[Senate Hearing 111-685]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 111-685

                      NOMINATION OF JOSHUA GOTBAUM

=======================================================================

                                HEARING

                                 OF THE

                    COMMITTEE ON HEALTH, EDUCATION,
                          LABOR, AND PENSIONS

                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                                   ON

   NOMINATION OF JOSHUA GOTBAUM, OF THE DISTRICT OF COLUMBIA, TO BE 
          DIRECTOR OF THE PENSION BENEFIT GUARANTY CORPORATION

                               __________

                            JANUARY 20, 2010

                               __________

 Printed for the use of the Committee on Health, Education, Labor, and 
                                Pensions


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          COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS

                       TOM HARKIN, Iowa, Chairman

CHRISTOPHER J. DODD, Connecticut      MICHAEL B. ENZI, Wyoming
BARBARA A. MIKULSKI, Maryland         JUDD GREGG, New Hampshire
JEFF BINGAMAN, New Mexico             LAMAR ALEXANDER, Tennessee
PATTY MURRAY, Washington              RICHARD BURR, North Carolina
JACK REED, Rhode Island               JOHNNY ISAKSON, Georgia
BERNARD SANDERS (I), Vermont          JOHN McCAIN, Arizona
SHERROD BROWN, Ohio                   ORRIN G. HATCH, Utah
ROBERT P. CASEY, JR., Pennsylvania    LISA MURKOWSKI, Alaska
KAY R. HAGAN, North Carolina          TOM COBURN, M.D., Oklahoma
JEFF MERKLEY, Oregon                  PAT ROBERTS, Kansas
AL FRANKEN, Minnesota
MICHAEL F. BENNET, Colorado

                      Daniel Smith, Staff Director
     Frank Macchiarola, Republican Staff Director and Chief Counsel

                                  (ii)











                            C O N T E N T S

                               __________

                               STATEMENTS

                      WEDNESDAY, JANUARY 20, 2010

                                                                   Page
Harkin, Hon. Tom, Chairman, Committee on Health, Education, 
  Labor, and Pensions, opening statement.........................     1
Enzi, Hon. Michael B., a U.S. Senator from the State of Wyoming, 
  opening statement..............................................     2
Gotbaum, Joshua, Operating Partner, Blue Wolf Capital, 
  Washington, DC.................................................     4
    Prepared statement...........................................     6
Mikulski, Hon. Barbara A., a U.S. Senator from the State of 
  Maryland.......................................................    10
Brown, Hon. Sherrod, a U.S. Senator from the State of Ohio.......    12
Hagan, Hon. Kay R., a U.S. Senator from the State of North 
  Carolina.......................................................    14
Casey, Hon. Robert P., Jr., a U.S. Senator from the State of 
  Pennsylvania...................................................    16
Franken, Hon. Al, a U.S. Senator from the State of Minnesota.....    18

                          ADDITIONAL MATERIAL

Statements, articles, publications, letters, etc.:
    .............................................................
    Response to Questions by Joshua Gotbaum to:
        Senator Harkin...........................................    23
        Senator Enzi.............................................    24
        Senator Mikulski.........................................    29
        Senator Brown............................................    30
        Senator Isakson..........................................    31

                                 (iii)

  

 
  NOMINATION OF JOSHUA GOTBAUM TO BE DIRECTOR OF THE PENSION BENEFIT 
                          GUARANTY CORPORATION

                              ----------                              


                      WEDNESDAY, JANUARY 20, 2010

                                       U.S. Senate,
       Committee on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:30 a.m. in 
Room SD-430, Dirksen Senate Office Building, Hon. Tom Harkin, 
Chairman of the committee, presiding.
    Present: Senators Harkin, Mikulski, Brown, Casey, Hagan, 
Merkley, Franken, and Enzi.

                  Opening Statement of Senator Harkin

    The Chairman. This morning, we're considering the 
nomination of Joshua Gotbaum to be director of the Pension 
Benefit Guaranty Corporation.
    Now, most American families are facing serious challenges 
in retirement, and I look forward to discussing these issues in 
depth with our nominee today, and also with my colleagues.
    Senator Enzi has been a tremendous leader in the Senate on 
pensions. I look forward to working with him on these issues.
    I want to thank Senator Mikulski, the chair of our 
Retirement and Aging Subcommittee, for her leadership, 
particularly with respect to PBGC.
    Also Senator Burr on this committee has also been heavily 
involved.
    The retirement security of millions of Americans is in 
jeopardy. Fewer than half of American workers have any type of 
retirement plan at work. In the last 25 years, the percent of 
workers with a secure defined benefit pension has been cut in 
half so that today only one in five workers is earning a 
traditional pension.
    Despite these changes, defined benefit pension plans 
continue to play a vital role in providing retirement security 
to millions of workers. The PBGC's role in protecting that 
retirement security is more important than ever.
    The 44 million American workers and their families rely on 
this agency to ensure their hard-earned pensions. This 
insurance safety net is theirs so that workers who have worked 
for a lifetime aren't left with nothing if their company 
pension plans fail.
    Leading this agency is a challenging and important 
responsibility. The director needs to ensure that the retiree 
down the street gets their $400 pension check each month while 
at the same time managing the PBGC's $68-billion fund. 
Moreover, he must be our Nation's leading advocate--under law--
for defined benefit pensions, so he must find a way to promote 
and foster the existence of these secure pension plans.
    Central to this mission is paying retiree pensions. Again, 
these benefits are absolutely vital to retirees. Each month, 
PBGC pays over $370 million in retirement benefits to more than 
750,000 retirees and their families, and this responsibility is 
growing.
    Last year PBGC took over almost 150 plans that covered more 
than 200,000 workers and retirees, and this number will only 
increase in the future.
    What's more, to make sure that there are assets available 
to pay benefits for retirees, the PBGC director must prudently 
manage the agency's investments. PBGC has projected deficits in 
the tens of billions of dollars. Although retirees' benefits 
are in no immediate danger, a sound investment policy is 
absolutely critical to safeguarding their pensions in the long 
run.
    In recent years, the agency has repeatedly changed its 
investment policy, shifting from investing in bonds to 
investing in domestic equities, then returning to bonds, then 
it's shifting back again to equities, as well as a lot of 
alternative investments. Unfortunately, questionable conduct in 
the process of selecting investment managers has thrown PBGC's 
credibility and integrity into question.
    I hope Mr. Gotbaum can tell us how he plans to restore 
trust in the agency and how he will work with the PBGC board of 
directors to establish a prudent and transparent investment 
policy.
    I hope that, Mr. Gotbaum, you can share with us your vision 
for strengthening the defined benefit system. I look forward to 
hearing how you plan to bring your expertise that you have to 
bear to develop ways for the PBGC to work with companies and 
workers to preserve their benefits and, if possible, avoid 
pension failures.
    It will take someone with knowledge, experience, and 
determination to lead the PBGC at this critical time. While I 
don't know you, Mr. Gotbaum, personally, I have read your 
background, and you have strong organizational talents, you 
have a proven track record in government, and a great deal of 
financial expertise. I believe your expertise could be a great 
asset to PBGC during this difficult time, and I look forward to 
learning more about your views today and moving your 
nomination.
    Senator Enzi.

                   Opening Statement of Senator Enzi

    Senator Enzi. Thank you, Mr. Chairman.
    The director of the Pension Benefit Guaranty Corporation is 
one of the Nation's top retirement security officials. Few 
realize that the PBGC is responsible for the backing of 
pensions for 44 million employees and retirees who participate 
in 29,000 private-sector pension plans throughout the country.
    Since the creation of the PBGC in 1974 as part of the 
Employee Retirement Income Security Act, ERISA, the PBGC has 
been the insurance backstop to ensure that thousands of 
retirees and their families receive pension payments even 
though their pension plans are no longer viable. However, the 
PBGC in recent years has been plagued by billions of dollars 
worth of deficits. Back in 2006, more than 90 Senators 
supported the Pension Protection Act to ensure that companies 
keep the retirement promises that they make to their employees. 
That act did help to reduce the PBGC's deficit by more than 
half. Subsequently, the downturn in the market, as well as the 
PBGC's actions to take over 129 underfunded pension plans last 
year, has caused the deficit to shoot above $22 billion. The 
PBGC is a government corporation, but it is not backed by the 
full faith and credit of the Federal Government.
    Since 2003, the Government Accountability Office (GAO) has 
placed the PBGC on its ``high-risk'' watch list, and PBGC's 
placement on this list was one of the reasons we passed the 
Pension Protection Act. Other government-sponsored enterprises, 
mainly Fannie Mae and Freddie Mac, also were on the GAO's 
``high-risk'' list for many years. Unfortunately for Fannie and 
Freddie, the warning signs were not heeded, and today the 
taxpayer is responsible for them. We cannot afford to have the 
taxpayers on the hook and bail out the PBGC.
    Back in 2006, with the passage of the Pension Protection 
Act, we stated that a taxpayer bailout of the PBGC is not an 
option. I think the same holds true today. Any nominee for the 
PBGC director position must be willing to tackle this deficit 
to ensure that the PBGC has the moneys to cover the pension 
payments to the thousands of retirees and their families today, 
as well as many years into the future.
    Today, we are here to review the qualifications of Mr. 
Joshua Gotbaum, the President's nominee to fill the critical 
PBGC director position. Mr. Gotbaum has, three times before, 
been confirmed by the Senate for positions within the 
Departments of Treasury and Defense, as well as the Office of 
Management and Budget. While at the Office of Management and 
Budget, he spent a considerable amount of time working with 
many Federal agencies' chief financial officers and inspectors 
general. In recent years, he has become a ``turnaround'' 
specialist. He helps troubled companies, and at times invests 
in similarly situated companies, to restructure themselves to 
get back in the financial black.
    In light of the challenges facing the PBGC, both in finding 
a solution to pull the PBGC out of the red and in managing the 
large number of pension plans taken over in the past year, Mr. 
Gotbaum's expertise could be quite beneficial as the director 
of PBGC. I look forward to hearing from him about his ideas for 
the agency, as well as his plans for turning the PBGC back into 
the black.
    Mr. Gotbaum, thank you for your willingness to take on this 
big challenge.
    Mr. Chairman, thank you for holding this hearing today.
    The Chairman. Thank you, Senator Enzi.
    Again, welcome, Mr. Gotbaum. We have your written 
testimony. It will be made a part of the record in its 
entirety. I'd ask you to please proceed as you so desire.
    I'd appreciate it if you'd introduce your family members 
who are here. I met them, personally, myself--if you'd 
introduce them, I'd sure appreciate that.

