WASHINGTON -- David M. Strauss, the PBGC's executive director, wants lawmakers to revive defined benefit pension plans by allowing them to incorporate features of 401(k) plans.
To do so, however, would require amending the Employee Retirement Income Security Act.
Because defined benefit plans and 401(k) retirement plans are governed by distinct rules, any attempt to meld the two would lead to a broad overhaul of federal pension law, and possibly a dismantling of much of the regulatory framework built up around defined benefit plans.
Although no legislation is expected until next year, Mr. Strauss has begun using the bully pulpit to sound the alarm on the possible extinction of defined benefit plans.
The number of defined benefit plans insured by the Pension Benefit Guaranty Corp. has plummeted 60% since the mid-1980s; the number of workers covered by such plans has declined 15%.
If that trend continues, by 2005 there will be more retired participants than active ones, Mr. Strauss predicted.
He said he wants to "send a wake-up call" on defined benefit plans that will lead to legislation.
Mr. Strauss is directing his efforts not only at top officials in the Clinton administration and lawmakers, but also at actuarial and pension consultants who design pension and retirement plans.
"Defined benefit plans are sold, not bought, and they are not being sold," Mr. Strauss noted. "Most of the pension professionals really believe in (them) and if we can come up with workable designs, there is a marketplace."
For starters, because younger workers prefer 401(k) plans and older employees prefer traditional pension plans, Mr. Strauss suggests designing pension plans to accommodate both.
One way would be to allow younger workers to stick to the 401(k) arrangement, while moving older workers into the defined benefit structure within the same pension plan.
But current law prohibits employers from setting up such plans because of rules against age discrimination. Current pension law also generally forbids pre-tax contributions for traditional pension plans, except in the public sector.
Based on an extensive survey of pension consultants, Mr. Strauss also suggests borrowing the employer match feature from 401(k) plans. Instead of an employer's match going into a 401(k) plan, it could be used to buy additional accruals in a defined benefit plan.
Defined benefit plans also could become more marketable if they were given greater flexibility to let employees collect part of their pensions, even while working, or let employees take partial retirement.
Mr. Strauss also wants to examine ways to make defined benefit pension plans more portable -- a key attraction of 401(k) plans.
"We want to take the best features of 401(k) plans and the best features of defined benefit plans, and create these hybrids," Mr. Strauss said.
He's also examining ways to make cash balance plans -- defined benefit plans with some popular features of 401(k) plans -- even more attractive.
Some employers have already begun exploring ways to incorporate more 401(k) plan features into cash balance plans. The World Bank, for example, recently adopted a cash balance plan that lets employees pick investments so that employee accounts will be credited a rate of return based on those investments, instead of earning a flat rate.
But according to a recent survey by PwC Kwasha, Fort Lee., N.J., fewer than 400 large companies have set up cash balance plans. The reasons: a lack of guidance from the Internal Revenue Service, and clumsy rules.
Mr. Strauss' concerns about the precipitous decline of traditional pension plans are not surprising. After all, insurance premiums from employers with defined benefit plans are the bread and butter of the PBGC.
His declaration came less than two months after the first national conference on retirement savings, at which defined benefit plans were overshadowed by discussions on privatizing Social Security.
"Part of our role here is to make sure that defined benefit pension plans become more important in the debate about retirement income security," he said.
Pension experts gave Mr. Strauss' ideas a mixed reception.
"To some degree it's ambitious, but it is a potentially appealing idea," said Frank McArdle, manager of the Washington office of Hewitt Associates.
Mr. McArdle warns that it will take time to educate lawmakers so "it's not something that can be done quickly."
Ron Gebhardtsbauer, senior pension fellow at the American Academy of Actuaries, concurs. But because of Mr. Strauss' influence within the Clinton administration, he is optimistic about the outlook for legislation.
Christopher Bone, chief actuary at ASA Inc., a Somerset, N.J., actuarial firm, strongly endorsed Mr. Strauss' suggestion of letting workers collect some retirement benefits while continuing to work.
Randolf H. Hardock, partner at the Washington law firm of Davis & Harman, said the outlook for defined benefit plans will be driven by demand from workers.
"It could be a tough sell," he said, noting that workers have gotten used to managing their own retirement dollars.
And Ted Benna, president of The 401(k) Association, Cross Fork, Pa., scoffs at Mr. Strauss' ideas. After lambasting 401(k) plans, why remake defined benefit plans to look like 401(k) plans, he asked.