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  #31  
Old 04-23-2009, 10:39 AM
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[aside] I guess we don't need to raise the FDIC premiums, there isn't any deficit there. [/aside]
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  #32  
Old 04-23-2009, 01:19 PM
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If the executives are less likely to get a good PBGC guarantee, does that have any real effect on their decision to fund the plan properly?
If they are not at risk for pension underfunding, because they are not the owners, then you might possibly be right. This further assumes that the executives plan to fail.
If they are owners, then the PBGC guarantee is essentially irrelevant.
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  #33  
Old 04-23-2009, 01:22 PM
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Originally Posted by exactuary View Post
It is easy to see that decreasing benefits and increasing premiums are two ways to get to the same place.

Why do you look at only one approach and say:

"The cap is clearly not low enough, because there exists a deficit."

Couldn't you say:

"The premium is clearly not high enough, because there exists a deficit."

Of course both of these statements must be false because you cannot prove two exclusive (unique) conclusions from the same premise.
I should have said 'given past premium levels ...'

You can't go back and raise the premiums on the plans that are already in the PBGC. If you prefer to raise the premiums on the currently active plans so future caps won't be as low, I'm fine with that approach too, but that might make it less likely DB plans will continue to be offered.
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  #34  
Old 04-23-2009, 01:50 PM
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  #35  
Old 04-23-2009, 05:32 PM
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If you make the cap lower, the value of the plan to the executives authorizing the plan goes down. Are they more or less likely to continue the plan after such a change?
What kind of plan are we talking about here? I don't think most executives are inclined to worry about whether the limit is 4500 or 2800 or whatever else it might be. That's not going to be a huge part of their retirement benefit, and if they're long service with a company, the age adjusted or non-age adjusted 4500 cap isn't coming close to their level of benefits.

I have to admit that the only time that I've ever heard PBGC limits come up (in real life at work) is in union negotiations when a union is deciding whether or not they want job security guarantees or more retirement benefits. If they are close to the PBGC limit, it puts a damper on the idea of adding more to their pension multiplier when they're in an overmature plan with a significant deficit (which has to be what...every rust belt industrial plan?).

Safe to say, there are very very few executives of firms that are a large percentage of rank and file that are concerned about starting a pension, anyway, let alone how the PBGC limits might affect them.

I'm not a huge fan of Mr. Millard's reasoning unless he can find a way to tie the guaranteed benefit levels to PBGC experience in a given year (both asset levels and new unfunded distress termination benefits), and he's taken the legislative lobbying option off the table by the way he's framed the conversation. The only way it really flies is if you assume that there is a floor where someone else steps in, and you're disregarding risk because you're ultimately not fully responsible for it (presumably, he's doing just that).

At some point, the whole system is going to look like a steel plan - there aren't going to be enough folks paying premiums to have the leverage to charge them enough to cover the risk. That is, when you have a plan that has, say, $950MM of inactive benefits, and $50MM of active liability, and you're finding that there is a huge unfunded attributable to the inactives, and you and the employer are sitting around strategizing about what future plan changes are going to narrow the deficit - there just isn't enough traction - the only thing that makes projections good is playing with future returns and assuming that in the worst case scenario, the plan goes to the PBGC. The PBGC is doing the same thing, but it's legislatively forced to.

I'd insert the smart fix here, but I don't have it. I would certainly say that participants in payment status are every bit as deserving of a bailout as anyone else, though. I think the fix is legislative, and not investment policy. I don't fully get the comment about minimizing the need for a bailout - if that's done on probability without representing the magnitude of possible losses, I guess you could say that, but it should've been stated that the new strategy is relying on historical data to try to minimize the expected value of the bailout, without adjusting for risk.
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  #36  
Old 04-23-2009, 07:28 PM
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"What kind of plan are we talking about here? I don't think most executives are inclined to worry about whether the limit is 4500 or 2800 or whatever else it might be. That's not going to be a huge part of their retirement benefit, and if they're long service with a company, the age adjusted or non-age adjusted 4500 cap isn't coming close to their level of benefits. "

You did a better job than I did getting to my point. The executives funding the plan aren't getting their benefits from the plan, so what is their incentive to fund it well?
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  #37  
Old 04-23-2009, 09:30 PM
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Ah...their incentive to fund it well is based on the PBGC's ability to put a lien up to the company's net worth on any deficit in the plan. If they have a lien on assets, I'm guessing they are well ahead of executive nonqualified agreements.

That's extremely generalized, I don't know all of the rules, but they have sniffed out and harassed plans that they believe will get worse. They have very general regulations that give them a ton of latitude to threaten to remove plans from sponsors - "involuntary termination" - basically any time they feel like they're protecting their interests (i.e., minimizing the chance of the plan's deficit to get worse), even if a sponsor is meeting minimum contribution requirements. (not making your required contributions is a good way to tip them off, though, because you have to notify them if you don't).

They can take the plan (without you going out of business and without you filing to terminate the plan) and then take the money for from you after they do, (I have not been a party to this). What I've actually seen, is they will threaten to take the plan and force the sponsor to set aside money for the plan in a dedicated account or put it in the plan - ahead of minimum funding requirements.
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  #38  
Old 05-15-2009, 10:59 AM
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  #39  
Old 05-15-2009, 11:44 AM
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Well, that's pretty direct.

Where did C.E.F.M. go after he left the PBGC?
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  #40  
Old 07-29-2009, 07:05 PM
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http://www.nytimes.com/2009/07/29/bu...gewanted=print
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To date, Mr. Millard remains unemployed. His lawyer noted that Mr. Millard had honored the one-year prohibition in federal law against negotiating a job with a firm that he helped select as a contractor. While still at the agency, his lawyer said, Mr. Millard also paid his own bill whenever he dined out with industry officials, including Ms. Seitz.
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WASHINGTON — As a New York money manager and investment banker at four Wall Street firms, Charles E. F. Millard never reached superstar status. But he was treated like one when he arrived in Washington in May 2007, to run the Pension Benefit Guaranty Corporation, the federal agency that oversees $50 billion in retirement funds.

BlackRock, one of the world’s largest money-management firms, assigned a high school classmate of Mr. Millard’s to stay in close contact with him, and it made sure to place him next to its legendary founder, Laurence D. Fink, at a charity dinner at Chelsea Piers. A top executive at Goldman Sachs frequently called and sent e-mail messages, inviting Mr. Millard out to the Mandarin Oriental and the Ritz-Carlton in Washington, even helping him hunt for his next Wall Street job.

Both firms were hoping to win contracts to manage a chunk of that $50 billion. The extensive wooing paid off when a selection committee of three, including Mr. Millard, picked BlackRock and Goldman from among 16 bidders to manage nearly $1.6 billion and to advise the agency, which Mr. Millard ran until January.

But on July 20, the agency permanently revoked the contracts with BlackRock, Goldman and JPMorgan Chase, the third winner, nullifying the process. The decision was based on questions surrounding Mr. Millard’s actions during the formal bidding process. His actions have also drawn the scrutiny of Congressional investigators and the agency’s inspector general.
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