Late last month, Bradley Belt, the executive director of the Pension Benefit Guaranty Corporation and a point man for the Bush Administration on retirement policy, picked an extremely inopportune time to announce that he would step down from the PBGC at the end of May.

The House and the Senate, after all, were struggling to reconcile their pension-reform bills in the face of Administration opposition. The financially moribund Delta and Northwest airlines were pushing for special breaks from Congress in terms of how they calculate the value of their plans. Further, the Financial Accounting Standards Board was about to propose an overhaul of pension accounting that could involve the elimination of corporations’ ability to smooth their results over time — a change that could unleash a torrent of volatility into the system.

In short, Belt would be departing with the nation’s pension system in apparent turmoil. On the other hand, a choice to leave later wouldn’t necessarily mean that he would be leaving under any better conditions. During his two-year tenure at PBGC, it experienced “a record level of pension plan terminations, a dramatic increase in risk exposure, and a near doubling of its customer base,” according to the press release announcing his departure.

Further, the number of pension participants whose welfare PBGC oversees increased to 1.3 million. The assets it manages — largely from failed plans — increased to more than $56 billion. Belt tackled pension negotiations involving many complex bankruptcies and corporate restructurings, including settlement of the $10.2 billion claim in the United Airlines case, the biggest in the agency’s history. With a final version of the pension bill stalled, there was no sense that things would be getting better any time soon.

Having announced his departure, Belt seemed to be in a relaxed mood when CFO.com interviewed him last week. Asked about his future plans, he joked that he rued the lack of an offer for the top slot at the National Football League and strongly suggested that a government job wasn’t the best way to fully fund his children’s college tuitions.

Nevertheless, Belt was still passionate in discussing the flaws in the pension system that he’s been citing since he joined PBGC. In particular, he feels that the system needs to be transparent, so that pension failures like United’s don’t come as a shock to plan participants. For example, while pension sponsors must file information about their plans’ funded status and other actuarial and financial information with the PBGC under Section 4010 of the Employee Retirement Income Security Act, they don’t have to make that information publicly available. Belt is irked that Congress has shown no inclination to change that situation.

The outgoing PBGC chief also wants Congress to stop dragging its feet about including a company’s credit standing in assessing the overall risk of the plan. At the same, time, he welcomes the Financial Accounting Standard’s Boards proposed elimination of smoothing as a way of keeping plans healthy. An edited version of the interview follows.

You’ve chosen to step down during a crucial stage in the development of pension reform legislation. Why are you leaving and what are your future plans?

I’m as yet undecided, but I’m intending to work in the private sector in some capacity. I’m disappointed that I haven’t gotten a call from the NFL yet to replace [outgoing National Football League Commissioner] Paul Tagliabue. But I’ve often remarked that the PBGC doesn’t have a sustainable business model in that the costs of its employees aren’t supported by their salaries over the long term.

What were your biggest accomplishments and biggest disappointments at the PBGC?

I wouldn’t characterize any accomplishments at PBGC as mine. They’re those of everybody in the organization. But what I’m proud of is how everybody in the organization has responded to its rather extraordinary challenges. In cases like Enron, we used all the arrows in our quiver to prevent losses to the system and its participants. Obviously, we’ve been involved in some of the largest and most complex bankruptcy cases, like United. That’s an extraordinarily unfortunate matter that highlights flaws in current law. But by the same token, PBGC was able to realize recoveries far in excess of what’s typical from a bankruptcy standpoint.

I’m not sure there has been anything I would characterize as a disappointment. There are some things that led to frustration. The first and foremost is not having been as successful as I might have been in recruiting topflight talent from elsewhere in the government, although senior management, including the CFO, [has been excellent]. The top salaries at PBGGC are significantly lower than elsewhere in government, like those at the SEC, for example. You would have to make a significant sacrifice to come to PBGC rather than its sister [agencies].

The Labor Department is reportedly investigating whether Northwest Airlines’ declaration of bankruptcy a day before $65 million pension payment was done to avoid the payment. Unlike PBGC’s handling of its own probe into the airline, Labor refused to sign a confidentiality agreement before requesting certain documents Northwest. One of the debates press reports gave rise to concerned the merits of having three pension governing bodies — the PBGC, Labor, and the Treasury Department. What are the weaknesses — and strengths — of having a three-part system?

