Senator Patty Murray (D-Washington), ranking member of the Senate Health, Education, Labor, and Pensions (HELP) Committee, and Senator Ron Wyden (D-Oregon), ranking member of the Senate Finance Committee, sent a letter to President Donald Trump demanding an explanation of his sudden decision to replace Tom Reeder as Director of the Pension Benefit Guaranty Corporation (PBGC).
The president has nominated Gordon Hartogensis—who, the senators say, seems to have little to no prior experience relevant to the pension system and the work of the PBGC—to replace Reeder.
Meanwhile Reeder, who is in the middle of his five-year term, has been advocating for changes to help the PBGC’s programs, especially the program for multiemployer defined benefit (DB) plans. In testimony during a hearing of the Joint Select Committee on Solvency of Multiemployer Pension Plans, Reeder noted that the PBGC’s multiemployer insurance program is projected to become insolvent in 2025.
He noted that insolvency of the multiemployer program will dramatically reduce the already relatively low guarantee for multiemployer plan participants. Currently, the only money available to provide financial assistance for benefit payments will be incoming multiemployer premiums, and the program will soon be spending more in financial assistance than it receives in premium income.
According to Reeder, funds in the multiemployer program will represent only a small fraction of the amount required for current guarantee levels. PBGC would submit to Congress, in advance of multiemployer program insolvency, a schedule of reduced basic-benefit guarantees which would be necessary in the absence of a premium increase. “Such reduced guarantees would result in participants in failed multiemployer plans receiving a very small fraction—an eighth or less, on average—of the current guarantee level, no matter when their plan became insolvent.”
Reeder also stressed that the multiemployer guarantee has not increased since 2001 and is not indexed for inflation. The maximum guaranteed benefit for a retiree with 30 years of service is $12,870 annually, while the maximum guaranteed benefit for a retiree in a single-employer plan is $65,045 annually. The single-employer guarantee is indexed for inflation.
Reeder says legislation is needed to address the looming insolvency of PBGC’s multiemployer program. A number of proposals have been put forward; however, Reeder says additional actions may be necessary to address all the problems facing the broader multiemployer plan system.
In their letter, the senators wrote, “In light of your Administration’s pattern of politically motivated and ethically questionable personnel decisions, the decision to replace Mr. Reeder, who has decades of experience working on pensions and other employee benefit issues, raises serious concerns. We are troubled by this unexpected and seemingly unnecessary change in the agency’s leadership, particularly as the country faces a multiemployer pension crisis.”
« DOL’s ESG Investing Bulletin Raises Important Questions for Plan Fiduciaries