Gotbaum reflects on accomplishments, challenges at PBGC

Joshua Gotbaum, who resigned Sept. 2 as director of the Pension Benefit Guaranty Corp., counts building a strong management team and more interaction with constituents among his success stories during his four-year tenure.

As Mr. Gotbaum was preparing to step down, he reflected during an interview with Pensions & Investments on his accomplishments, and the challenges awaiting his successor.

Mr. Gotbaum pointed to several success stories that resulted in the preservation of pension funds. But having served during a tumultuous post-recession period that hit defined benefit plans and the agency's own finances, Mr. Gotbaum remains worried about the future of retirement security.

Mr. Gotbaum, whose tenure was the longest in the agency's history, brought to the PBGC an insider's understanding of how pension funds can put pressure on companies' bottom lines, particularly those in financial stress. In addition to overseeing the reorganization of Hawaiian Airlines Inc., Honolulu, as the Chapter 11 trustee from 2003 to 2005, which included keeping the defined benefit plan, he was involved in numerous mergers and corporate restructurings as an investment banker with Lazard and an operating partner at Blue Wolf Capital Partners LLC.

One of Mr. Gotbaum's first orders of business at the PBGC was to rethink how the agency worked.

“When I got here (in 2010), the PBGC was under a cloud, and retirement was a mess,” he said.

The cloud was a series of damning reports from the agency's inspector general showing mistakes in how benefits were calculated and the agency's own oversight. He also had to deal with the agency's reputation with plan sponsors and members of Congress for “crying wolf” about its deficit, a perennial debate. Two-thirds of the senior management team started on his watch, and the organizational changes he implemented garnered praise, including from Labor Secretary Thomas Perez, one of three PBGC board members, and Dallas Salisbury, president and CEO of the Employee Benefit Research Institute, who sits on the PBGC advisory committee.

Then there was the matter of how the agency dealt with the outside world.

“The PBGC was isolated from its constituencies. It wasn't engaging. I said, "We're going to engage, both talk and listen,'” said Mr. Gotbaum, who started calling plan sponsors, labor officials and congressional overseers on a regular basis to hear their concerns and suggestions.

He takes pride in the effort put into the agency's annual reports and other communications. “Each year, we have worked to explain more and more and more.” Still, he said, “we need to educate people more.”

Mr. Gotbaum pushed PBGC staffers, whom he often praises, to seek creative ways to help sponsors keep their plans and protect participants. He also revitalized a corporate restructuring unit that had been less active in recent years. A big test of the unit came when American Airlines Inc., Fort Worth, Texas, tried to terminate its defined benefit plans and transfer them to the PBGC. The agency got busy analyzing the financial situation and engaging with the airline's four unions to see what other options were possible, “and then we went to the other creditors — the stockholders,” he said.

The effort succeeded — American Airlines kept its pension plans — because of the PBGC staff, he said. “The great thing about the agency is that the people are really knowledgeable.” While he credits previous successful efforts with Visteon Corp., Van Buren Township, Mich., and other companies that preserved pension plans and improved their funding levels, “it was like Michelangelo working in a forest.”

One of the agency's toughest assignments now is fixing struggling multiemployer pension funds. Mr. Gotbaum said he spent a lot of time trying to find solutions and explaining it to people on Capitol Hill and stakeholders how important it was to act. It matters to the agency itself, too. Unlike improved finances in the single-employer program, with the current $24.7 billion deficit projected to shrink to $7.6 billion by 2023, the multiemployer program's current deficit of $8.3 billion is projected to hit $49.6 billion by 2023.

One multiemployer plan success story was using PBGC partitioning rules to broker a partnership with two International Brotherhood of Teamsters plans, some of whose participants worked for Hostess Brands Inc., Irving, Texas, before it declared bankruptcy.

But, Mr. Gotbaum said, “There is no single bullet. Congress is trying to work out a compromise. Business and labor, Democrats and Republicans — they know this is a problem that can be solved. That's what happened in 2006” during enactment of the Pension Protection Act, which also recognized the agency as “a major financial institution” by elevating the director to a presidential appointment-level position. “This agency is a very different agency than it was 40 years ago,” he said.

Known for his passionate commitment to protecting pension plans, Mr. Gotbaum would like to see other federal regulators be more sensitive to the pressures that plan sponsors face. He would like to see timely guidance of regulations that spur innovation, such as cash balance plans.

“Another way to preserve pensions is to make it easier for companies to keep offering them,” he said. The PBGC, which “is one of the few places that understands what it takes and what it costs to preserve pension plans” has done its part, he said, “by reforming the process to be more customer-friendly,” such as adding a grace period for late payments of PBGC premiums.

One of his biggest accommodations, he said, was addressing the agency's approach in cases of an operational shutdown of a company, which was a perennial complaint from his first day on the job. After years of aggressive enforcement, Mr. Gotbaum launched a pilot program in 2012 that took as much as 92% of plan sponsors off the PBGC's radar, and reviewed past settlements to ease $1 billion in funding demands. In July, the PBGC declared a six-month enforcement moratorium for the program, after continued criticism from the sponsor community. “It turns out they were right,” Mr. Gotbaum said. They were also right about the PBGC's one-size-fits all approach to premiums, he said. “They have never been finely tuned. Many in the business community think they are unfair.”

He also wants to change a climate that favors lump-sum distributions, which he proselytizes against at every opportunity, comparing them to cigarettes, which might be popular but still are unhealthy.

“It is absolutely possible, but it depends on whether people are willing to rethink how they do things. It is something that everybody needs to do,” including other government regulators, he said. “I view this as one of the major social challenges of our time. We run the risk of a whole generation running out of money.”

Unsure of his next career move, Mr. Gotbaum hopes to be able to contribute to the challenge of retirement security. “There are a lot of people who think that pensions are dead and there is nothing you can do about it,” he said. “I do not share the sentiment.”