   STATEMENT OF JOSHUA GOTBAUM, OPERATING PARTNER, BLUE WOLF 
                    CAPITAL, WASHINGTON, DC

    Mr. Gotbaum. That would be great, Senator. Mr. Chairman, 
Senator Enzi, thank you very much.
    I'm joined this morning by my wife, Joyce, and my children, 
Emma, Jordan, and Adam, and eventually by my mother, who is on 
her way, but is sufficiently infirm so that getting here is 
slow.
    The Chairman. Oh, I'm sorry to hear that. We await her 
arrival. We'll let you know when she comes in.
    Mr. Gotbaum. Right, thanks.
    Since my written statement is in the record, with the 
committee's permission, I'd like to summarize the points that I 
think are important in considering me.
    First of all, I want to say thank you for considering this 
nomination, and considering it expeditiously.
    We all know that PBGC is going through very hard times. Its 
finances are out of balance; its service, despite improvements, 
continues to disappoint some; its benefit levels frustrate 
others; and the behavior of the previous director has called 
into question, as Chairman noted, many of the agency's actions, 
even some that, if done properly, might have been the right 
thing to do. Also as you noted, Chairman Harkin, despite these 
hard times, the PBGC is needed more than ever, so I'd like to 
talk about my background and how I think it might help.
    I come to the PBGC, obviously, with a very broad range of 
experiences. In my career, I've worked with businesses, 
financial institutions, unions, nonprofits, and government. I 
am not, and I have never been, an expert in a particular 
industry, and I don't come before you claiming that expertise.
    What I am is a problem-solver and a manager. I work to 
bring people together, to face difficult issues head-on, and to 
find solutions that everyone can live with. That is why, when I 
met with your staff, I talked about ``I'm a workout guy.'' That 
doesn't mean that I don't have views about what the right thing 
to do is, but that, at the end of the day, what's important is, 
we find something that actually advances.
    I've worked throughout the Federal Government, I've worked 
in the White House, I've worked briefly in the Senate, on the 
Senate Budget Committee, and worked in a number of Cabinet 
agencies. I've worked on an economic policy, an energy policy, 
an environmental policy; but, I think, equally important since 
you're considering me for a management position, I've also 
worked on procurement, I've worked on regulation, and I've 
worked to maintain the government's financial integrity. I've 
worked across agency lines and with the Congress on problems as 
diverse as disaster relief, housing, civil rights, and 
terrorism, just to name some of the areas I have been involved 
in.
    Can we hold for a second?
    Senator Mikulski. Well, I broke my ankle a couple of months 
ago. I know what it's like to have one of those devices and go 
a little bit slower. That's OK.
    [Pause.]
    Mr. Gotbaum. Thank you. With the committee's permission, I 
would like to also introduce my mother, Sarah Gotbaum.
    The Chairman. We just literally started, and we had our 
opening statements, so you didn't miss anything there.
    [Laughter.]
    Your son has just started his testimony.
    Mr. Gotbaum. I've started my testimony, and I'm a third of 
the way through, and you didn't miss anything, either.
    [Laughter.]
    Inside the government, I've worked on a very broad range of 
issues, and also how to manage and get things done, and I think 
that matters.
    Outside the government, I've been a financial adviser to 
businesses, governments, and unions. I've helped them work 
through major transitions.
    I've been on both sides of the bargaining table. I've 
helped both unions and management work through hard times in 
industries like steel--yes, I've been to Sparrows Point--
airlines, and other industries.
    After September 11, I became the first CEO of the September 
11 Fund. By working with dozens of nonprofits, I'm proud to say 
we helped more than 100,000 to recover and to rebuild their 
lives. I think equally important for this committee and for the 
questions of public accountability, we did so in ways that set 
a higher standard for accountability of charity action than 
anyone had ever seen.
    Since then, as Senator Enzi noted, I've worked with 
businesses in distress. As trustee for Hawaiian Airlines, I led 
a team of 3,500 people. It was not easy, and there was plenty 
of controversy. But, Hawaiian came out of bankruptcy a better 
and stronger airline. Our creditors got 100 cents on the 
dollar. Our stockholders got gains instead of losses. Our labor 
contracts had raises instead of pay cuts. The pension plan, I'm 
very pleased to say, is intact.
    If confirmed, I would work--I guess I should step back and 
say, there is always a question, when someone says, ``I am a 
workout person. I want to negotiate a consensual approach 
because I think that's the only way to advance.'' Well, then 
the question is, ``Well, but are there no principles by which 
you operate?'' I want to be very clear for this committee, 
there are. If confirmed, I would work to implement the PBGC's 
mission, guided by some, what I consider to be, bedrock 
principles:

    One is that retirement security is essential and that 
defined benefit plans, which for many people are the best way 
of achieving it, have to be preserved.
    Second, that the PBGC cannot choose between meeting the 
standards of industry or investment and meeting the highest 
standards of government. It's got to do both.
    Third, that the PBGC needs to provide its services with a 
sense of compassion.
    Fourth, that we must address the critical issues facing the 
PBGC, such as funding relief, investment policy and the 
deficit, directly and realistically.
    And last, but certainly not least, that working with the 
Congress and other stakeholders is essential to doing so. There 
is no task that the PBGC has that it can do alone. None.

    I'd also like, given recent history, to re-emphasize one 
point. I've worked in business, nonprofits, and government. 
There are lots of similarities in them, but public service is 
different. The standards of public procedure are different, and 
the standards of public ethics are higher. I've committed to, 
and met, those standards in three different administrations, 
and I'm making that same commitment now. I want there to be no 
question about that.
    If confirmed, I would, of course, focus on the agency's 
management and organizational challenges, trying to provide a 
steady hand and independent judgment to resolve them, and, 
through creative management, to encourage and enable very 
professional PBGC staff--and it is a very professional staff--
to do even more to provide the assurance of retirement security 
that is their job and their mission.
    The Congress has entrusted the PBGC--as both you, Mr. 
Chairman, and Senator Enzi talked about with very important 
responsibilities, protecting the pensions of 44 million people 
and asking the PBGC to be an advocate for retirement security 
on behalf of all of us. But, let us recognize that there is no 
universally accepted plan for how to advance this mission or 
for confronting these issues. There is no consensus.
    If you confirm me, I will view it as my job to work for 
developing those consensus. Reaching those consensuses is going 
to require agreement--engagement, creativity, and compromise on 
the part of the Congress, on the part of the administration, 
and other stakeholders. It's going to require both principles 
and practicality. But, I'm a workout guy, and if you confirm 
me, I would be honored to help.
    I'll leave the rest of my statement to the record, and I 
just want to thank the committee for both holding this hearing 
and for moving on my nomination as expeditiously as you have. I 
look forward to hearing more about your views and to answering 
any questions you have.
    [The prepared statement of Mr. Gotbaum follows:]
                  Prepared Statement of Joshua Gotbaum
    Mr. Chairman, Senator Enzi, members of the committee, thank you for 
considering my nomination.
    I am joined this morning by my wife, Joyce; our children, Emma, 
Adam, and Jordan; and my mother, Sarah Gotbaum. All of us have or will 
benefit from defined benefit pension plans.
    We all know the PBGC is going through hard times--just when it is 
needed more than ever. Its finances are out of balance. Despite 
improvements, its service continues to disappoint some; its benefit 
levels frustrate others. The behavior of the previous Director has 
called into question many of the agency's actions, even some that done 
properly might be the right thing to do.
    The leadership of this important agency matters now perhaps as much 
as any time since its founding.
    Let me start by explaining how my background and experience could 
help the PBGC meet its critical challenges.
    I would bring to the PBGC a broad range of experiences. My career 
has involved businesses, financial institutions, unions, non-profits, 
and government. Rather than being an expert in a particular industry, 
my skills are those of a manager and problem solver: I work to bring 
people together, to face difficult issues head-on and find consensus 
solutions to complex problems--solutions that respect all the 
stakeholders and that everyone can live with.
    I have worked throughout the Federal Government, in the White House 
as well as the Senate and five cabinet agencies. As a senior official 
at the Defense Department, I participated in and helped improve 
procurement decisions. At the Treasury Department, I helped coordinate 
the boards overseeing Social Security and Medicare trust funds. In 4 
years at the Office of Management and Budget, I helped guide and 
coordinate the inspectors general and CFOs across the government; I 
also was repeatedly called upon to craft solutions to complex problems 
that crossed agency lines, problems ranging from disaster relief to 
civil rights to counterterrorism. I worked on economic policy and 
regulatory matters in two administrations and, early in my career, in 
the White House; for Senator Gary Hart in the Senate Budget Committee; 
and in the Departments of Energy and Transportation as well.
    I went into the private sector in the 1980s. For more than a 
decade, I helped businesses, governments, and unions solve problems. I 
helped companies acquire other companies or be acquired themselves, 
raise funds or restructure the funds they'd already raised, and work 
through the complex, thorny issues of bankruptcy or out-of-court 
reorganization.
    After September 11, I became the first CEO of The September 11th 
Fund. I built the team that was entrusted with more than $500 million 
to help the many victims of that tragedy. I'm proud to say that we 
helped more than 100,000 to recover: people, small businesses, and 
nonprofits who had lost their families, their jobs, their workplaces, 
or their homes. We did so in ways that set new standards for public 
accountability.
    Since then I've worked with businesses in distress. I was appointed 
Trustee for Hawaiian Airlines, replacing the CEO removed by the 
bankruptcy court. Despite the challenges, we exited bankruptcy 
successfully: the company was profitable, with an enhanced reputation, 
expanded service, new labor agreements, and 100 percent repayment of 
creditors--all without terminating the company's underfunded pension 
plan.
    I have also led and managed in business, in non-profits, and in 
government. I've set strategy, hired and fired, committed capital and 
reputation, and engaged with board members, budget officers, overseers, 
critics, customers and clients. I know that every one of these 
responsibilities is handled differently in the public service. The 
ethical standards are higher. Having served in government--in three 
Senate-confirmed positions--I understand that I cannot ask for your 
confirmation without committing myself to meet those standards of 
accountability and ethical public service. I made that commitment in 
three previous administrations and I do so now.
    If confirmed to lead the PBGC, I would work with stakeholders and 
staff to develop a workable consensus with respect to the agency's 
policies and programs. Several principles would guide me:

     That retirement security is essential and that defined 
benefit plans--which for many are a better way to achieve it--must be 
preserved;
     That the PBGC cannot choose between meeting the 
professional standards of industry and highest standards of government. 
It must do both;
     That the PBGC should provide its services with a sense of 
compassion;
     That we must address the critical issues facing the PBGC--
such as funding relief, investment policy, and the deficit--directly 
and realistically; and
     That working with Congress and other stakeholders is 
essential.

    If confirmed, I would of course address the agency's management and 
organizational challenges. My view of the role would be to provide a 
steady hand and independent judgment to help negotiate and solve 
complex problems and, through creative management, to encourage and 
enable the very professional PBGC staff to do so. We would work with 
the diverse constituencies to determine what each wants, what 
compromises they're willing to accept, and then develop approaches they 
can support.
    Congress has entrusted this agency with important 
responsibilities--protecting the pensions of more than 40 million 
people--and asked it also to serve as an advocate in deliberations on 
retirement security for all of us. However, there is no universally 
accepted blueprint for advancing the PBGC's mission, or for confronting 
the many issues the PBGC faces. Reaching agreement on these issues will 
require the engagement and acceptance of the Congress, the 
Administration, and many others with interests in retirement security. 
It will require both principles and practicality, creativity and 
compromise.
    If confirmed, I would be honored to join with the PBGC, the 
Congress, and all those for whom retirement security is so important, 
to help the PBGC overcome its challenges and implement the goals we 
share.
    Thank you for the opportunity to appear before you today. I look 
forward to hearing more about your views and answering your questions.

