The new Congress convening in January must make restructuring the Pension Benefit Guaranty Corp. board a priority.
The current Congress has been negligent in failing to restructure the makeup of the PBGC. Despite a looming $23 billion deficit, and the prospect of more financial instability, a bill that would expand the board and provide more accountability and transparency has languished in the Senate since it was introduced in 2009, stalled in the Committee on Health, Education, Labor and Pensions.
During the same time Congress was ignoring a long needed restructuring of the governance of one of its own boards, it enacted a sweeping law, the Dodd-Frank Wall Street Reform and Consumer Protection Act, to transform governance at corporations, including how directors are nominated to their boards to ensure better oversight on behalf of shareholders.
The PBGC has operated pretty much through its history without leadership from its board, even though it has been designated by the Government Accountability Office since 2003 as a “high risk” area “in need of urgent attention and transformation to address economy, efficiency, or effectiveness,” according to a GAO study released Dec. 1.
The PBGC was created with powerful board members, albeit with a weak board structure. Under the Employee Retirement Income Security Act of 1974, the board is made up of the secretaries of the departments of Treasury, Labor and Commerce. But these Cabinet-level board members are almost completely uninvolved in overseeing the PBGC.
The board members appear to be too preoccupied with overseeing their Cabinet departments. Apparently they perceive those departments as more important than their responsibilities for the government entity that insures corporate, multiemployer-union and other privately sponsored pension plan benefits.
The board members failed to organize important functions of the board. They created no key committees, e.g. an investment committee or an audit committee. With only three members, such functional oversight was difficult to do.
The new Congress should regard the PBGC restructuring just as important as any effort to cut the budget deficit and national debt because of the alarming risk posed by existing unfunded PBGC liabilities, and the underfunded pension plans that could terminate, requiring the PBGC to cover even more pension benefits.
The Pension Benefit Guaranty Corporation Governance Improvement Act, introduced by Sen. Herb Kohl, D-Wis., would have amended ERISA to expand the board to seven members from the existing three members.
The bill, while its plan for reforming the board needed improvement, would have served as a good starting point. Unfortunately it went nowhere in the legislative process that has wound down without action on it.
The new Congress should still use the Kohl bill as a starting point for new legislation. The bill would expand the board by four members, one representing defined benefit plan sponsors, one from organized labor representing participants and two others without any designated affiliation in the legislation. The president would appoint all four new members under ratification by the Senate.
It would also require the board to meet at least four times a year.
But this bill falls short because it doesn't ensure the board would have members with the appropriate expertise and time to deal with the PBGC challenges.
A good feature the new Congress should add from the Kohl bill is a requirement that the board create investment and audit committees to enhance oversight.
A better board will be more able to deal with the challenges the PBGC faces in funding the obligations it has assumed from terminated pension plans.