PBGC Executive Director Says Traditional Pensions Need Reinvention
FOR IMMEDIATE RELEASE
October 26, 1998
The Executive Director of the Pension Benefit Guaranty Corporation (PBGC) said today that providing retirement income security for the baby boomer generation and others nearing retirement is one of the most compelling domestic issues facing the country.
"We have a huge number of people affected, and a short time left to deal with the problem," said David M. Strauss in a speech at the annual conference of the American Society of Pension Actuaries (ASPA) in Washington, D.C.
Some 25 million people are approaching retirement, followed by 78 million baby boomers, and recent surveys indicate people are not saving enough for a secure retirement.
Not only are workers not saving enough, pointed out Strauss, but nearly half of the private sector workforce - are not covered by any employer-sponsored retirement plan.
"I believe the solution must include defined benefit plans if we are to achieve the goal of retirement security for our aging workforce," Strauss told the more than 1200 conference attendees. "Defined benefit plans are the only retirement vehicle that can reliably provide our aging workforce with a predictable, secure benefit for life."
Observing that, despite their value the number of traditional pensions has been declining, Strauss said, "The system is in trouble and badly in need of reform."
In an effort to find some answers, PBGC spoke with pension professionals who market pension plans. "They told us they believed in defined benefit plans, but that they are a hard sell. They said employers need better incentives to set up plans and more flexibility to meet the needs of today's workforce," said Strauss.
Strauss said that the SAFE and SMART proposals to make it easier for small businesses to set up pension plans are an excellent first step in meeting employer needs. He also cited the Administration's proposed pension plan start up tax credits as a helpful step. But he said more needs to done, particularly in the areas of plan design.
The private market, he pointed out, is opting for more flexible approaches and creating hybrid plans that contain elements of both defined benefit and defined contribution plans. But questions have been raised about the legality of their creations.
"We need," emphasized Strauss, "rules for hybrid plans that are clear, flexible enough to allow continuing creativity and that serve our main objective -- providing more workers with predictable, secure benefits for life."
Strauss also underscored the need to examine ways to integrate 401(k)s and defined benefit plans, and added that PBGC was looking at ways to allow older workers to work part-time and still receive their pensions.
"I am convinced," concluded Strauss, "we will never achieve the goal of retirement income security for the vast majority of Americans without a strong defined benefit system. I am even more convinced that, if the system is to survive, it must be reinvented."
PBGC is a federal corporation created under the Employee Retirement Income Security Act of 1974 to guarantee payment of basic pension benefits earned by some 42 million American workers and retirees participating in about 45,000 private-sector defined benefit pension plans. The agency receives no funds from general tax revenues. Operations are financed largely by insurance premiums paid by companies that sponsor pension plans and investment returns.
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PBGC No. 99-04C