    The Chairman. Thank you very much, Mr. Gotbaum, for a very 
concise, well-versed presentation.
    We'll open our 5-minute rounds of questioning now.
    As I said to you privately before we started our hearing, 
that one of the missions--and you mentioned it also in your 
testimony--is that the mission, as stated in law, is how the 
PBGC is to promote the development and enhancement of defined 
benefit plans. I would like to know a little bit more about how 
you see that role.
    I think there has been a tremendous erosion, over the last 
25 years--probably more--of defined benefit plans. We've seen 
them being eroded. More and more people, in different forms of 
retirement savings, are now finding out that it wasn't all that 
they thought it was going to be. We talk about those that had 
their money in WorldCom or in Enron and all those other things, 
and then all of a sudden the retirements are gone. Those 
weren't defined benefit plans--so, what do we do? What can the 
PBGC do to really promote defined benefit plans, get the public 
more aware of them, and get businesses on board, and perhaps 
turn this thing around a little bit?
    Mr. Gotbaum. Well, Senator, this is obviously a very 
essential question, and a part of the agency's mission. Since I 
am new, I'm going to give you some thoughts, and I hope that 
will not preclude me from coming back with additional ideas, if 
and when you confirm me.
    I think part of the issue involving defined benefits plans 
is education, in that people need to understand why they are 
helpful, why they matter. That is, when you're talking about 
something as complicated in pensions, its own challenge. I 
can't tell you exactly what the best ways are to advance that 
understanding. Clearly, it involves clarity in communication 
and working with plan sponsors and others, as well. One is 
clearly education and communication.
    Another, to be blunt, is that we have to find a way to re-
assure plan sponsors that they're not going to be penalized for 
having a defined benefit plan. I feel that defined benefit 
plans are, for many people--I can't say whether it's most or 
not--but, for many people, far better than the alternatives. As 
this committee knows very well, because you're now involved in 
the issues of funding relief and other issues, etc., that plan 
sponsors often feel that they are getting no credit for having 
done the right thing. One of the tasks that I think the PBGC 
has--and it's a task that will clearly involve engagement with 
the Congress and others--is to make sure that the employers who 
offer defined benefit plans are comfortable that they can 
continue to do so without risking their larger enterprise. 
Because, while we all agree that the interests of retirees are 
very, very important, if we ask corporations, businesses, to 
choose between their retirees and the survival of the business, 
we will convince them that maybe this is a choice they 
shouldn't choose to make.
    I think a second task is to figure out what's the best way 
to protect security, to make sure that people can sponsor 
defined benefit plans in a way that is consistent with the 
other things that they have to do.
    I think if we could do those two things, then I think we 
would make a real advance.
    The Chairman. Very good. Thank you very much, Mr. Gotbaum.
    Senator Enzi.
    Senator Enzi. Thank you.
    A lot of people probably don't realize that this committee 
passes more legislation than virtually any other committee. 
We've already passed national health service and tobacco 
regulation, and we're on the way to passing food safety 
legislation and, hopefully, workforce training legislation, in 
a very short period of time here. That's more than most 
committees will do in a 2-year span. One of the reasons that we 
do that is, we have a good working relationship between the 
majority and the minority, both Senators and staff. This is a 
question that I always ask of people, and that is, if 
confirmed, would you pledge to cooperate in this type of a 
working relationship with all Senators on the committee, 
Democrat or Republican, by promptly responding to any written 
or phone inquiries, sharing information as soon as it becomes 
available, and directing your staff to do the same?
    Mr. Gotbaum. Yes.
    Senator Enzi. Thank you. That's the kind of answer that I 
really like to hear, too.
    [Laughter.]
    Mr. Gotbaum. May I elaborate for a second, Senator?
    I wanted there to be no qualifications on that answer.
    Senator Enzi. Yes.
    Mr. Gotbaum. The issues that the PBGC faces, as you all 
know very well, are very complicated. They involve a series of 
interests. Anyone who's been involved with pension knows these 
are interests which are all-important; there's no trivia and no 
trivial position. They cannot get solved by a particular 
program or principle being applied blindly; they all require 
engagement, compromise, consensus. That's part of the reason 
why I'm interested in the position. That's part of the reason 
why I can say to you, with no qualifications, that since the 
Congress is--both parties, and both houses--essential to 
resolving any of the issues we're going to talk about, that, 
yes, of course I will engage.
    Senator Enzi. I appreciate that.
    We had some difficulties when we were doing the Pension 
Protection Act before and even noted some comments from the 
Administration, particularly the Department of Labor, that 
there were things that they didn't know about. Open 
communications will help to prepare us all for whatever 
decisions have to be made.
    Incidentally, on the Pension Protection Act, that came 
through committee, and when it went to the floor, we had 1 hour 
of debate, two amendments, and the final vote. And on that 
piece of legislation, over 1,000 pages--that's kind of unique 
around here. But, with your cooperation, we'll be able to do, 
hopefully, the things that need to be done.
    Now, back in the mid-1990s, when you were at the Treasury 
Department, you authored at least one, and possibly more papers 
on Fannie Mae and Freddie Mac. At that time, the possibility 
that these two entities would end up in Federal receivership 
appeared remote, but some argued that they still posed a 
systemic risk to our system. Today, as we all know, the 
American taxpayers own both those entities. As the PBGC is on 
the GAO's ``high-risk'' list, it's clear that its deficit can't 
be ignored. What are your plans to reduce that PBGC deficit?
    Mr. Gotbaum. Senator, this is obviously a large and 
important question. My short answer is, we're going to have to 
work on it, and we're going to have to work on it together.
    One of the facts is that very little of what affects the 
PBGC deficit is actually under the control of the PBGC. The 
PBGC does control investment policy, but it doesn't control 
investment results. It can choose to terminate a pension plan, 
in extreme circumstances. I'm sure it does so reluctantly, 
since it ought to be a last resort. Sponsors can also 
voluntarily terminate. The PBGC has, within itself, a limited 
ability to affect its deficit.
    The Congress controls premiums, controls benefit levels, 
and reserved for itself the decisions on those. That's entirely 
appropriate, but it means that there can be no resolution of 
anything like the deficit without the Congress being involved.
    I'd also say that private companies, plan sponsors, and the 
IRS affect the deficit, because they control funding 
limitations, funding waivers, etc. I think the way I would 
propose to engage on the deficit is to engage with the 
institutions--all the institutions that can affect it, and see 
what compromises we can achieve and when we can achieve them.
    Senator Enzi. I think your educational approach is real 
good. Just a quick follow up question. Do you agree that the 
PBGC is not backed by the full faith and credit of the Federal 
Government?
    Mr. Gotbaum. Senator, I haven't actually looked at the 
question legally, but if you say it, I'm sure that it's true.
    Senator Enzi. OK, thank you. My time's expired.
    Thank you.

                     Statement of Senator Mikulski

    Senator Mikulski. Thank you, Mr. Chairman.
    Mr. Gotbaum, we want to welcome you to the hearing, and we 
also want to welcome your family.
    You come with a considerable background in public and 
private service. We really need a competent, honest, 
trustworthy CEO of the Pension Benefit Guaranty Corporation.
    Your predecessor lied to us, lied to me, screwed me and my 
constituents around with answers and letters. We're pretty 
jazzed, in both Maryland and in the Congress, about our 
relationship with the Pension Benefit Guaranty Corporation.
    Your predecessor promised that there would be 
communication, just as you promised Senator Enzi. I believe 
you're a gentleman. I believe you're an honorable man. We're 
going to take you at your word. We need someone who brings 
integrity, who really needs to talk with us about the 
investment strategy. We need someone with competence, in terms 
of both his performance and competence of the people who work 
for them; and we need real communication.
    In the area of integrity, I've told you how we were lied 
to. With your predecessor, we got this mealy-mouthed thing 
about how, ``I was in the Peace Corps and I'm a good guy.'' I'm 
not going to look back; I'm going to look at now, and look 
ahead.
    I'm very concerned, joining with my colleagues, that 44 
million workers are at stake. You've got $70 billion to invest 
in their behalf. There is now a $20-billion deficit. We've got 
a really big job.
    Which then takes me to the concept of the investment 
strategy. Your predecessor wanted to go into a more high-risk, 
high-return way. My question to you is twofold:

    No. 1, you have a board made up of the Secretaries of 
Treasury, Labor, and Commerce. How do you intend to revitalize 
this board, who, at best, was lackluster in their oversight and 
due diligence.
    And, No. 2, could you share with us your views on the 
investment strategy to deal with meeting our responsibility so 
that we don't end up with an unfunded Federal liability?

    Mr. Gotbaum. Let me first start with the issue of 
integrity. I don't know the previous director; I've never met 
him. Unfortunately, it sounds like he said the right things, 
and therefore, it raises the question, If I say the right 
things, am I that guy? I'm not. I've lived half my life in the 
public service, I understand the standards of ethics, and I 
carry those same ethics in everything I do. I've been evaluated 
by GAO, by inspectors general, by the bankruptcy court, by the 
attorney general of the State of New York, and most of them 
would say, ``Yes, he's very straight.'' And I am, in the old-
fashioned sense of the term.
    Senator Mikulski. Good.
    Mr. Gotbaum. As to the board, I haven't been inside either 
the administration or the agency; that would not be right. The 
impression I get, from what conversations I have had, is that 
it isn't just the Congress that the agency has not been talking 
to and with, historically. I view my role--and maybe it's 
because I am a workout guy, or maybe it's because I have worked 
across agency lines for so much of my public life--but, I think 
part of the way you get better government is to not let 
bureaucratic walls stop you from engaging with people who have 
something to contribute.
    The way I would ensure that the agency governance works is 
to make sure that there is active involvement on the part of 
the agencies that are involved, plus the others.
    Senator Mikulski. Well, I appreciate that. But, let me just 
say this. We've had three board members. I don't know what kind 
of attention they've paid. I don't know what they've done. They 
didn't seem to be very aggressive in their oversight role. 
We'll look forward to hearing from you about what their 
participation should be and whether the nature of the board 
should be changed.
    Could you move on to the investment strategy focus?
    Mr. Gotbaum. Sure. Sure.
    I have a lot views on the investment strategy, so let me 
try to summarize them.
    One is, obviously the investment strategy is ultimately a 
board decision, and it's one that ought to be made in the 
sunlight and, therefore, with consultation with Congress. I 
think if you confirm me, it's going to be my job to help drive 
a decision that is sensible and defensible and consistent with 
these views. My first requirement is, we need to get an 
agreement, and we need to get an agreement in a way that is 
public and is understandable and is defensible.
    Different people have different views as to what the 
investment policy ought to be. There are some people who focus 
on the fact that the PBGC is like an insurance company and say, 
``You ought to think about the investment practices of an 
insurance company.'' There are other people who focus on the 
fact that the PBGC is insuring pension funds and say, ``Maybe 
you should either be like a pension fund or actually hedging 
against the performance of pension funds.'' There are others--
--
    Senator Mikulski. Well, what is your view?
    Mr. Gotbaum. If I may?
    Senator Mikulski. Because my time is up.
    Mr. Gotbaum. Oh. Sorry.
    My view is, they are all right, and therefore, we are not 
going to, by some cookie-cutter menu, going to answer this 
question.
    I will say, I think there needs to be a mix of investments. 
I do not think the Pension Benefit Guaranty Corporation can be 
turned into a government-run hedge fund.
    I also think that neither can it be turned into the U.S. 
Treasury and only invest in treasuries.
    I don't think you can do either of those, and I don't think 
you should.
    What I do think you need to do is, from the options in the 
middle, figure out which ones make sense. Come and consult, and 
do them.
    One more thing--and I apologize for taking so long to 
answer this, but it is an important question--the other 
challenge, vis-a-vis investment policy, is not the policy, it's 
implementing it in a way that's consistent with public ethics, 
public procurement. That's also what I would hope to do.
    Senator Mikulski. Well, first of all, thank you for the 
answer. What you're saying is, you want to get in there and 
look at it.
    I think this committee, and certainly our subcommittee, 
wants to work on a bipartisan basis to hear your views and the 
direction that we're going in, because it is about prudence, 
but it's also about return. The PBGC is running a deficit. We 
are concerned about it. There are many other issues we could 
discuss, like Bethlehem Steel, where we were told the pension 
fund was OK, then it wasn't. The fund was turned over to the 
PBGC. Then people got their pension. Then they're told the 
government made a mistake in their calculations, and then 
people had to give their money back.
    I want to talk with you about Bethlehem Steel. But we'll 
have to do that on another day. I know my colleagues are 
waiting.
    My main concerns are whether the PBGC's board functions, 
whether you can function with Congress and live up to your 
responsibilities, and what is the PBGC's investment strategy, 
so that we're all in concurrence with it.
    Thank you very much, and I look forward to working with 
you.
    Mr. Gotbaum. Thank you, Senator.
    The Chairman. Thank you, Senator Mikulski.
    Senator Brown.

