While others sound the death knell for traditional pension plans, Bradley Belt is full of ideas for improving them. And Belt, the former head of the Pension Benefit Guaranty Corp., has a handy soapbox in his role as chairman of the newly launched Palisades Capital Advisors.
Belt argues that corporate executives eager to abandon their defined-benefit pensions may be cutting off their proverbial nose to spite their face. That’s because in 10 or 15 years, when those executives are trying to encourage employees to retire early, employees won’t be able to afford retirement.
“The pendulum always swings a little too far, too quickly, and I think that’s what’s happening now,” he says. “I would encourage all plan sponsors to take a deep breath and not head like lemmings for the cliff to abandon their defined-benefit plans.”
Belt sees a hybrid form of retirement plan evolving that combines features from defined-benefit and defined-contribution plans. Last year’s pension law was a step in that direction, he says, with its encouragement of automatic enrollment and its move to define qualified default investments. Such a hybrid would let companies unload some of the risk currently involved in sponsoring a defined-benefit plan, “but without transferring all of the risk to individuals, as is the case with a defined-contribution plan,” Belt says. “It doesn’t have to be an all-or-none proposition.”
Companies currently offering pension plans face “a suboptimal set of alternatives,” Belt says. CFOs can easily access ways to deal with the financial risks a pension plan entails, like interest rate risk, but so far they do not have a way to contain the longevity risk involved.
“Insurers, especially reinsurers, are beginning to look at that,” he says.
Belt suggests that companies in a single industry could benefit if they were able to join together to offer a multiple-employer defined-benefit plan, thus sharing administrative costs and pooling longevity risk. He also notes that some plan participants are exposed to a substantial amount of credit risk, depending on their company’s financial status, and suggested that pension plans or unions might purchase credit protection on behalf of plan participants.
Belt is a longtime
Sylvester Schieber, chairman of the Social Security Advisory Board and the retired director of