“A Secure Retirement for All” proposal – CCCS

To the HELP Committee Staff:
Per Sen. Sanders’ call for proposals to address the retirement crisis and, as follow up from our email, please find a downloadable letter/PDF below. We look forward to engaging with you on these ideas. ie
Download: HELP-CCCS retirement crisis proposal FINAL

Re: “A Secure Retirement for All” proposal

Sen. Sanders, Chair of the Senate HELP Committee, has identified a crisis in retirement systems and has called for new ideas for Congress “to bolster existing pension plans and drive the creation of new defined-benefit pensions.”

Please consider this proposal from the Cape Cod Center for Sustainability, which is a Massachusetts 501c3 that has developed specific expertise in DB pensions in our pursuit of large-scale climate financing – for which pensions are uniquely suited.

Top-line:

  • Modernizing the Pension Benefit Guaranty Corporation – through its first comprehensive legislative review since its founding in 1974 – can protect, reassert and expand defined-benefit plans while unlocking the so-far unheralded long-term economic advantages driven, specifically, by DB plans.
  • Addressing the Chair’s 4th concern – PBGC premiums – takes care of the other three concerns. How and why the PBGC sets premiums requires new legislative clarity about accounting standards, DB plan longevity and expanded regulatory authority to stabilize retirement-systems and protect pensions struggling with sponsor bankruptcies and transfers.
  • A renewed and robust PBGC can shift plan administrators’ non-fiduciary focus from expensive Wall Street returns toward DB pension compliance criteria based on “actuarial” returns – the annual targets that distill future risks to keep pensions healthy, vital, cash flow-positive, and attendant to their far-future obligations.
  • The FDIC, which secured trust in consumer banking, is a model for a modern PBGC, which can secure the retirement system.

We recommend the Committee review the Pension Benefit Guaranty Corporation and its protocols for setting premium rates for pension insurance to:

  1. Protect pensions during company bankruptcy negotiations
  2. Reform the pension risk transfer process
  3. Update accounting and funding rules for pensions
  4. Reassess Pension Benefit Guaranty Corporation premiums.

Congress can reverse the retirement crisis by acknowledging that the value of a DB plan is its perpetual cash-flow generation rather than the net present value of its assets and liabilities upon total liquidation. This mismatch is the basis of the crisis.

Recommended Congressional action:

  1. Study, refocus and expand the PBGC’s compliance authority to define the “fitness-for-purpose” criteria of healthy and vital defined-benefit pensions, rated for longevity rather than short-term liquidity.
  2. Restate underwriting protocols to define and assess compliance with actuarial requirements for pension plan longevity.
  3. Apply appropriate accounting methodologies which suit this purpose. The current use of Financial Accounting methods is based on value-at-liquidation that distorts an assessment of DB plan vitality. More appropriate Managerial Accounting methods can measure a plan’s compliance with actuarial requirements for longevity and required cash flows.
  4. Reward and promote compliant pensions – demonstrating actuarial compliance – with preferred premiums.
  5. Codify PBGC’s authority to adopt “orphan” plans in the event of sponsor bankruptcies, to assume control of and rehabilitate struggling plans to comply with actuarial minimums and incentivize new plans.

Resolution of the retirement crisis acknowledges the vast economic power of DB pensions to fulfill a solemn obligation to workers with pensions, but also to pass-along social, environmental and economic benefits indirectly to their friends, families and neighbors. In this way, focusing the PBGC on actuarial compliance for longevity builds “A Secure Retirement for All.”

We are happy to expand, substantiate and defend these recommendations. Further details are embedded below. Thank you for your time and consideration.

Sincerely,
Ian Edwards, Executive Director
Cape Cod Center for Sustainability
646-477-7940
ian@bankofnature.eco

ADDENDUM: Further Background and Context

Rediscovering the power of defined-benefit pensions
to deliver prudent future security to all Americans

In response to the HELP committee’s call for ideas to encourage and protect defined-benefit pension funds in the US, Massachusetts nonprofit Cape Cod Center for Sustainability presents a unique approach based on our years exploring the power of fiduciary money to do more for workers, society and the economy.

Modernizing the PBGC
The Pension Benefit Guaranty Corporation (PBGC) has untapped potential to compel pensions to work for workers, rather than working for Wall Street. Our proposal:

  • Affirms the PBGC as a bulwark for pension security in the same way the FDIC is a bulwark for safe and sound consumer banking. In this way, the PBGC offers consumer protection that confronts the stuck points in the retirement crisis.
  • Reflects in substance Justice Sotomayor’s landmark 2020 SCOTUS dissent in Thole v US Bank that retiree confidence in fiduciary management is the basis for the Duty of Loyalty.
  • Confirms the PBGC’s regulatory powers to substantiate why Larry Fink and non-fiduciary Wall Street asset managers are wrong about capital markets as the only option for DB plans. A robust regulator can outline the sector-stabilizing criteria that assure a DB plan’s quantitative and qualitative minimums.

Chair’s Four Concerns

  • Update accounting and funding rules for pensions: GAAP accounting is the wrong tool for defined-benefit plans because it focuses on liquidity rather than longevity. It’s math for dead pensions applied to living pensions and creates an artificial sense of failure. An adapted management accounting tool (math for still vital pensions, some with underfunded positions) prioritizes cash flow rather than liquidation. Pensions are not built for liquidation, but are the most vivid examples of long-termism benefits in our economy.
  • Reassess Pension Benefit Guaranty Corporation premiums: The power of the PBGC is its insurance premiums that protect longevity rather than fixating on resale. What the pension authority charges a defined-benefit plan for a premium is a reflection of the pension’s risk in failing its future legal obligations to eligible retirees. Pensions that are struggling in the status quo will have a path “to get right” with the PBGC, while the regulator is also properly covered to step in if required. By expanding the PBGC’s regulatory scope, Congress can incentivize new plans and revive old plans, protect workers and labor, adjust the sector’s reliance on Wall Street, and reflect the critical role PBGC-compliant pensions play in the US economy.
  • Further protect pensions during company bankruptcy negotiations: Expanding the authority of PBGC to “adopt” “orphaned” pensions gives those pensions status equal to secured creditors in a workplace bankruptcy. This makes workplace debts for unpaid contributions non-dischargeable and requires that they pass to any entity that gets created through restructuring in bankruptcy.
  • Reform the pension risk transfer process: The PBGC can codify criteria that, as part of insurance coverage, outlines protections to workers and the DB plans should a transfer be required.

Congress can:

  1. Clarify PBCG’s authority and its ability to intervene and revive ailing pensions in ways similar to, or inspired by, the FDIC model.
  2. Set a new path forward for DB plans by empowering PBGC to incentivize new DB plans and shore up old DB plans.
  3. Spearhead the first substantive legal interpretations of “prudence” in fiduciary law in 52 years to reflect immense finance-sector change.
  4. Study and acknowledge the size, design and purpose of US pension funds and how they, as an aggregated $5-trillion trust, define the workings of the US economy.
  5. Enshrine trust in the US pension system that is otherwise absent today.

About Cape Cod Center for Sustainability
The Cape Cod Center for Sustainability, a Massachusetts nonprofit organization expert in pensions, fiduciary duty and the resulting economy, submits this proposal as a response to Senator Sanders’ call for new ideas to bolster defined-benefit pension plans. This strategy protects workers who are owed retirement security, but also extends indirect economic benefits to Americans who don’t have a defined-benefit plan.

More Information:
Ian Edwards
Executive Director, CCCS
646-477-7940
ian@bankofnature.eco