                       Statement of Senator Brown

    Senator Brown. Thank you, Mr. Chairman.
    Mr. Gotbaum, welcome. And, to your family, welcome.
    All of us on this committee have--especially those of us 
from States that have large numbers of people with defined 
pension benefit plans--recognized the importance of the PBGC. I 
so appreciate Chairman Harkin's comments about the importance 
of defined pension benefits. It's a commitment made to millions 
and millions of people that have been undercut. It's troubling 
to so many of us. I can't count the number of times that I have 
been, not just to a steelworkers' hall, but a veterans' hall at 
my church in Lorain, at grocery stores where people, union and 
nonunion alike, thought they were retiring on $2,800 a month; 
they had negotiated, or not negotiated, in nonunion-workers' 
cases, given up wages for the future--given up wages for the 
present for these so-called ``legacy costs'' that some of my 
colleagues belittle, which is incomprehensible to me. These 
people--as Senator Mikulski points out--thought they were going 
to get $2,800 a month, then they were getting $1,500 a month, 
or less, from PBGC, and then they find out they owe money to 
the government, or to PBGC, because they were overpaid.
    There's an arrogance about that. I empathize. I know that 
these demands are huge on PBGC, but there was an arrogance, in 
the prior administration of PBGC, that--and you don't strike me 
as an arrogant man--but that simply can't hold.
    Now, my question is, these retirees, not just, as I said, 
faced these significant reductions; they found themselves owing 
overpayments; you mentioned providing services with a sense of 
compassion--how do you do that in these cases?
    Mr. Gotbaum. Senator, not having been there, I can't tell 
you exactly what changes would make sense, if any. So, I'm 
going to have to talk in general terms.
    When I've gone into an institution--when I went into 
Hawaiian Airlines, other institutions, when I went to the 
September 11 Fund--I've always found two things. One is, there 
are lots of good people doing their job. And two is, there are 
always ways to do things differently, that you have to 
consider.
    What I would hope is--and the issue that you talk about, 
which is, What do you do when you are simultaneously trying to 
get an answer quickly, and then, after the fact, discover that 
that answer wasn't right?
    Senator Brown. Because you didn't have all the facts, 
oftentimes.
    Mr. Gotbaum. Yes, right.
    Senator Brown. I empathize with that position and 
understand why it happens. The question is, How do you do that 
in a way that makes it a little bit easier on those families?
    Mr. Gotbaum. Well, as I say, I haven't been there yet, but 
what I would like to see is, Are there ways to work out 
correction of the error over time? Are there errors which you 
can, without impugning the financial integrity of the PBGC, 
accept that it was your error? Those are the areas that I would 
look at.
    This is obviously a thorny and difficult problem, because 
it gets to--as everything else involving the PBGC, people whose 
lives are dependent, on both sides. You have the immediate 
person involved, and you have the integrity of the institution, 
long-term, on both sides.
    What I'd do is, I'd want to make sure that people engage. 
I'd want to make sure that people do so with a sense of 
compassion; that they actually meet the people that they're 
working with.
    Senator Brown. We expect that from you.
    Mr. Gotbaum. Yes.
    Senator Brown. OK. Second question is, as I addressed to 
you privately, quickly, before the testimony started, the 
Delphi situation, which is one of the most intractable and 
difficult and hurtful, if you will, situations, and maybe one 
of the most complex in PBGC's history, you've indicated you 
have a potential conflict of interest and won't participate in 
decisions involving the Delphi plans. If you can't--this is a 
serious concern to those of us that have large numbers of 
Delphi employees or former employees, and many of us do--
participate in Delphi matters, how can you tell us and ensure 
that Delphi plans are managed appropriately, and with accurate 
and timely and compassionate communication with those retirees, 
which your predecessors haven't really done very well?
    Mr. Gotbaum. As we've discussed, as discussed in my ethics 
agreement, in order, frankly, to preserve the absolute 
integrity of the agency, I have to recuse myself from decisions 
involving Delphi. I'm happy to explain why.
    Senator Brown. Well, but I guess the question is, Why 
should we confirm you if you're taking yourself out of 
something so important?
    Mr. Gotbaum. Because there is much more to the actions of 
the PBGC, even involving the Delphi retirees, than just the 
decisions to terminate the plan or not terminate the plan. When 
I talked about making sure that the agency deals with people in 
a way that is compassionate, because this is, in some respects, 
a service business, one thing I can do as PBGC director is make 
sure that, for Delphi retirees or anyone else, that the agency 
is doing what it can, that it's being responsive, that it's 
recognizing the fact that people come to the PBGC at a time of 
tragedy--and we don't sugar-coat this; it is tragedy--and that 
we have to be as responsive to them as, frankly, I hope my 
grantees of the September 11 Fund were to the victims of 
September 11, that we have that kind of compassion. That, as 
PBGC director, I can do.
    Senator Brown. OK. Thank you.
    The Chairman. Senator Hagan.

                       Statement of Senator Hagan

    Senator Hagan. Thank you, Mr. Chairman.
    Out of all the positions that are available, for 
nomination, I think yours, right here, is probably one of the 
toughest jobs. I applaud you for accepting this nomination.
    Since inception, it appears that the PBGC has been in a 
deficit mode for quite a number of years, with the exception 
of, I think, 4 or 5 years, and I understand it's probably at 
about a $22 billion projected deficit right now. People who 
work their whole life are counting on their pensions, as we all 
know. You said it's a tragedy whenever something like this 
happens.
    When we're talking about investment strategy, I think 
that's going to be crucial to look at this deficit, as well as 
the ongoing maintenance and payments to the retirees.
    As part of your investment strategy--and I know there's an 
advisory committee--can you tell me how you're going to get 
input, how you're going to help make these decisions? Because I 
do think it is absolutely critical.
    Obviously, what sort of components would you report back to 
us?
    Mr. Gotbaum. Thank you, Senator.
    This is obviously, as I mentioned before, something that is 
larger than the PBGC itself. Maybe by background, but maybe 
just because it's the only way it can actually get done, we're 
not going to resolve the deficit issue, we're not going to 
resolve the investment issues, etc., unless and until we all 
work together.
    My view of my role, if you confirm me as PBGC director, is, 
in fact, to engage with the advisory committee, the board, the 
Congress, the relevant constituencies, and my, I hope, future 
colleagues at the PBGC and to raise up and force some of the 
choices we have. The investment policy is clearly important, 
and no one should deride that, but it is--I believe most people 
would say that the best investment policy in the world will not 
solve all the challenges that the PBGC faces. Although the 
investment policy is within the agency, the other issues--how 
should premiums be determined, how should benefits be 
determined, what should the process be for funding relief, 
etc.--those are all outside the agency. My M.O., if you will, 
would be to try to work those out, and work those out 
collectively. I don't think there's an alternative.
    Senator Hagan. Are you going to provide advice on what you 
think those alternatives and recommendations will be?
    Mr. Gotbaum. Yes, ma'am.
    Senator Hagan. OK.
    Mr. Gotbaum. But, informing that advice.
    Senator Hagan. Do you have those right now? I mean, do you 
have some thoughts on how to maintain the solvency, going 
forward?
    Mr. Gotbaum. Some. Some, Senator.
    Senator Hagan. Can you share those with us?
    Mr. Gotbaum. Oh, absolutely.
    Senator Hagan. OK.
    Mr. Gotbaum. Senator Mikulski asked the question of, What 
should the right investment policy be? I think part of the 
issue is, in general, what would an ideal investment policy be 
for the many objectives that you have placed on the PBGC? Part 
of the issue is, What investment policies and practices is the 
PBGC competent to execute? Part of the reason why I said that I 
don't think the PBGC should be a hedge fund is not because the 
world can't live with hedge funds--that's not it--but because I 
don't think a government agency can do so, or should try.
    Senator Hagan. I agree with you.
    Mr. Gotbaum. OK. But, the fact is, we do have to. I think 
that there has to be some mix of fixed-income investments and 
equities.
    Senator Hagan. Right.
    Mr. Gotbaum. I do not think--although there are plenty of 
people who, very honestly and for perfectly good reasons, say, 
``You should be entirely in treasuries,''--my personal view 
would be that that is too conservative, and that would make the 
deficit problem worse. I would search for a mix. I would search 
for a mix that the PBGC--as a government agency, operating to 
the standards of a government agency--can handle and manage. 
That's, by the way, the reason why I think that, even after we 
get into the investment strategy--from my perspective--at least 
as hard, is going to be making sure that we implement whatever 
investment strategy is agreed upon in a way that gives 
everybody confidence in the agency rather than undermining it.
    Senator Hagan. How are you going to increase the 
transparency of these investment decisions and the advisory 
committee's recommendations?
    Mr. Gotbaum. Senator, I can't tell you now, because I 
actually don't know what the practices are. Let me talk about 
what I've done in other circumstances, because that may be 
useful.
    When we started the September 11 Fund--the September 11 
Fund was a charity jointly founded by United Way and the New 
York Community Trust. It was, after the Red Cross, the largest 
single September 11th-related charity. More than 2 million 
people contributed, almost a million businesses, small 
businesses and large, and a lot of foundations. And we said, 
``That's an awful lot.''
    There was much confusion. People weren't sure who was 
getting help, people weren't sure who needed it, etc. What we 
said was, ``We've got to do this in a way that fits new 
standards for transparency.'' So, we did something that most 
other organizations have never done, which is, every single one 
of our grants was disclosed the day it was made. In other 
words, we said, ``Today, the September 11 Fund is giving $50 
million to Safe Horizons to meet the immediate financial needs 
of the victims and their family. Today, we provided X amount to 
help people recover their jobs,'' etc. So, one thing we did was 
that.
    Second, I had, not just my board, I had the United Way's 
board and the New York Community Trust board, and we reported 
to them continually and consistently.
    I can't tell you what the exact means would be, but the 
fact is, this is all going to require a lot of consultation. 
This is not something that anybody can do in the dark. I would 
think that would be true even without the recent history, but, 
given recent history, we aren't going there.
    Senator Hagan. Well, obviously we have a lot more 
questions, too, but I believe my time is up.
    Thank you.
    Mr. Gotbaum. OK.
    The Chairman. Senator Casey.

                       Statement of Senator Casey

    Senator Casey. Thank you, Mr. Chairman.
    I want to thank the nominee for his willingness to serve 
the public again. We're grateful, Mr. Gotbaum.
    We're wrestling, I think, with a challenge that we see 
across the country. This isn't just a challenge faced by the 
Pension Benefit Guaranty Corporation, it's--for example, my 
home State of Pennsylvania, we have two, I should say, public 
pension funds, one for teachers and other educators, as well as 
State employees, both plans facing, in combination, a 
multibillion-dollar deficit, the resolution for which--or, the 
solution to that funding gap isn't on the table yet. No one has 
a solution, as far as I can tell, but they have to come up with 
one. This is something both States and the Federal Government 
is facing.
    I guess I have two basic questions. I know you addressed 
questions about the deficit and others, but the two basic 
questions I have are: Do you have a sense as to how we can 
better recognize, ahead of time, plans that have particular 
problems, so that we can recognize them early enough and have 
some kind of early warning system in place, and thereby maybe 
prevent a failure? And the second question relates to, kind of, 
short-term funding relief.
    Could you address the ``early-warning'' or ``recognizing-
early'' question?
    Mr. Gotbaum. The interesting challenges, hardest 
challenges, for the PBGC is that they're called on to do their 
hardest work when plans fail, and they don't know when plans 
are going to fail. They often don't control when plans are 
going to fail. My understanding is that the agency has actually 
just recently changed its reporting requirements on pension 
plans, in an attempt to get some early warning. Sounds to me 
like they're trying to do exactly what you suggest, which is--I 
can't say that I know the details of it, and I definitely can't 
tell you that I know that it's enough.
    Part of what I hope to do in the agency is think about, 
work with, and then engage with the Congress to make sure that 
there is a match.
    One of the agencies I look at is the FDIC, which has a job 
which, in part, looks very much like what the PBGC does. When 
your bank fails, the FDIC steps in and says, ``We're going to 
make sure that you're whole. Don't worry.'' In order to do 
their job, they have the tools to keep track, they have the 
tools to make sure that this obligation doesn't come up and 
surprise them.
    I don't know whether the PBGC has enough of those tools, 
but that would be how I would think about it.
    Senator Casey. Part of the question would be, both 
statutory authority plus resources.
    Mr. Gotbaum. Yes, it could be either one. What I've always 
found is, as I said earlier, when you go into an institution, 
you find two things. No. 1 is, you find good people trying to 
do their jobs. And No. 2 is, you find that there are alternate 
ways of doing things, that haven't been tried, and so you've 
got to try them. Some of them involve changing procedures, some 
of them involve changing resources, some of them involve 
changing people, some of them involve changing just 
accountability. I don't want to be presumptuous enough to say I 
know what the mix is, but those are the sorts of things that I 
would try to do.
    On the short-term-funding question, which is a really 
important question, and one which, I suspect, if you confirm 
me, will bring me back up here relatively quickly--this is 
something on which there is not a cookie-cutter solution. Every 
case is different. Part of the reason why people who want 
short-term relief are coming to the Congress is because the 
current administrative procedure for providing funding relief 
is a long way from perfect and flexible.
    As it happens, I've actually applied for funding relief. 
When I came to Hawaiian Airlines, since this is an important 
issue, can I spend 1 minute on it? When I came to Hawaiian 
Airlines, I--when you start into bankruptcy, the company was 
losing money, we weren't sure how much cash we would have, and 
etc. One of the first decisions I made, in order to preserve 
cash, was to go to the bankruptcy court and ask the court for 
permission not to make my September 15 pension contribution. 
And it was a terrible decision. The pilots' union, whose 
pension plan it was, were outraged, entirely legitimately, 
because pensions for pilots are their life and their security. 
It was a terrible decision to make.
    Ultimately, the judge decided that, since we were not sure 
what Hawaiian's finances were and we wanted to make sure we had 
enough cash to protect the whole company, the judge said, ``OK, 
you can defer the pension plan, for the moment. You can defer 
the pension contributions, for the moment.'' We're still paying 
benefits, etc. That was a miserable, difficult decision. Every 
single one of these funding decisions is.
    That's the reason why it matters. I know we'll be back to 
discuss it. That's also the reason why I would hope, once I 
understand more about the process, that we might be able to 
discuss whether there are improvements in the administrative 
process, the process within the executive branch, to make that 
more responsive so that people aren't forced to come to Capitol 
Hill and clog up your committee.
    Senator Casey. Thanks very much. Thanks for your family's 
commitment, as well. We know that families have to be committed 
to public service, too.
    Thank you.
    The Chairman. Senator Franken.

