Former PBGC Executive Director Brad Belt Sees Major Pension Problems Ahead
Wednesday, May 20, 2009SUSIE GHARIB: Grim news today affecting the nation's retirement system. The agency that insures private pensions for millions of Americans told Senate lawmakers that it faces a huge deficit: $33 1/2 billion. The Pension Benefit Guaranty Corporation says its deficit has tripled in just the last six months. That means it might not be able to pay pensioners if their company plans fail. Joining us now to explain the implications, Brad Belt. He's former executive director of PBGC. He's currently the chairman of Palisades Capital, an advisory firm dealing with pension issues. Brad, welcome to the program.
BRADLEY BELT, FORMER EXECUTIVE DIRECTOR, PBGC: My pleasure to be with you Susie.
GHARIB: What happens that the deficit got so big so fast?
BELT: Well, I think it's a reflection of the fact that a number of companies that sponsor pension plans are now in bankruptcy and typically when companies enter bankruptcy, PBGC assumes that the plan will terminate and that's what shows up in their reported deficit. It also stems from declining interest rates over the last year, which some people believe have been held artificially low by the Federal Reserve which is how you value pension liabilities.
GHARIB: So let's say that more companies go out of business, that the economy, recession drags on for a while. When will the PBGC runs out of money? I know this is a loaded question but is there some basic math on this?
BELT: The PBGC isn't going to run out of money for quite a period of time. It's a little built perverse here Susie because every time the PBGC takes over a pension plan, it actually gets the assets in that pension plan and it gets those assets right away and has to pay out the benefits over a long period of time. The issue is every day that passes, the hole gets a little bit deeper and unfortunately, we haven't stopped digging. The system is set up so the hole inevitably will get larger over time. It means that somebody's going to have to fill that hole. It just doesn't have to happen tomorrow.
GHARIB: Well that somebody could be us, the taxpayers, right. At some point down the road if they don't have enough money to cover pensioners, we're going to have to pay the bill, is that right?
BELT: That's the real concern. Now taxpayers aren't explicitly on the hook with respect to the PBGC but everybody believes and I think rightly so that if the PBGC can't pay its bills at the end of the day, it's called the guarantee corporation that the pressure will be on taxpayers to step up to the plate and make good on those obligations.
GHARIB: It's frustrating here Brad for a lot of the people who are listening in on the program now. We've been led to believe that we can rely on our company pensions. We can count on Social Security to pay for our retirement. But it sounds like from what we're talking about here that the system is broken.
BELT: I think that's right, or at least you can say that every strand of the social safety net is increasingly frayed, whether it's defined benefit plans, defined contribution plans, whether it's Social Security and Medicare, home values, everything's taking a hit. And it suggests that there's a very dire picture for some Americans that were contemplating retirement in the near term or for future generations.
GHARIB: Now you advised clients on these pension issues. What do you think needs to be done to fix the system?
BELT: A number of steps need to be put in place. One, we've got to stop the hemorrhaging in the system. We've got to stop allowing pension plans to become so under funded in the first place. If pension plans were fully funded at all points in time, even if their company got into -- or their sponsor got into financial difficulty, it wouldn't have an adverse impact on participants or taxpayers. Unfortunately, we are where we are right now and most pension plans are substantially under funded. So we've got to put in place a system that allows those plans to get to better funded status over a period of time.
GHARIB: Let me just jump in here. Until that happens, for people who are in their 40's and are planning for their retirement, any quick advice that you can give them in case this system doesn't get fixed?
BELT: Well you got to take a little ownership of this yourselves. You can't necessarily count on your company sponsored pension plan. You know your 401k plan has taken a hit. You know healthcare costs are going to continue to rise. The real issue is with respect to the long term solvency of Social Security, you've got to start saving more today. And as a nation and individuals we haven't put aside enough resources today to meet our future needs and obligations. That has to start now.
GHARIB: All right. Well thank you so much for giving us your insights. We appreciate your time. BELT: My pleasure Susie.
GHARIB: My guest tonight, Brad Belt, chairman of Palisades Capital.
