluded a little forthrightness will enable you to better understand our agency. This is consistent with the requirement we have imposed on plan sponsors to disclose more to their employees. The revelations below are made in this spirit.
GATT legislation. For many years we promoted the belief the PBGC was facing a savings-and-loan-type of debacle, unless we got the legislation to generate higher premiums and plan contributions and to increase our powers over plan sponsors. We cited as a key reason a huge deficit of $2.9 billion. We finally got our legislation when the Retirement Protection Act was passed in December 1994 as part of the General Agreement on Tariffs and Trade. Well, we now admit the way we arrived at the $2.9 billion deficit could raise reasonable questions. As a pension actuary demonstrated, in fact, we had no deficit at all (commentary in Pensions & Investments, Oct. 3, 1994), and we are preparing a reply.
Public relations. We may as well admit it, yes, we do go in for PR stratagems. When our press releases proclaiming our desperate finances were picked up as news by the media, we then went around saying "see, here is confirmation of what we've been telling you." No one was supposed to notice, of course, the news originated from the PBGC in the first place. We didn't discover this PR system, but it's great - we create the illusion of a crisis to get Congress to give us what we want, and not even major news organizations are able to contradict us. It's naturally all for a good cause.
Expenses. We hardly ever discuss in our annual report the PBGC's expenses, which tripled over the past five years to $135 million from $45 million. The increase last year was 26% or $28 million - enough to hire 280 employees at $100,000 each, if that's what we wanted to use the money for. Anyway, what's $28 million compared to the national debt?
Trans World Airlines. TWA has noticeably been getting most-favored-company treatment from us over the years. Some may think it contradictory that the GATT imposes stronger funding requirements on companies with financially weak plans, but then exempts TWA despite its poorly funded pension plan. We had good reason to do so, of course, and rest assured we are immune to politics. There should be no inferences drawn from the fact that Sens. Dole, Danforth and Bond, and Rep. Gephardt come from Kansas and Missouri, where TWA has its major installations, and have shown keen interest in PBGC's dealings with TWA.
The PBGC Advisory Committee. This committee of seven was created by ERISA, but has little to say about our operation. The seven officially are appointed by the president and get to come to lots of meetings, expenses paid, in Washington, all of which is good for them and doesn't hurt us, because it looks like we are being overseen by a respectable group. So everyone is happy. We certainly work better without a bunch of outsiders looking over our shoulders.
Financial reports. Readers of the PBGC's annual reports have noted our numbers may not be easy to follow. For example, there have been wild swings in the item "change in benefit liabilities" in the last three years from minus $43 million to plus $429 million to minus $164 million, and no explanation was offered. We also classified $374 million in 1990 and 1991 under a new item, "other expenses," while regular expenses came to $134 million. If you could find our cryptic explanation, you would discover the $374 million wasn't even expenses. If the truth be told, we generate a great many numbers and need some accounting flexibility.
As you can see from what we've told you above, our financial outlook wasn't as terrible as we made it out to be. But isn't it true that in order to get the power and money you need to do your job in Washington, you have to generate fear of a disaster? You know there is always a chance one might occur.
New fiduciary policy. While the PBGC is not legally a fiduciary under ERISA, the Congress has given us the great responsibility for managing an operation with assets now in excess of $8 billion, and millions of retirees and employees are dependent on us. We intend, therefore, to act like a fiduciary in the future, just as hundreds of thousands of plan sponsors and investment managers have to do. We will hereafter refrain from publicizing doubtful figures to get premium increases, and we will even consider a premium reduction, now that we are flooded with cash. We also will make our financial reports more forthcoming and work hard to keep down sponsors' administrative costs and otherwise encourage plan formation and retention. Trust us.
Where to get more information. If you would like more information about how the PBGC operates, contact the director-communications and public affairs department. Or just drop in.
Dare we hope the PBGC will adopt a greater openness policy and distribute to its staff a text similar to the above? If it does, would it start a trend? Imagine the outpouring from the president, Congress and all of the executive and legislative agencies. Will this happen? Well, it's almost 22 years since ERISA was passed: two plus two equals four, and it's four years to the millennium. Certainly something to think about.
David Langer is president of David Langer Co. consulting actuaries, New York.