                      Statement of Senator Franken

    Senator Franken. Thank you, Mr. Chairman.
    I apologize for just getting here a few minutes ago. I was 
in another hearing, a Judiciary hearing, about follow up to the 
December 25 bombing attempt.
    This is an extremely important issue to me, and is to 
everybody in the country. I represent Minnesota, and on the 
Iron Range we have a lot of miners who find themselves working 
for a long period of time, accumulating a pension, and, I guess 
it's called ``strategic corporate bankruptcy;'' this is what 
they perceive it as--where suddenly the entity that owns the 
mine will go bankrupt, and they'll default on the pension, and 
then, a few weeks later the mine reopens under another 
corporate entity, and they start working again, but have 
completely lost their pension. It goes to the PBGC. The PBGC 
gives them 40 cents on the dollar, and they're starting from 
scratch.
    This, I think, goes to the way pensions are treated in 
bankruptcy. What I was wondering is, How can we balance this? 
How can we prevent this from happening? How can we treat 
pension programs a little higher up on the order of who gets 
paid off in a bankruptcy?
    Mr. Gotbaum. I'm really glad that you asked that question, 
because I think of it as a really important question, as a 
person who's----
    Senator Franken. Me, too.
    Mr. Gotbaum [continuing] Been on both sides of the issue 
and been throughout bankruptcy.
    There's not a formulaic answer. As you know--and I think, 
actually, the Constitution provides--bankruptcy priorities are 
the province of the Congress. Let me suggest what I think I can 
do within the current law, and then raise the question about 
when the current law gets modified.
    I will tell you that, as a person who's been on the other 
side of the table from the PBGC, they represent retiree 
interests, the agency's interest, in bankruptcy very 
competently. They use the tools they have. Most people in 
business would not admit it, but they respect and are a little 
nervous because the staff of the PBGC is so good that they 
can't pull things over on them, in most cases.
    I would view my job, if you confirm me to be the director 
of the PBGC, to make sure that that continues, that it's 
enhanced, that all of the current authority that they have--
because it'll have two effects. One is, it will reduce the 
deficit. And two is, it will make people think three times 
before they pull shenanigans like the ones that you described.
    If and when the Congress is willing to consider a revision 
to the bankruptcy priorities and the tools that the agency has 
in bankruptcy, if you confirm me, I would love to come back and 
discuss where, in bankruptcy priority, retirees and the PBGC 
ought to be. That's a discussion which I would love to have.
    Senator Franken. From a little bit of your testimony a 
while ago, it seems there isn't a one-size-fits-all. In this 
instance, I'm wondering how you make the distinction between a 
sort of strategic bankruptcy where this is done and the losers 
are the workers--as a result of shenanigans, which is, I guess, 
the bureaucratic word.
    Mr. Gotbaum. Actually, I suspect that the people in the 
PBGC would never use the word ``shenanigans.''
    Senator Franken. OK.
    Mr. Gotbaum. And once, if you confirm me, once I become 
director, I probably won't be allowed to, either. As a private 
citizen----
    Senator Franken. OK.
    Mr. Gotbaum. Yeah.
    Senator Franken. Well, glad you got to use it here.
    [Laughter.]
    How do you make that distinction? How do we do that when we 
revisit this? Can you help guide us through that?
    Mr. Gotbaum. Let me defer the technical part to if and when 
the committee is prepared to consider these issues.
    Having been in bankruptcy, having been across the table 
from the PBGC, I will tell you that what I'm sure the 
professionals there try to do is look through the forum to try 
to do the right thing within the constraints of the bankruptcy 
code.
    Normally, for example, Senator, if someone who owns a 
company puts that company into bankruptcy and harms the 
retirees or other creditors, etc, normally their equity is 
wiped away. There are exceptions. There are procedural 
exceptions, but normally that happens.
    Unless and until the committee and, presumably, Judiciary 
are ready to consider the legal changes, I think the best we 
can do now is aggressively use the tools that the bankruptcy 
code already gives the PBGC. I will tell you, Senator, I 
believe they use those tools pretty aggressively right now. And 
I would view my job, as PBGC director, just to make sure that 
they are encouraged to do so.
    Senator Franken. Well, I'd love to follow up with you on 
that.
    Mr. Chairman, I'm sorry----
    The Chairman. Thank you very much.
    Senator Franken [continuing]. I ran over my time.
    The Chairman. Thank you very much, Senator Franken.
    I would just follow up on your question by saying that I 
won't ask Mr. Gotbaum this question, but just between us, that 
maybe we ought to be thinking about that the PBGC should not be 
an unsecured creditor, but should be a secured creditor, which 
moves them way up the ladder. Right now they're an unsecured 
creditor. That's why you get 40 cents on the dollar. If 
everybody else that provides credit or financing to a company 
knows from the beginning, from the get-go, that PBGC is a 
secured creditor, they factor that in. I think you'll get more 
honest financing if that were the case. That's something that 
only Congress can do, and I'd love to work with you on that.
    Senator Enzi.
    Senator Enzi. Thank you, Mr. Chairman. I just have a couple 
of what I hope are quick questions here.
    As part of your background material that you submitted to 
the committee, you state that you must recuse yourself from any 
matters regarding the Delphi Auto Parts Manufacturer and its 
pension plans.
    As you know, last year the PBGC took over several of 
Delphi's pension plans for salaried employees. This covers 
about 20,000 workers and retirees and added $2.2 billion to the 
PBGC's deficit. How will you be an effective head of the PBGC 
while you have to recuse yourself from one of the largest 
deficits taken over by the PBGC and from the management of tens 
of thousands of pensions?
    Mr. Gotbaum. A very important question. As I mentioned, 
Senator, because I was peripherally involved with some of the 
people who ended up owning Delphi, the Office of Government 
Ethics, the PBGC, and, no shucking, I, too, thought I should 
recuse myself from participation in any decisions involving 
Delphi. If we hadn't had the same recent history with the 
recent director, we might have had a different argument or a 
different discussion. Given history, we just thought it was 
better that there be no gray whatsoever on that.
    However, what the PBGC director can do--in my view, should 
do, vis-a-vis Delphi or anyone else--is make sure that the 
agency aggressively serves, to the best of its resources and 
its people's ability, the beneficiaries who are, tragically, in 
the PBGC's care.
    No one wants to be in the situation of receiving a PBGC 
pension. It's a tragedy when it happens. What we can do is 
recognize that it is a tragedy, and deal with it as 
sensitively, as promptly, as compassionately, if you will, as 
possible.
    Senator Enzi. OK. I'll probably have a follow up question 
in writing on that one.
    In your statement, you also state that, ``We must address 
the critical issues facing the PBGC, such as funding relief, 
investment policy, and the deficit, directly and 
realistically.'' Could you explain what you mean by 
``realistically'' with respect to the PBGC's deficit?
    Mr. Gotbaum. Yes, sir, I'm happy to do so. I make my life 
working in complicated situations in which lots of people have 
different views of what they want, and trying to fashion 
solutions that they can live with. Because whether it's funding 
relief, where you have the question of maintaining the 
integrity of a firm versus maintaining the security of a 
pension plan, or whether it's the deficit, where you have 
tradeoffs between fiscal issues, investment issues, benefit 
issues, etc, in every single case you've got people who would 
say, ``If only they'd do X, that would solve the problem.''
    The reason I include the word ``realistically'' is maybe 
because I'm a workout guy or maybe because I focus on places 
that are distressed. There's never a solution that satisfies 
anybody 100 percent. And so, I always view part of my job as 
being realistic and saying, ``I know you want this, but we 
can't do that without something else happening. Therefore, how 
about this?'' And that's what I mean by ``realism.''
    There are--especially with pensions, which come due over 
literally generations--there are some folks who would say, 
``Well, it's not an immediate problem,'' you know, ``You can 
worry about it manana.'' That's why I put in the word 
``directly,'' because kicking the can down the road does not 
mean that the can goes away.
    Senator Enzi. Good answer. Sounds a little like my 80-
percent rule.
    [Laughter.]
    Thank you, Mr. Chairman.
    The Chairman. Thanks, Senator Enzi.
    I just have one follow up question, but I will submit it in 
writing, because of the time, and that had to do with multi-
employer plans and----
    Mr. Gotbaum. Yes, sir.
    The Chairman [continuing] The fact that they haven't been 
updated in, I don't know how long, over a decade, and your 
thoughts on that. But, I'll submit that in writing.
    [The information referred to may be found in Additional 
Material.]

    The Chairman. Do you have anything else that you wanted to 
say for the record, Mr. Gotbaum, before I bring this to a 
close?
    Mr. Gotbaum. I just want to say that this hearing has 
reinforced two things that I already thought I knew. One is 
that these are issues that are really difficult and 
complicated, but matter. And two is, I'd really like to try and 
join you as we help solve them.
    The Chairman. Well, thank you very much. I thank you for 
your distinguished career, both in the private and the public 
sector. Thank you for being willing to take this on.
    Hopefully, we can move this nomination somewhat 
expeditiously. However, the hearing record will remain open for 
10 days for subsequent written questions by other Senators who, 
for one reason or another, could not be here.
    We thank your family for being here. I can tell from their 
expressions that Emma and Adam and Jordan had a scintillating--
--
    [Laughter.]
    Look at it this way, you're out of school. OK?
    [Laughter.]
    To your family, thank you. And to your kids--I know these 
sound like very esoteric and very involved questions, but 
really what it boils down to, it's just what happens to people 
in real life, and their pensions and how they're going to live. 
That's what it all boils down to. These are real-life flesh-
and-blood human beings that are going to retire, or are 
retiring, and they need support and help, and that's why we 
passed this law, back in 1974, before we were ever here.
    Jacob Javits, Senator Javits, was the author of this. At 
the time it was passed, he said that this was--he thought--the 
most significant thing that Congress had done since the passage 
of Social Security. Quite frankly, I think he might have been 
pretty close to being right, at that time. I could go on but, 
nonetheless, that's a very important issue.
    I thank your family for being here, and your mother for 
coming. I appreciate it very, very much.
    If there's nothing else to come before the committee, the 
committee will stand adjourned, subject to the call of the 
Chair.
    [Additional material follows.]

                          ADDITIONAL MATERIAL

 Response to Questions of Senators Harkin, Enzi, Mikulski, Brown, and 
                                Isakson
                      questions of senator harkin
Multiemployer Plans
    Question 1. Multiemployer plans provide vital benefits to workers 
in many industries; they also help tens of thousands of small 
businesses to provide a retirement for their owners and workers. But 
unfortunately, some of these pension plans have fallen on tough times 
and are facing unique challenges. Do you have any experience with the 
problems facing multiemployer plans in certain distressed industries, 
and how would you go about identifying solutions? Do you believe PBGC 
has sufficient authority to help multiemployer pension plans 
restructure and avoid insolvency, or does the agency need further 
tools?
    Answer 1. Please see answer 2.