I’m not in a position to comment on the Northwest Investigation. But under ERISA, it’s a divided system under the [Labor Department’s Employee Benefit Security Administration], the IR, and the PBGC. I’m not going to say it’s optimal, but under law we’re obligated to work within that system. But we’ve gotten better at working together and will continue to try to coordinate, cooperate, and collaborate. We are three big agencies, however, and PBGC, for example, has in excess of 300 bankruptcies to deal with. We have a lot of moving parts to keep track of, and it’s hard to know what the other hand is doing.

In a previous interview with CFO magazine, you talked about the problems created by the existence of having two distinct pension financial reporting systems under ERISA and FASB. That has enabled companies to declare that their pensions were “fully funded” under one system while they were substantially underfunded under the other — a practice you called “information arbitrage.” How would you eliminate the practice?


I think a lot of progress is being made in terms of changes to ERISA funding rules as well as those of FASB. We now suffer from a Tower of Babel problem, speaking multiple languages. The ideal is to move to a single conceptual measure of assets and liabilities, a standard assumption set. But right now, when you say “fully funded” there has to be asterisks around that.

As part of its proposal to overhaul pension accounting, FASB has said that it would look into the possibility of eliminating the corporate practice of averaging out pension values over time — a calculation known as “smoothing” — rather than reporting them at fair value. Do you think that’s a hopeful sign?

As I’ve noted in many of my remarks, I’ve found the smoothing of assets and liabilities to be inconsistent with current reality. Asset values from four or five years ago or an interest rate [from then] has no impact on reality. It’s like driving down the highway at a high rate of speed and only looking at the rear-view mirror. You shouldn’t be surprised if you hit a tree. I’m sure the CFO of an airline would welcome the opportunity to smooth fuel prices, that of an auto maker would smooth rubber prices, and that of an insurance company would smooth interest rates. That should not be the way the world works, or the pension world works.

I recall your suggesting that the failure of plan sponsors to match the timing and risk of their investments to the plans’ liabilities could hinder those corporations’ ability to make good on their pension promises. In that light, do you think CFOs are getting the right message about matching assets to liabilities?

I want to be careful. I am not suggesting that assets need to be matched by liabilities; that is a business decision companies make based on their own risk tolerance. The point I was trying to make is that you need to pay attention to those assets and liabilities — and the promises you’ve made to your retirees. The risks inherent in that decision should be transparent. I think there is a growing awareness that attention has to be paid to liabilities. We lived in a fantasy land in the ’90s in which many believed that [liabilities] don’t have to be paid for. I’m not trying to say there’s a one-size-fits all liabilities matching strategy. That would be like saying that the investment policy should be the same for a 25 year old and a 65 year old who’s facing retirement.

What’s your view of the pension legislation being hammered out jointly by the two houses of Congress?

There are positive elements, but there are other areas where strengthening is needed. Under current law, retirees have been caught by surprise [by a company’s announcement] that instead of being fully funded, there are 40 to 50 percent of assets [still] needed in the plan. That’s one of the things needed to be addressed. [Another is] transparency. The so-called Section 4010 info, which is required to be made non-public — that is exactly the kind of information that would be of interest to retirees and investors and other stakeholders. That was in the Administration’s [pension reform] proposal, but it’s in neither the Senate nor the House bill. The product needs to be something that improves upon current law, not weakens it.

What are your thoughts about the provision in the Senate pension bill that would give special breaks to the airlines?

The Administration opposes special relief for certain industries and companies and supports a consistent set of rules that apply equally to everyone. That would include the airline. What is most problematic about the airline provision is that it extends amortization over 27 years and allows them to use their own assumptions that would be different from those used by other companies. One of the more problematic aspects is the lack of any downside protection for the federal insurance program [that is, the PBGC].

You’ve spoken of the need to take a company’s credit risk into accountant in assessing the overall risk of the pension plan it sponsors. How far along the road does the legislation go toward that goal?

Neither the House nor the Senate go far down that road at all, and that was the Administration’s position. The likelihood of a claim [against a pension plan] is best measured by the credit risk of the plan sponsor. When my 11-year-old daughter turns 16 and gets her license, her insurance rate will be higher than mine — and for very good reasons.