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Protecting Private Pensions and the Public Interest:
Solutions for the Shortfalls in Employer-Sponsored Defined-Benefit Plans
April
2011
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Most private pension plans lack sufficient assets to provide the benefits employers promised to current and future retirees. Innovative approaches to filling the pension funding gap are needed, according to the new Milken Institute report, "Protecting Private Pensions and the Public Interest: Solutions for the Shortfalls in Employer-Sponsored Defined-Benefit Plans."
The report gives an overview of the underfunding problem in the defined-benefit pension system that covers 20 percent of U.S. workers and suggests practical finance, regulatory and policy responses to the challenges. It is based on a Financial Innovations LabTM that convened stakeholders and experts in the field.
Total underfunding in single-employer pension plans was equal to roughly $504 billion in 2009 (the most recent data available), according to the Pension Benefit Guaranty Corporation, a government-sponsored corporation that insures the plans.
"Responsibly and rationally addressing so-called legacy costs is essential to protecting the solvency of these plans, the retirement security of the workers they cover, the sponsoring employers and the taxpayers who could be on the hook if the federal pension insurance program is unable to cover future losses," said Bradley Belt, senior managing director of the Milken Institute and former executive director of the Pension Benefit Guaranty Corporation. "The Financial Innovations Lab discussion focused on innovative ways to close the funding gap."
The Institute's report outlines several approaches for addressing the current funding shortfall, with the goal of fairly allocating the burden of existing legacy costs and providing a framework for a better, sustainable pension model incorporating the best features of defined-benefit and defined-contribution models going forward.
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