    Question 2. The current PBGC multiemployer guarantee is $12,870 per 
year for a worker with a 30-year career (compared with $54,000 for a 
similar worker in a single-employer plan). This guarantee was last 
increased more than 10 years ago, and it is not indexed for inflation. 
Do you believe that Congress should increase (and index) PBGC's 
guarantee limit for multiemployer plans? Should there be a 
corresponding increase in premiums?
    Answer 2. Multiemployer plans cover some 10,000,000 people and pose 
a number of complex problems. I understand that the PBGC's authorities 
with respect to these plans are quite different than with respect to 
single employer plans. However, as I noted at the committee's hearing, 
my previous experience with multiemployer plans is limited. As a 
result, I am not yet in a position to give an informed opinion 
regarding potential changes.
    If confirmed, I would review these plans and programs affecting 
them through a process of consultation and analysis, working with and 
through the PBGC staff and others in the Administration and consulting 
widely with Congress and the affected parties. I would then be prepared 
to work with the Administration and Congress to suggest and implement 
improvements.

Pension Funding Relief
    Question 3. The stricter funding requirements of the Pension 
Protection Act of 2006 became effective just prior to the global 
economic meltdown and the huge drop in the stock market. Congress 
provided some temporary relief last year and the Treasury also provided 
relief through regulations, but many employers and unions believe that 
they need additional time to pay off the equity losses they sustained 
during the economic downturn. Do you believe that additional funding 
relief is appropriate? How can Congress target the relief so that it 
will go only to those plans that really need it?
    Answer 3. As I said at the committee's hearing, this is an issue 
that is both difficult and important. Each decision to allow a deferral 
of pension funding raises the risk that a plan might remain underfunded 
and then terminate. At the same time, allowing no flexibility might 
actually lead to business failures and could also lead other companies 
to conclude that they cannot afford to undertake defined benefit 
pension obligations.
    Since each company's circumstances and alternatives are different, 
it may be difficult to target any legislative blanket approach. If 
confirmed, I would examine whether these conflicts could be better 
resolved on a case-by-case basis, taking into account the individual 
circumstances. This approach could involve establishing a more 
responsive administrative process and the ability to negotiate 
individual arrangements that reflect the varying circumstances in which 
different companies find themselves.

GAO & IG Oversight
    Question 4. GAO has identified a number of problems in PBGC's 
governance and reporting structures; for example, its board of 
directors (comprised of the Secretaries of Labor, Treasury, and 
Commerce) is too small, has no mechanism for gathering information from 
the PBGC, and does not retain institutional knowledge after a change of 
presidential administration. A recent GAO report on the General Counsel 
and Chief Counsel offices indicated that there are organizational 
problems and inconsistent legal advice within PBGC. PBGC has also been 
the subject of several recent IG reports that have focused on the need 
for more oversight of PBGC's contracting processes, more oversight of 
PBGC's investment policy, and on serious weaknesses in PBGC's IT 
systems. What changes will you make to ensure that recommendations by 
GAO and the IG are implemented? Will you review PBGC's organizational 
structure to determine whether a single legal officer should report to 
the Director?
    Answer 4. If confirmed, I will review each of GAO's 
recommendations, and likely meet with GAO officials to discuss them in 
further detail. As an outside evaluator, GAO often has a useful 
perspective on improving management and process. Prior to actually 
being inside the agency, meeting the people, and examining the 
processes myself, I cannot determine whether I would agree with and 
seek to implement GAO's recommendations.
    The PBGC Inspector General is in a different position than GAO 
because it is within the agency and generally has access to more 
detailed information. Furthermore, IGs often focus more on issues of 
compliance with law or regulation than general questions of management 
or organization. As a result, if confirmed, I would plan to move 
quickly to determine how to implement the IG's recommendations.

Preventing Pension Failures
    Question 5. When the Senate undertook pension reform a few years 
ago, it passed legislation that would have allowed PBGC to negotiate 
alternative payment plans for struggling companies. Do you think this 
is the sort of concept that the PBGC can and should implement? What 
additional tools does PBGC need to try to stop pensions from failing? 
Do you have any other ideas that would help companies keep their plans 
instead of turning them over to PBGC?
    Answer 5. This issue is a part of the challenges that are faced in 
funding relief generally: ideally there should be discretionary 
authority to negotiate funding relief that is accompanied by the 
ability to protect the interests of pension beneficiaries. This would 
require both the legal authority to negotiate on a case-by-case basis 
and the organization resources, training, and judgment to do so.
    While there are methods that might discourage voluntary 
terminations, these would inevitably involve compromises among various 
interests and therefore should be undertaken only after deliberation by 
the Congress and the Administration. One could, for example, change the 
rights in Chapter 11 of the PBGC and/or plan trustees. Alternatively, 
one could allow risk-adjustment of premiums, to encourage more 
conservative behavior by companies and avoid rewarding more speculative 
practices.
    As I noted in the hearing, I believe that defined benefit plans 
are, for most people, a superior way to protect retirement. If 
confirmed, I would appreciate the opportunity to join these 
deliberations and search for ways to preserve these plans.

PIMS Pension Insurance Modeling System
    Question 6. PIMS is a stochastic simulation model that PBGC 
developed to make annual financial statement projections to provide a 
better understanding of the range of financial risks faced by PBGC. It 
is used by Congress, the Administration, the Congressional Budget 
Office, the Joint Committee on Taxation, the Treasury, and the Office 
of Management and Budget to make estimates of the budgetary impact of 
legislative proposals. Pension industry representatives considered PIMS 
a ``black box'' because PBGC has not made the modeling system available 
to outside reviewers. Last fall, PBGC representatives said they planned 
to share the model with pension industry actuaries by the end of the 
year. That has not happened yet. When does PBGC intend to make PIMS 
available for outside review?
    Answer 6. As I am not inside the agency, I cannot speak for the 
PBGC. If confirmed, my goal will be to begin an outside review of PIMS 
within 90 days.
                       questions of senator enzi
Transparency
    Question 1. President Obama has stated his support for government 
transparency during his time in the U.S. Senate and campaigned on a 
promise to make the Federal Government more transparent. What is your 
personal philosophy on transparency of government officials and 
disclosure of information to the public and people's representatives in 
Congress? If confirmed, what plans do you have to enhance transparency 
and disclosure to better ensure accountability at Pension Benefit 
Guaranty Corporation (PBGC)?
    Answer 1. Both in government and in business, I believe strongly 
that the best way to improve performance is keep people accountable for 
their actions. In each place I have worked, I have found different ways 
to do so. When I was running Hawaiian Airlines, we started reporting 
our performance to the U.S. Department of Transportation. At the 
September 11th Fund, we listed every grant on our Web site. At the 
Department of Defense, we surveyed the communities in which we worked. 
If confirmed, I will work to implement comparable mechanisms to 
increase transparency and hold the agency accountable for its actions.

Full Faith & Credit
    Question 2. During your confirmation hearing you indicated that you 
were unclear as to whether the PBGC is backed by the full faith and 
credit of the United States government. Would you please clarify your 
response? Is the PBGC backed by the full faith and credit of the 
Federal Government?
    Answer 2. ERISA specifies that obligations of the PBGC are not 
obligations of the U.S. Government.

Investment Policy
    Question 3. In recent years, the PBGC investment policy has come 
under considerable criticism. Initially, the investment policy was 
viewed as too conservative and the PBGC missed opportunities in the 
securities market. Then the PBGC switched to a more diversified 
portfolio strategy however that strategy was about to begin when the 
economic downturn happened. Professional asset managers tell both 
corporations and individuals that they should adopt investment 
strategies for investing retirement assets from a long term 
perspective. The asset managers typically advise a diversified 
portfolio for long term investing. As the PBGC Board will have to 
address the PBGC investment strategy, if confirmed, what investment 
approach will you recommend the PBGC pursue?
    Answer 3. As I said at the committee's hearing, I believe my own 
views on investment policy should be subordinate to:

     The need to develop an investment program that can be 
supported by the differing views represented on the PBGC Board and the 
Congress and others with interests in the PBGC;
     The need to have an investment program that can be 
implemented accountably, legally, and in a manner consistent both with 
private sector best practices and public procurement, reporting and 
other processes.

    With those priorities established, I believe that a diversified 
portfolio can be implemented. There are many models for determining the 
ideal portfolio. I would start with two presumptions:

     That the PBGC should not be a government hedge fund, that 
the agency possesses neither the skills nor the tolerance for risk that 
characterizes such investment funds;
     That neither should the PBGC invest only in Treasury 
instruments, and that to do so would both result in a greater deficit 
and would keep the PBGC from understanding the investment issues that 
the plan sponsors face.

    I think it is also important to note that the task of implementing 
any policy is at least as important as the policy itself. If confirmed, 
once a policy is established, I would work to ensure that the PBGC's 
investment decisions and oversight are in accord with both private 
sector best practices and the special accountability and processes of 
government.

PIMS
    Question 4. Over the past few years, the PBGC has been criticized 
for making the Pension Insurance Modeling System (also known as PIMS) a 
virtual blackbox and denying requests to make the actuarial equations 
and/or variables for review. This model is relied upon by the PBGC, 
CBO, OMB, Congress and policymakers to determine the financial health 
of the pension system and of the PBGC. However, the calculations coming 
from the PIMS model have been erratic especially as Congress was 
drafting the Pensions Protection Act of 2006 and the Worker, Retiree, 
and Employer Recovery Act of 2008. Last year, senior PBGC officials 
announced that they would make the PIMS model available to the 
actuarial community however this exchange of information does not 
appear to have occurred. Do you pledge to make PIMS transparent and 
available to the actuarial communities? I would like a status report 
within 90 days of your confirmation about the status of your 
commitment.
    Answer 4. If confirmed, my goal will be to begin an outside review 
of PIMS within 90 days.

Factors Affecting Offering of Defined Benefit Plans
    Question 5. The number of companies offering defined benefit 
retirement plans has been steadily decreasing for years. This can be 
attributed to both the recent decline in the economy and changes made 
by the Financial Accounting Standards Board (FASB) have made to update 
the accounting standards for pensions and retirement health care. Do 
you foresee any other events in the coming years that will have a 
significant effect on whether companies will continue to offer defined 
benefit plans?
    Answer 5. The factors that committee members raised at my 
confirmation hearing and in its follow-up questions, e.g. changes in 
the economy and in the circumstances of sponsors, seem to be the most 
important. If confirmed, I would look forward to working with the 
committee and others to deal with these important issues.

    Question 6. In 1985, there were 112,208 single employer pension 
plans in existence according to the PBGC's 2008 Data Book. For 2008, 
the PBGC reports that there were only 27,887 plans left. What should be 
done to change the single employer pension system to make it a less 
burdensome regulatory scheme and a less volatile system for the pricing 
of plan assets so that companies will be encouraged to offer pension 
plans for their employees?
    Answer 6. As I mentioned at the committee's hearing, I am not yet 
in a position to have detailed views on these very important questions, 
but think that several approaches should be considered:

     Plan sponsors should not feel that they are endangering 
their firm's existence by offering a defined benefit plan. Dealing with 
these concerns might relate to both finance and accounting.
     We should make sure that potential plan participants 
understand the advantages of a defined benefit plan. This is an area 
where education and communication might be very helpful.
     Academics and others might be able to develop methods to 
overcome portability challenges.

    As we discussed at the committee hearing, these are issues that 
will necessarily require congressional involvement. If confirmed, I 
would look forward to working with the committee on them.

PBGC Deficit
    Question 7. Back in the mid-1990's while you were at the Treasury 
Department, you authored at least one and possibly more papers on 
Fannie Mae and Freddie Mac. At the time, the possibility that these two 
entities would end up in Federal receivership appeared remote but some 
argued that they still posed a systemic risk to our system. Today, as 
we all know, the America taxpayers own both entities. As the PBGC is on 
the GAO's "High Risk" watch list, it is clear that its deficit cannot 
be ignored. What are your plans to reduce the PBGC deficit?
    Answer 7. As I noted at the committee's hearing, most of the 
factors that affect the PBGC's deficit are not within the PBGC's 
control:

     Congress controls premium decisions, funding, and benefit 
levels.
     The PBGC's board controls investment policy, though 
obviously not investment results.
     Plans sponsors often control, or at least affect, the 
decision to terminate.

    For these reasons, any efforts to resolve the PBGC's deficit will 
necessarily involve the Congress, the Administration, and those with 
interests in retirement security. If confirmed, I would welcome the 
opportunity to engage with these parties and determine whether, working 
together, we can make progress.

