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Remarks Delivered by
U.S. Secretary of Labor Elaine L. Chao
ASPPA Conference Lunch
Washington, D.C.
Tuesday, April 25, 2006
Thank you, Jon.
I want to thank the American Society of Pension Professionals and Actuaries for hosting this conference. I know you have worked closely with Ann Combs, the Assistant Secretary for the Employee Benefits Security Administration, who is doing a terrific job.
Events like this one are a priority of our compliance assistance effort. The conversations we have with you help inform our decisions, making sure that we understand the issues you confront in your day-to-day responsibilities. These conversations help you better understand the regulations and guidance we issue. You take that knowledge back home with you, making sure the plans you work with comply with the law, and protect workers, retirees, and their families. I thank you for taking the time from your busy lives to be here.
Pension professionals and actuaries have a tough and important job. You help make it possible for employers to offer plans to workers. You help ensure that plans are properly run and benefiting the people depending on them. In a sense, you are financial "first responders," and you play a crucial role in maintaining the public trust in retirement plans, which are vital institutions in society.
This is one of the reasons why financial accuracy, accountability and transparency are among the most important elements of the President's pension reform proposal.
It's often said that retirement security is a three-legged stool, resting upon the Social Security system, personal savings and private pension plans. As you now so well, all three legs of the stool are under stress today.
In 2008, just two years from now, the Baby Boom generation will begin to retire. These workers are part of a generation that has benefited from the great advances of our era. They are living longer and healthier lives than ever before. That means more people will be receiving Social Security for longer periods of time than ever before.
Today, let me just review what this Administration has been doing to protect the retirement security of America's workers by shoring up the third leg of the retirement security stool — private pension plans. The President has introduced a series of pension reform proposals targeted at one segment of these plans that are especially under stress — single-employer, defined-benefit plans. 34 million Americans are covered by these types of plans. And they are uneasy because of high-profile bankruptcies which have affected employee pensions and health benefits.
This is a growing concern, because, as many of you know, experts estimate that defined-benefit plans are under funded by $450 billion. And nearly $100 billion of that under funding is in plans sponsored by financially-ailing companies. Recent terminations of under-funded plans have resulted in a $23 billion deficit in the federal insurance program that covers these plans.
The Pension Benefit Guaranty Corporation has had annual deficits in excess of $20 billion for the past two years. The risk of loss is not simply to the insurance system, but also to the workers who may face significant reductions if their promised benefits are reduced to the guaranteed amount.
Unless stronger pension protections are enacted, the problem will only worsen. And the likely result will be demand for an enormous taxpayer-funded bailout. We need to shore up the PBGC, protect responsible pension plans, increase transparency, and hold under-funded plans accountable before it is too late. The majority of Americans today do not have defined-benefit pension plans. So forcing them to pay for the benefits of those who do would be unfair.
These problems have built up because outdated and ineffective pension rules. They have allowed some employers and unions to underestimate future pension liabilities and to make promises they cannot keep. And to make matters worse, a large concentration of defined-benefit plans are in older industries going through difficult transitions.
The President wants reform to ensure the pension system is healthy and that the promises made to workers will be kept.
The President's plan has three main objectives:
First, to reform the funding rules to ensure that employers fully fund their retirement promises.
Second, to adjust the premiums that private-sector employers pay to the federal insurance program to better reflect the real risks and costs. Premiums should be adjusted to return the insurance program itself to a sound financial footing — and thereby avoid a taxpayer bailout some years from now.
Third, to increase disclosure to workers, investors and regulators to ensure greater transparency and accountability. That includes making timelier information about the financial health of pension plans more widely available.
Now, the Administration recognizes that full funding cannot be achieved overnight. We support reasonable transition periods for plans to reach their funding targets. But there is not much time.
As professionals and actuaries, you know this better than anyone.
As you know, the House and Senate have each passed a version of pension reform and have recently begun the conference process. Both bills adopt the framework laid out by the Administration and have many positive attributes.
This Administration wants to see pension reform enacted into law. And we look forward to working with Congress, as it works through the differences between the House and Senate bills. But the President has been very clear. He has left no doubt that he stands on the side of workers and retirees in this debate. He will not sign a bill that is weaker than current law. I am hopeful that by working with the conferees from the House and Senate, a bill be advanced that meets all the President's goals and protects workers and retirees.
While reform is important, it's also important to recognize that changes in the rules will not help workers if employers don't know how to comply. That's why compliance assistance is one of the Department of Labor's top priorities.
Last week, the Department issued final regulations for expanding the Voluntary Fiduciary Correction Program. These changes make the program accessible to more transactions, clarify who is eligible to use the program, and reduce the paperwork burdens associated with applying. We have also provided useful tools, such as an online calculator that plan sponsors may use to determine the amount of interest necessary to correct violations.
We are very pleased with the success of this program — since its inception in 2002, we have received more than 1,700 applications and verified nearly $300 million in corrections on behalf of plans and their participants. Our final regulations will help increase the utility of this program, bringing more plans into compliance and allowing us to focus our enforcement resources on other violations.
The Employee Benefits Security Administration has oversight over approximately 730,000 pension plans and another 6 million health and welfare plans. These plans cover approximately 150 million workers and their dependents and include assets of more than $4 trillion.
And I'm very proud of EBSA's record of protecting workers. EBSA has achieved monetary results of more than $4.8 billion in Fiscal Years 2004 and 2005. Included in this figure is $709 million in assets restored to plans, and benefits recovered for individual workers, in FY 2005. That's an increase of nearly 120 percent over FY 2004, and up 161 percent from FY 2001.
So, the U.S. Department of Labor is using every available channel to help strengthen retirement security for America's workers.
With pension reform, education and fair enforcement, the Department of Labor is working hard to protect the retirement security of America's workers. And we are providing encouragement and assistance to employers providing pension benefits for working men and women.
As I mentioned earlier, your work is critical to safeguarding the retirement assets of our nation's workers. By maintaining the highest standards of accuracy, transparency and accountability, you are helping to preserve the trust that is so important to our nation's economy. So, thank you for everything you are doing to serve — and to protect — the retirement security of America's working families.
Have a great conference!
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