WASHINGTON - U.S. Sen. Herb Kohl, D-Wis., Chairman of the Special Committee on Aging, and U.S. Sen. Tom Harkin, D-Iowa, Chairman of the Committee on Health, Education, Labor and Pensions, applauded provisions approved by Congress that will help improve the governance and oversight structure of the federal government's Pension Benefit Guaranty Corporation (PBGC).
"This is an important and necessary first step toward ensuring that the PBGC is much more accountable to retirees," Kohl said. "PBGC plays a far too critical role in the lives of tens of millions Americans to allow for anything less than good governance."
"Today we made some important changes to PBGC that will make our pension system safer and more secure for workers and retirees," said Harkin. "PBGC guarantees the pensions of over 44 million people, and the steps we took to improve oversight and accountability will help rebuild trust in the agency and ensure that it continues to be a good steward of the pension system. I am particularly pleased that this legislation includes the creation of a Participant and Plan Sponsor Advocate, who will help people get the retirement benefits they are owed. Workers and retirees will finally have someone to fight for them and help them navigate the system. These policy changes are a victory for middle class Americans. But they are just the start of our efforts to rebuild the pension system and improve retirement security. I will continue to fight to ensure that everyone has the opportunity to enjoy their golden years with dignity and financial independence."
The provisions, included in the Moving Ahead for Progress in the 21st Century Act, or, MAP-21, were based on Kohl's bill, the Pension Benefit Guaranty Corporation Governance Improvement Act, which was filed in 2009. Earlier that year, the Aging Committee held a hearing that examined allegations of mismanagement at PBGC. The HELP Committee also held a hearing on PBGC oversight last year. Congress approved the bill today, and the President is expected to sign the bill into law.
With little oversight or approval from the agency's board, former director Charles E.F. Millard was able to deviate from PBGC's conservative investment strategy just before the market downturn in 2008. In addition, a report released by the PBGC Inspector General alleged that Millard may have improperly influenced the procurement process surrounding the restructure of the Corporation's investments.
MAP-21 includes key provisions from Kohl's PBGC Governance Improvement Act. The reforms would include:
· Requiring the PBGC Board to meet at least four times a year- The Board is currently not required to meet regularly, and from 1980 through 2008, the Board only met 20 times. In comparison, other government corporations' boards meet about five times per year. To provide effective policy direction and oversight, it is absolutely critical that the Board meet regularly, so the Act would require regular meetings.
· Ensuring the PBGC director reports to the Board - The director would be "accountable to the board of directors," and would serve for five years unless removed by either the board or the President.
· Providing greater transparency - The PBGC Advisory Committee, Office of the Inspector General and General Counseleachplay an important role in ensuring that PBGC functions properly and in accordance with the law. However, those offices do not currently have direct access to the Board. Instead, they have to go through the Director who may use his position to influence the information the Board receives. To protect the integrity of PBGC, these provisions would give the Advisory Committee, OIG and General Counsel direct access to the Board.
· Requiring recusal from potential conflicts of interest - OIG, members of Congress, and other groups have criticized PBGC leadership in the past for acting when they have actual or perceived conflicts of interest. These provisions would mitigate such conflicts by developing conflict of interest policies and requiring recusal.
· Creating an Office of Participant and Plan Sponsor Advocacy - The provisions include creating a new ombudsman office to rebuild a relationship of trust between PBGC and constituent groups, including employers and retirees. The office would help resolve disputes and would make recommendations to improve the agency.
· Directing an independent analysis of Board composition - The PBGC Board is the smallest of any federal government corporation, composed of three members: the Secretaries of Labor, Treasury and Commerce. GAO has reported that historically the members do not have the time or resources to direct and oversee PBGC, and has recommended expanding the Board. Kohl's bill would have expanded the board by four members, two from each party. Under this bill, the National Academy of Public Administration would examine the ideal size of the board, qualifications and term lengths of board members, and any other policies that would enhance oversight and transparency of the board.
The PBGC is a government-owned corporation that was created in 1974 to protect the retirement income of participants in private-sector, defined benefit (DB) pension plans. When a company terminates a DB pension plan that does not have enough assets to pay all of the promised benefits, PBGC pays, in accordance with statute and up to a maximum yearly dollar amount, the benefits to participants in the terminated plan.
In FY2011, the PBGC's insured 43.7 million participants in 27,066 pension plans, and paid out $5.5 billion in benefits to about 873,000 retirees.
In July 2009, Brookings Institution released a paper highlighting the need for stronger governance of the PBGC. The U.S. Government Accountability Office (GAO) has also issued several reports calling for increased oversight, including Pension Benefit Guaranty Corporation: Need for Improved Oversight Persists and PBGC Assets: Implementation of New Investment Policy Will Need Stronger Board Oversight .