Multi-Employer Plans
    Question 8. For 2009, 90 multi-employer pension plans filed 
statements with the Department of Labor that the plans were in critical 
status while an additional 36 filed statements that the plans were in 
endangered status. Also, 280 multi-employer pension plans declared that 
they were taking relief pursuant to the Worker, Retiree, and Employer 
Recovery Act of 2008 to delay designation as an endangered or critical 
funded plan. The PBGC only guarantees up to $12,870 in annual payments 
to a member of a multi-employer plan in contrast to $54,000 for members 
of a single-employer plan. Do you think the current system adequately 
oversees and insures multi-employer plans?
    Answer 8. Please see answer 10.

    Question 9. Administration officials have expressed the need to 
explore the expansion of multi-employer or similarly pooled plans. 
Please explain whether you think it would be appropriate to expand the 
use of multi-employer or pooled plans under current conditions. Would 
these new pooled plans under consideration be insured by PBGC, and if 
so would they be insured as multi-employer plans and subject to the 
same premiums? As an overall government policy, should we push for 
expansion of multi-employer plans over encouraging the expansion of 
single-employer defined benefit plans?
    Answer 9. Please see answer 10.

    Question 10. Dozens of multi-employer plans have fallen below the 
60 percent threshold for funding purposes and have virtually no chance 
of recovery because of declining companies and/or industries. Would you 
favor the termination of such plans and have them taken over by the 
PBGC, some type of government intervention, and/or allowing them to 
remain significantly underfunded for extended periods of time to allow 
for a potential recovery? Do you think changes should be made to 
withdrawal liability for employers withdrawing from multi-employer 
plans, and if so, what changes would you propose?
    Answer 10. Multi-employer plans offer benefits in terms of 
portability that are already helpful in many industries. Changing the 
PBGC's relationship with them would have significant implications for 
the PBGC, for its finances, and perhaps for its ability to provide 
benefits. For these reasons, this is an area that will require study, 
not just by the Administration, but also by the Congress and the 
retirement community. If confirmed, I would welcome the opportunity to 
work with this committee and others to see what, if any, changes in the 
PBGC's authorities and involvement would be feasible and productive.

Union-Sponsored Plans
    Question 11. Recent reports suggest almost half of the nation's 20 
largest unions have pension plans that Federal law classifies as 
``endangered'' or in ``critical'' condition due to being underfunded, 
based on Federal actuarial reports. In your opinion, what is the duty 
of these unions to fund their pension plans? Do the unions have a 
fiduciary duty to ensure that union members' dues go to fully fund 
union members' retirement plans?
    Answer 11. Plan sponsors--whether they are employers, unions, or 
joint trustees--should meet their obligations. As the debate over 
funding relief shows, some sponsors are caught in between their 
obligations to their retirees and their obligations to other 
stakeholders. Through an appropriate administrative and/or regulatory 
process, these important but conflicting goals might be reconciled in a 
way that preserves the security of retirees and the integrity of 
sponsors.

Consulting Work
    Question 12. Please describe the nature of your work as a 
consultant and/or your firm's work on the Delphi bankruptcy for Silver 
Point and Elliott Management. Did you or your firm have any role in 
negotiating with General Motors, the United Auto Workers and/or the 
Federal Government regarding the bankruptcy and/or the hourly or 
salaried employees' pension plans?
    Answer 12. Neither I nor Blue Wolf Capital had any role regarding 
any negotiations with the PBGC or any other party concerning the hourly 
or salaried employees' pension plans. I did advise Silver Point and 
Elliott Management in their negotiations with General Motors regarding 
a joint effort to bring Delphi out of bankruptcy, and then assisted in 
implementing their agreements.

    Question 13. Within the past 10 years, have you performed any work 
for organized labor unions that did not involve the investment of union 
pension plan assets?
    Answer 13. No.

    Question 14. As part of your background materials that you 
submitted to the committee, you state that you must recuse yourself 
from any matters regarding Delphi auto parts manufacturer and its 
pension plans. As you know, last year the PBGC took over several 
Delphi's pension plans for salaried employees. This covers about 20,000 
workers and retirees and added $2.2 billion to PBGC's deficit. How will 
you be an effective head of the PBGC while you must recuse yourself 
from one of the largest deficits taken over by PBGC and from the 
management of tens of thousands of pensions?
    Answer 14. These are important questions--questions that will be 
central challenges to the PBGC and its Director--but my recusal would 
not apply to either one. If confirmed, my recusal would not limit my 
involvement either with responding to the PBGC's deficit or its 
delivery of pension benefits.
    As I mentioned at the committee's hearing, I believe it is 
important to restore the PBGC's reputation for integrity and that doing 
so means I should recuse myself in cases where there is an appearance 
of conflict. For that reason, the PBGC ethics officers, the Office of 
Government Ethics, and I all agreed that I should not participate in 
any decision making involving Delphi for a period of 2 years should I 
be confirmed. According to the PBGC staff, this recusal is unlikely to 
affect either my actions if confirmed or PBGC actions, because the 
policy-level decisions concerning Delphi (e.g., whether to terminate 
the plans) were already made last year.
    What I believe I can and should do is to take steps to ensure that 
PBGC beneficiaries--whether from Delphi or anywhere else--are treated 
with the professionalism and compassion that we would want for 
ourselves if we were the victims of such a tragedy. From this point 
forward, the compassionate and timely delivery of those benefits to 
thousands of Delphi retirees will be the PBGC issues of most 
importance, and I believe my recusal will have no effect on that at 
all. Neither, if I am confirmed, will my recusal have any effect on 
challenges that the PBGC, and this committee and the Congress, face as 
a result of the PBGC's deficit.

Inspector General Role & Issues
    Question 15. How do you plan to interact with the PBGC Office of 
Inspector General (OIG)?
    Answer 15. Please see answer 16.

    Question 16. PBGC has a significant number of OIG audit 
recommendations where corrective action has yet to be implemented. How 
do you believe an agency can best work with its Inspector General to 
ensure effective and efficient program operations?
    Answer 16. I have worked with Inspectors General for many years and 
in many agencies. My longstanding practice with IGs is to respect their 
oversight function and also attempt to take advantage of their 
independent views of management and performance. In the oversight role, 
an IG's team must be able to satisfy itself and others that they have 
had full access to people and information, and full access to report to 
the public.
    IGs also can play a role advising on management and organizational 
issues within an agency. In my previous Federal service, I've always 
found IG recommendations to be worth careful consideration. An 
Inspector General's role in advising on such issues is more complicated 
because IGs may feel that their obligation to the broader public 
precludes their giving private advice, and issues of management and 
organization are often matters of judgment about which even 
knowledgeable and well-intentioned people can disagree.

    Question 17. How will you address allegations of serious executive 
misconduct and will you commit to requiring that all such allegations 
of misconduct on the part of senior level PBGC offices be referred to 
the OIG? When, if ever, would you choose to investigate or review such 
allegations of serious misconduct internally within PBGC, without 
referral or consultation with the Inspector General?
    Answer 17. I have always been committed to the highest standards of 
public integrity. The OIG plays a critical role in maintaining those 
standards, and if confirmed I would expect to involve the Inspector 
General in all cases of serious misconduct. However, maintaining the 
integrity, performance, and quality of operations of an agency should 
not be solely the responsibility of the IG--it is also a central and 
essential task of management. The IG is an important source of 
independent and professional review, particularly in cases of potential 
misconduct, but should not be a substitute for active oversight by 
management.

    Question 18. Recent proposed legislation changes the Inspector 
General's reporting relationship to the Board, making the Inspector 
General subordinate to the PBGC Director. What importance, if any, do 
you place on the Inspector General's current ability to communicate 
directly with the PBGC Board? If Congress makes changes to the 
reporting structure that result in the Inspector General reporting 
directly to you, what steps would you take to help protect the 
Inspector General's independence and ability to meet the mission set 
forth in the Inspector General Act as amended in 2008?
    Answer 18. I have worked with IGs for many years and in many 
agencies. I fully respect their independence. My view is that the 
integrity of Inspectors General can and must be maintained no matter 
what the official reporting relationship happens to be. In particular, 
if the IG has concerns about the Director, I would expect the IG to 
take those concerns to the Board.

General Goals & Objectives for PBGC
    Question 19. Given your extensive background in both the public and 
private sectors, how will you use this unique mix of experience to 
enhance PBGC's culture? To enhance transparency at PBGC? To enhance 
accountability?
    Answer 19. As we discussed at the committee's hearing, I believe 
that the PBGC must carry out its challenging responsibilities both 
accountably and compassionately. How one does so necessarily varies 
from organization to organization. Nevertheless, I believe the 
following points apply:

     Based on my own experience and the perceptions of others, 
the PBGC is a very professional organization engaged in a difficult set 
of tasks. With such a team, transparency and accountability reinforces 
what is already a strong desire to serve.
     My understanding is that, thanks to the Government 
Performance and Results Act, the PBGC already benchmarks its 
performance in several areas, and reports on its performance annually. 
Based on my experience both in business and government, efforts to 
benchmark are important because they provide concrete goals for 
performance. I do not yet know enough about the benchmarks the PBGC has 
used in the past, but am certain that appropriate benchmarks are 
essential. If confirmed, one of my earliest tasks will be to review, 
understand, and, if appropriate, revise those benchmarks.
     The reporting of performance is equally important. For an 
already professional organization, doing so offers an incentive for 
improvement and an acknowledgement of success.
     Soliciting feedback is also important, especially where an 
organization does not receive daily feedback from its constituencies. 
When I was running The September 11th Fund, we required our grantees to 
participate in a survey to enable victims to assess what efforts were 
or were not effective. My understanding is that the PBGC already 
undertakes some such surveys. If confirmed I would continue, and 
perhaps expand, that effort.

    Question 20. How do you propose to help PBGC balance the seemingly 
competing interests of the needs and rights of present and future 
retirees, the desire for corporate employers to continue sponsoring 
defined benefit plans, and the protection of PBGC's trust fund's 
ability to meet its future benefit liabilities?
    Answer 20. As we discussed at the committee's hearing, the 
challenges with which the PBGC deals are both complicated and 
conflicting. I do not think these challenges can be resolved either by 
fiat or formula, but must be worked out, in some cases on a generic 
basis, in others case-by-case, but usually through consultation and 
compromise. If confirmed, I would welcome the opportunity to work with 
the committee and all other stakeholders on these matters.

Use of Information Technology
    Question 21. Please provide some insight into your overall approach 
to information technology, including its importance in assisting PBGC 
in meeting its mission and future strategic aspirations.
    Answer 21. The revolution in IT has enabled organizations both in 
government and business better to serve their constituencies, to keep 
track of their resources, to educate the public and sometimes also get 
home to spend time with their families. I suspect all these will be 
true for the PBGC.
                     questions of senator mikulski
Contracting Policy
    Question 1. PBGC's contracting policy was a major topic at your 
hearing--especially contracting for investment advice and asset 
management. As you correctly indicated, first and foremost we have to 
restore integrity and establish communication between all parties, 
especially Congress. But I also have another concern about PBGC's 
contracting activities. I have heard from constituents that the 
previous Director refused to contract with smaller financial firms and 
sought to work exclusively with large Wall Street firms. Of course 
these are the same companies that had completely inadequate risk 
controls and virtually no insight into the long-term problems facing 
the economy and as a result put the world's financial system in extreme 
danger. Additionally, even if these firms had proved competent, failing 
to consider minority and women owned financial companies deprives the 
PBGC of the diversity of views that is the hallmark of a robust 
investment strategy, and also runs contrary to Congress' stated 
intention to provide opportunities for these companies to do business 
with their Federal Government. There are competent investment 
professionals throughout the country and in my state of Maryland who 
followed sound principles and weathered the difficult economic 
conditions of the last 2 years far better than the big banks on Wall 
Street that PBGC has historically turned to for advice. The 44 million 
Americans whose pensions are covered by the PBGC represent a diverse 
cross-section of America--PBGC's investment contracts should reflect 
that diversity. If confirmed as Director, would you make it a priority 
to procure a variety of asset management and advisement services, 
including from firms owned by minorities and women?
    Answer 1. As we discussed at the committee's hearing, the first 
priority must of course be to assure the integrity of the agency's 
investment and other activities and to provide confidence to 
pensioners, the Congress, and others that these critical 
responsibilities are done competently, compassionately, and in a way 
that is beyond reproach. Once that has been accomplished, other 
important goals can be considered.
    I share Congress's concern that business participation in Federal 
activities, including PBGC's programs, should not become a private 
club. For these reasons, the Congress has encouraged agencies where 
possible to open up opportunities to smaller businesses and to 
businesses founded by women and minorities that, for too long, have not 
been allowed to be ``members of the club.'' In the case of the PBGC's 
investment programs, the appropriate range of investment managers must 
be determined with attention to the agency's ability to competently and 
reliably oversee these managers. If the agency can reliably manage a 
greater number of contracts and diversity of responsibilities, while 
still assuring the Congress and others that it also meets the highest 
standards of public integrity, then it should do so.

