New Advocate at PBGC Suggests Action on Pension De-Risking

The new PBGC Participant and Plan Sponsor Advocate has released her first annual report of issues.

“[P]ension de-risking may be the greatest threat to PBGC’s single-employer program, as it has the potential to substantially reduce PBGC’s premium base,” says the Pension Benefit Guaranty Corporation’s (PBGC) Participant and Plan Sponsor Advocate, Constance Donovan.

In her first annual report in the new position, Donovan says plan sponsor trade groups tell her pension plan de-risking is the most important pension issue on the minds of business executives in some of the largest corporations, and rising PBGC premiums are contributing to employer decisions to de-risk and exit the defined benefit system. Participant advocacy groups have other concerns about de-risking and the role the PBGC can play in mitigating this trend. “PBGC needs to be a part of that conversation so the Corporation can consider what changes, if any, they may want to make,” she writes.

She also states that several participant and retiree organizations have questions about the increasing offers of lump sums and annuities to retirees and terminated vested participants in defined benefit plans that will remain ongoing. Both participant groups and plan sponsor groups have offered a variety of policy recommendations and requests for guidance. Donovan wants to help raise the questions of participants to the level needed to get practical information out in a timely manner. She says she believes educational materials exist which could go a long way in assisting participants facing major changes in their retirement outlook.

According to Donovan, participants insist that while de-risking may reduce certain sponsor risks, it simultaneously raises and transfers risk to participants. Some groups have called for a moratorium on such transactions until regulatory guidance can be issued addressing risks they see to the participants leaving the plan, and perhaps participants in plans that continue normal operations. “I want to highlight the importance of these issues at the highest levels,” Donovan says.

Overall, Donovan conveys that communication is an issue between the PBGC and plan sponsors and participants. She calls for a less adversarial view between sponsors and participants and the agency. Other issues she recommends conversation about are plan sponsor views of the PBGC’s guidance on so-called “shutdown enforcement” and the handling of plans that are designated as “church plans” by the Internal Revenue Service. Specifically, Donovan notes that the Pension Rights Center feels strongly that PBGC should not return premiums paid by church plan sponsors when they seek to undo Employee Retirement Income Security Act (ERISA) coverage after many years of insurance protection from the PBGC by applying for church-plan status.

Donovan’s report is here.