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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 

( 

Available via the World Wide Web: http://www.gpoaccess.gov/congress/senate 

COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS 

TOM HARKIN, Iowa, Chairman 

CHRISTOPHER J. DODD, Connecticut 

BARBARA A. MIKULSKI, Maryland 

JEFF BINGAMAN, New Mexico 

PATTY MURRAY, Washington 

JACK REED, Rhode Island 

BERNARD SANDERS (I), Vermont 

SHERROD BROWN, Ohio 

ROBERT P. CASEY, JR., Pennsylvania 

KAY R. HAGAN, North Carolina 

JEFF MERKLEY, Oregon 

AL FRANKEN, Minnesota 

MICHAEL F. BENNET, Colorado 

MICHAEL B. ENZI, Wyoming 

JUDD GREGG, New Hampshire 

LAMAR ALEXANDER, Tennessee 

RICHARD BURR, North Carolina 

JOHNNY ISAKSON, Georgia 

JOHN MCCAIN, Arizona 

ORRIN G. HATCH, Utah 

LISA MURKOWSKI, Alaska 

TOM COBURN, M.D., Oklahoma 

PAT ROBERTS, Kansas 

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) 

(1) 

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 

2 

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 

3 

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. 

4 

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. 

5 

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 

6 

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 

7 

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 outof-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 Senateconfirmed 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. 

8 

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. 

9 

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? 

10 

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. 

11 

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.’’ 

12 

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 

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13 

sion 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. 

14 

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. 

15 

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 

16 

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. 

17 

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 

18 

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 provVerDate Nov 24 2008 11:48 Nov 04, 2010 Jkt 035165 PO 00000 Frm 00022 Fmt 6633 Sfmt 6601 S:\DOCS\54650.TXT DENISE
19 

ince 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. 

20 

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 

21 

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 

22 

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.] 

23 

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 reVerDate Nov 24 2008 11:48 Nov 04, 2010 Jkt 035165 PO 00000 Frm 00027 Fmt 6633 Sfmt 6621 S:\DOCS\54650.TXT DENISE
24 

cent 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 HaVerDate Nov 24 2008 11:48 Nov 04, 2010 Jkt 035165 PO 00000 Frm 00028 Fmt 6633 Sfmt 6621 S:\DOCS\54650.TXT DENISE
25 

waiian 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. 

26 

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 singleemployer plan. Do you think the current system adequately oversees and insures 

multi-employer plans? 

Answer 8. Please see answer 10. 

27 

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. 

28 

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 

29 

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 

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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 

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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 underVerDate Nov 24 2008 11:48 Nov 04, 2010 Jkt 035165 PO 00000 Frm 00035 Fmt 6633 Sfmt 6621 S:\DOCS\54650.TXT DENISE
32 

funding. 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. 

33 

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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