Bethlehem Steel
    Question 2. As I mentioned at your hearing, the plight of the men 
and women who worked for Bethlehem Steel in Sparrows Point is a tragedy 
I carry with me every day. I never forget them, and will never stop 
fighting for them. You have experience handling bankruptcies and 
corporate re-organizations and mentioned that this experience extends 
to the steel industry. Can you outline in detail what role if any you 
played in Bethlehem Steel's bankruptcy and its decision to terminate 
its pension plan? Were you an advisor to the United Steel Workers, to 
the managers and owners of the company, or to its creditors? Did you 
receive compensation from anyone for work involving Bethlehem Steel 
prior to the termination of its pension plan in 2003? If yes, then from 
whom?
    Answer 2. In the 1980s, I was a financial advisor to the USWA in 
several distress situations, but not at Sparrows Point, and long before 
Bethlehem Steel filed for bankruptcy and terminated its pension plan. I 
did no work for anyone involved in that tragedy.

Relationship With Unionized PBGC Workers
    Question 3. Many PBGC employees are my constituents, and they have 
told me that there are significant problems in the PBGC workplace. Most 
concerning to me are the allegations that PBGC management is not 
following the rules and conditions negotiated in collective bargaining 
agreements with unionized employees. PBGC's job is too important to be 
undermined by a hostile workplace. What would you do to promote a high-
performing organization where employees can be confident that their 
rights will be respected and their contributions will be appropriately 
valued?
    Answer 3. If confirmed, I would work to ensure that PBGC employees 
are recognized and respected for their efforts and the results they 
achieve, as I have done in other organizations. The primary obligation 
of a manager is to ensure that the organization performs. Service 
organizations like the PBGC depend critically on the diligence, 
competence, and compassion of their employees to do so.
                       questions of senator brown
GAO Reports
    Question. In August 2009, the GAO recommended that the PBGC develop 
a better strategy for processing complex plans in order to reduce 
delays, minimize overpayments, improve communication with participants, 
and make the appeals process more accessible. I continue to receive 
calls from retired steelworkers struggling to understand how the 
reductions in their pensions were calculated. I am concerned that with 
the complexity of the Delphi plans, we will see the problems that the 
GAO identified repeated. Please explain how you will address the GAO's 
recommendations as director of the PBGC.
    Answer. As we discussed at the committee's hearing, we should all 
recognize that those who depend on the PBGC for their pensions have 
been victims of tragedy. One of my goals, if confirmed, will be to 
ensure that the agency carries out its complex responsibility 
competently and compassionately.
    As you know, pensions are as complicated as they are important. For 
that reason, achieving accuracy, clarity, and speed simultaneously is 
an extraordinary challenge. Because I am not currently inside the 
agency, I can offer only general observations as to how I think the 
PBGC could do so. Generally, one tries to determine whether better 
performance requires additional or different resources or people, 
whether processes can be reformed, and whether communication can be 
increased or improved. In addition, I've often found that simply being 
transparent about results can help improve results.
    I've worked in many organizations, and I have found two things to 
be true in every one:

        In each organization, there are dedicated hardworking people 
        trying to achieve their mission; and

        In each, there are alternate ways to do things better.

    If confirmed, I look forward to working with the clearly very 
talented and dedicated PBGC staff to achieve this.
                      questions of senator isakson
Funding Relief
    Question 1. Numerous employers have contacted me asking for pension 
funding relief. As you know, the provisions of the Pension Protection 
Act became effective in 2008, the same year that the stock market 
deflated. They argue the confluence of massive paper losses on asset 
values, unusually low interest rates, and the new rules have resulted 
in a spike in required contributions that is not sustainable for plan 
sponsors. Others have been critical of proposals to grant plan sponsors 
more time to pay back their 2008-2009 losses, saying that it will place 
the PBGC's 
single-employer insurance system at risk. With which side do you agree? 
Why?
    Answer 1. As I noted at the committee hearing, I do not yet have a 
view. Both concerns are clearly legitimate. If confirmed, I am 
committed to working with the committee and the Congress to find a 
solution that works.
Permitting Termination/Freezes
    Question 2. Some companies with fully funded plans have told me 
that they would prefer to terminate their plans, but find it difficult 
under current PBGC policy. Should companies with fully funded plans be 
allowed to terminate at-will?
    Answer 2. As one who thinks that defined benefit programs serve 
many individuals best, it is of course distressing to think that 
companies could at any moment decide they will no longer offer those 
benefits, even to individuals who may have worked for years in reliance 
upon them. I do not have fixed views on this matter, but it may be 
valuable to explore whether adequacy of funding should be the only 
standard by which such an action would be judged.

    Question 3. In recent years, many plan sponsors have "frozen" their 
defined benefit pension plans. Some have opted for hard-freezes whereby 
there are no new entrants into the plan and there are no accruals for 
any participants. Others have opted for a ``soft-freeze'' whereby there 
are no new entrants but the current workers can still accrue benefits 
under the plan. In both cases, the plan sponsor continues to make 
contributions to keep the plan in compliance with ERISA and the 
Internal Revenue Code. What is your position on plan freezes? Should 
companies be allowed to freeze their plans at-will?
    Answer 3. Here, too, there are important interests on both sides. 
If confirmed, I would work to develop compromise solutions that would 
address the legitimate concerns of both workers and plan sponsors.

    Question 4. What is your position on ``benefit restrictions'' when 
a plan is underfunded? Some regard benefit restrictions, including 
prohibitions on benefit increases, lump sum distributions, or continued 
accruals, as a way to ``stop the bleeding'' in a severely underfunded 
plan. Do you support or oppose the use of benefit restrictions for 
underfunded plans?
    Answer 4. This is a difficult question, because it involves 
tradeoffs that affect innocent people--current retirees and current 
employees depending on a plan for their retirement. Neither group was 
responsible for the actions that resulted in underfunding. It seems 
unfair to penalize retirees for actions, blameworthy or not, taken 
after they retired. At the same time, holding current or imminent 
retirees harmless in a circumstance under which prospective retirees, 
some also with long service, might face dramatic reductions in benefits 
also seems unfair. In such circumstances, there might be approaches, 
e.g., limitations on lump sum distributions, that could be a fair 
compromise. Clearly, any such approaches should be debated carefully 
and extensively. If confirmed, I would engage with the committee and 
other stakeholders to seek appropriate and fair solutions.

Investment Policy
    Question 5. Recently the PBGC's investment strategy has come under 
attack. Notwithstanding abuses of personal relationships, the debate 
has come down to investments in equities versus bonds. Given your 
experience with investment management, do you believe the PBGC should 
focus on liability driven investments?
    Answer 5. As I noted at the committee's hearing, I do not think the 
PBGC should rely solely either on equities or fixed income investments. 
I think more thought and analysis will be necessary before coming to a 
conclusion about how the agency's liabilities should affect its 
investment decisions. One could argue, for example, that the PBGC's 
contingent obligations are correlated with both substantial economic 
and asset value declines; if so, one might conclude that fixed income 
investments would be an inadequate hedge to offset such losses. 
However, an alternative investment strategy might require of the PBGC 
investment management experience and skills it simply does not have.

Establishing Differential Premiums for Greater Risk Plans
    Question 6. Should defined benefit pension plans be required to be 
funded only with risk-free or very-low-risk investments? Do you 
consider plans that invest in equities to be putting your agency at 
risk for greater liability? Some have suggested that if a sponsor 
invests in equities, it should have to pay an additional premium to 
cover the greater risk to which it has exposed the PBGC. Do you agree?
    Answer 6. I do not think that either the Congress or the 
Administration should impose a specific investment policy on all 
defined benefit plans. But that does not mean that the government 
should ignore portfolio risk either.
    Private insurers--and other government agencies with interests 
affected by portfolio risk, such as the FDIC--have long paid attention 
to risk both in setting premiums and in other ways.
    My understanding is that this has been an ongoing conversation 
between the PBGC and the Congress (which has retained to itself the 
power to set PBGC premiums). If confirmed, I would welcome a chance to 
join the conversation, and help determine whether there are better ways 
to take risk into account. Doing so could have important advantages: it 
could provide an appropriate incentive for plan sponsors to be more 
careful when they take risk into account, and it might as a result 
avoid some terminations that otherwise would occur.

Multiemployer Plans
    Question 7. What is your assessment of the health of multiemployer 
pension plans? What is the PBGC doing to educate participants about the 
underfunding of multiemployer pensions? What steps, if any, will you 
take in communicating with pension trustees and others with fiduciary 
obligations when multiemployer plans fall into endangered status?
    Answer 7. Please see answer 8.

    Question 8. A coalition of groups with an interest in multiemployer 
plans have recommended that benefits for ``orphans'' in those plans 
should be covered by the PBGC. This is referred to as ``partitioning''. 
An orphan is a vested plan participant whose employer is no longer 
contributing to the plan either because they are no longer in business. 
What is your position on this idea?
    Answer 8. Multiemployer plans provide retirement security to 
millions. My understanding is that their health is appropriately a 
major focus of the PBGC. As this committee knows, significant changes 
in the PBGC's coverage have important financial implications. For that 
reason, any change in coverage must be carefully analyzed and its 
implications considered, both by the agency and the Congress. If 
confirmed I would oversee this effort at PBGC and work with the 
Congress to determine what approaches make sense and are feasible.

Union-Negotiated Pensions
    Question 9. A recent study from the Hudson Institute concluded: 
``Union-negotiated pension schemes consistently maintain dangerously 
low ratios of assets to liabilities. This is especially obvious when 
they are compared to pensions provided by private companies to non-
union workers. Although nearly 90 percent of non-union funds had at 
least 80 percent of the funds they need, only 60 percent of union plans 
were at or above that mark. Although unions may promise their members 
terrific benefits, they do not deliver.'' Indeed, the industries with 
the most terminations (airlines, steel, automobile manufacturing) are 
also some of the most heavily unionized. Do you agree with the 
conclusion of the Hudson study that ``collective bargaining for 
pensions tends to result in promises larger than are affordable?''
    Answer 9. I have not seen this study and so cannot comment on its 
methodology or accuracy. It is true that some, though certainly not 
all, of the more distressed sections of the private economy are 
organized. However, retirement security is far from being only a union 
concern: in my experience managers, whether there is a union or not, 
are concerned with it, too. When a retirement plan is underfunded, it 
hurts everyone.
    My views on this are quite traditional: If a company makes a 
commitment to its employees, whether they are represented by a union or 
not and whether the commitment relates to retirement or not, that 
commitment should be kept.

Transparency
    Question 10. Some have shared concerns with me about a general lack 
of transparency at the PBGC, particularly with respect to the way the 
agency projects or models its deficit and losses. If confirmed, will 
you commit to increased transparency in the way that the agency 
projects its deficit and losses? Will you commit to making the funding 
statuses of plans, including multiemployer plans, available and 
searchable on your Web site?
    Answer 10. If confirmed, I would certainly work to keep a high 
standard of transparency and accountability. I have been committed to 
these principles throughout my career.
    My understanding is that Congress has limited collection by the 
PBGC of some information on plans and limited dissemination to the 
public of some of the information the agency does have. I would, if 
confirmed, look forward to working with the committee to change this 
and enable the PBGC effectively to inform both Congress and the public 
at large.

PBGC Deficit/Bailout
    Question 11. In your opinion, will a taxpayer bailout of PBGC be 
necessary at any time in the next decade?
    Answer 11. No.

    [Whereupon, at 11:50 a.m., the hearing was adjourned.]

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