Former Pbgc Head Advocates for Innovative, Fairer Pensions

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Many workers in the United States have effectively taken a 10% cut in compensation, according to Bradley D. Belt, who until recently was executive director of the Pension Benefit Guaranty Corporation (PBGC), because companies have increasingly shifted their pensions from traditional defined-benefit (DB) plans to 4Oi(k)-style defhied-compensation (DC) plans in recent years. PBGC is a federal agency charged with at least partially covering workers' pension benefits when firms terminate their DB plans, as several airlines and other major corporations have done in recent years.

Speaking in Washington, D. C., at a June conference of the newly formed Center for Productive Longevity, Belt explained that a typical company used to contribute from 10% to 15% of annual payroll to customary DB plans, but the average contribution to a DC plan is less than 5% of payroll, according to Employee Benefit Research Institute estimates.


For corporate America, often constrained by .competing in today's global markets, pension plans are "first and foremost about cost savings," Belt said, adding, "I understand that but let's have an open dialogue about it." Belt, now chairman of Palisades Capital Advisors in New York City, called on business in the United States to work with labor and government to develop hybrid plans and new public policies that would reduce corporate costs without placing the entire burden of pension investment decisions on employees.

Belt explained that whereas companies take on all pension investment risk with DB plans, "now the individual bears all the risk. . . . [Employees] are now in the position of having to pay higher management fees (they don't get institutional pricing), and they consistently make bad decisions. They're bearing the risk of outliving their resources, and a lot less money is going into this thing."

At present, Belt said, average retirement resources will be unsustainable for many of the 78 million aging boomers. Currently, the median net worth of a household at retirement is $250,000 and the median net financial assets of those ages 55 10^4 is $50,000, he noted. At the same time, various factors-such as the increase of the retirement age resulting in delayed eligibility for full benefits - are eroding Social Security's retirement support.

"The wonderful news is that we're all living longer," he said. "The bad news is, we're all living longer. We've got to figure out as individuals and a society how to pay for that." For example, Belt cited recent figures from the American Academyof Actuaries showing that when a couple reaches age 65 today, there's a 63% chance that one of them will live to age 95. "You've got to count on at least 30 years of financial resources," he said. "And if we throw into the equation healthcare, and not just healthcare, but long-term care issues, the challenge gets really daunting, perhaps even dire," he added.

Furthermore, Belt cited recent calculations by Fidelity Investments showing that the same couple who reaches 65 will need current savings of at least $200,000 to pay for healthcare costs not covered by Medicare-and not including long-term care.


"Our numbers aren't adding up," he stressed. "Is this an insurmountable problem? No. But it does require a lot of foresight, it requires action in both the public and private sectors, it requires leadership in both sectors," he said. Although "finding leadership in the public sector [is] a particular challenge," Belt noted, changes in the Pension Protection Act of 2006 offer a modest step enabling companies to take a more active role in managing DC pensions-something the previous structure discouraged employers from doing.

Belt noted that the number of DB plans in the United States, those providing retirees a set level of pension benefits, has dwindled in the past two decades from 1 12,000 plans covering 40% of American workers to about 30,000 covering 20% of the current U. …