UpFront | Published in May 2012

Sage Advice

PBGC's Gotbaum recommends traditional pension offerings

By Rebecca Moore | June 2012
Illustration by Bill Mayer

Individuals need to save more; employers must provide retirement plans and contribute to them; and the government should work to strengthen the retirement industry and provide a safety net.

This is the three-pronged approach to enhancing retirement security that was presented by Pension Benefit Guaranty Corporation (PBGC) Director Josh Gotbaum at a National Press Club Newsmaker press conference.     

Some say all it takes to solve the retirement savings crisis is for people to work longer, but they are working longer and are still not confident, Gotbaum remarked. Although many employees are working to more advanced ages, many are also living longer, so retirement will cost more and the pension provided in the past will be inadequate.

Most employees now have a 401(k) plan, but these do not guarantee retirement income, Gotbaum said. If the market drops, savings are lost; additionally, employees must guess how much they will need and how much to save. Gotbaum noted that employees have trouble doing this, and if they guess wrong, they will find out too late—after they retire.   

In traditional pensions, employees do not have to guess—their employers calculate how much they will need. Furthermore, traditional pensions guarantee a payment for life, Gotbaum said, and pension benefits fund much of infrastructure capital and boost the economy.

According to Gotbaum, PBGC’s mandate since its beginnings has been to encourage voluntary private pension plans. To do this, the agency first tries to preserve plans that exist. Secondly, it tries to ensure that the government does not make it harder for employers to offer pensions; PBGC considers how to regulate the pension industry and set standards. Finally, the agency works to clear the air, so that goodwill exists between the government and employers, creating an environment favorable for pension planning.   

However, the government does not require employers to provide traditional pensions, so most individuals need to save more. Gotbaum said some employers recognize the downside of 401(k)s and are looking for a lifetime income option or moving to a hybrid pension plan. These are good moves, he added, stressing the importance of employers providing retirement plans.   

He also mentioned the importance of offering alternatives, so that as companies or situations change, individuals have plan choices. “We are not going to enhance retirement security by sticking to old models; what we must do is enhance offerings, so employers have choices,” he said.   

The vast majority of employers do offer pensions and contribute to them, Gotbaum noted. The PBGC thinks it is important to recognize and encourage this.

He also said that the agency perceives unfairness in the system regarding PBGC premiums. Compared to automobile insurance premiums, which reflect the insured’s own record, employers’ PBGC premiums are raised due to the actions or failures of others, he said. That is the reason the agency wants to set rates; it believes a fairer system will result.