Testifying before the U.S. House Subcommittee on Health, Employment, Labor, and Pensions (HELP), Gotbaum said generally, plans are using the tools and authorities provided under the Pension Protection Act (PPA) to reduce costs, limit liabilities, and increase contributions steadily over time. They are also using their new flexibility under PPA to respond to market fluctuations and to reduce excessive stress on employers and participants. However, he noted, many critical status plans and some seriously endangered status plans are severely distressed and will need still further provisions to remain viable.
According to Gotbaum, in the case of some of these ongoing plans, further contribution increases may be needed. He pointed out that because benefits generally cannot be reduced after they are earned, there is a natural limit to how much underfunding can be made up through reductions in benefits.
He testified that the PBGC’s multiemployer program has few assets: as of September 30, 2012, the program had total assets of $1.8 billion. As of the end of FY 2012, the multiemployer insurance program has $7 billion in booked liabilities.
Gotbaum said some of the provisions of the PPA will sunset in 2014, which creates both the need and the opportunity to consider what changes are appropriate for the future. He said PBGC’s multiemployer program should also be reviewed as part of that discussion, noting that the basic contours of the program have not been modified in more than 30 years.
“Some of the tools and authorities the statute provides that might be useful in certain circumstances are not useable in practice because of the agency’s lack of financial resources. Both the program and PBGC’s finances should be analyzed as part of and in the context of the broader changes for multiemployer plans generally,” Gotbaum concluded.
A replay of the hearing, as well as text of Gotbaum’s testimony, is available here.