Democrats on the Senate Finance Committee today took some time off from questioning Steven Mnuchin’s personal financial arrangements to ask him about his views on traditional defined benefit pension funds.
The committee brought Mnuchin, Donald Trump’s choice to be the next Treasury secretary, in for a confirmation hearing.
In addition to serving as the chief financial officer for the U.S. government, the Treasury gets a seat on the board at many government agencies, including the Social Security trust fund, the Medicare trust fund and the Pension Benefit Guaranty Corp.
The PBGC is the federal agency that backs defined benefit pension funds. It’s supposed to use premium payments from sponsors of solvent pension plans to pay benefits to the beneficiaries of failed plans.
Sen. Debbie Stabenow, D-Mich, was one of several Democratic committee members who asked Mnuchin about his thoughts on protecting pension plan participants.
Stabenow cited a U.S. Government Accountability Officer suggesting that the failure of a large multi-employer plan could cut the value of the guarantees the PBGC offers by more than 90 percent, leaving a typical multi-employer plan participant who expects to collect $2,000 per month with just $125.
“It seems to me that’s a pretty basic promise that we need to keep,” Stabenow said of pension guarantees, according to a hearing video posted on the Senate Finance Committee website.
Mnuchin, a veteran of the investment banking, mortgage banking and film finance industries, said, “We need to protect the pension holders in this country.”
“I think the people who have earned pensions absolutely deserve to have those pensions maintained and be safe,” Mnuchin told another Democratic senator, Maria Cantwell of Washington state. “I’m very concerned about retiree issues in this country, and that’s something that I look forward to working with you and others on.”
Mnuchin talked to Stabenow generally about a need to balance interests.
“I think people who have worked long periods of time and have built up a pension deserve to get their pension,” Mnuchin said. ‘That is very important. On the other hand, we have to be careful that, on the other extreme, we don’t have a bailout of the entire pension industry and bankrupt the guaranty fund.”
Cutting people’s pensions is a “significant outcome, and we should go to great lengths to find other solutions before doing that,” Mnuchin said.
Mnuchin also mentioned his distaste for the “death tax” during the hearing, and he recalled the difficulties he had with reconciling government requirements and a need to protect elderly reverse mortgage users when he helped take over IndyMac, a struggling California mortgage lender with a large book of reverse mortgage business, in 2009.
Few retail agents sell many traditional defined benefit pension plans these days, but some sell small, high-value Section 412(i) defined benefit pension plans to medical practices, law firms and other small, high-end clients. The PBGC backs 412(i) plan benefits.
Advisors who help clients with retirement plan need to consider whether clients will have access to pension benefits, and how secure those benefits appear to be.
Employers that want to shut down defined benefit plans may buy group annuities from large life insurers to do so, and clients with concerns about the stability of their employers’ pension funds may see annuities or permanent life insurance products as good alternatives.