Cheiron's Hudson Testifies on Pension Crisis

Cheiron Consulting Actuary Richard Hudson joined a panel of pension scholars and experts Sept. 20 to testify at a U.S. Senate hearing titled "pension modernization for a 21st Century workforce." The hearing was convened by Sen. Tom Harkin, D-Iowa, chairman of the Senate's Health, Education Labor and Pensions Committee.

The ongoing strains on the U.S. pension system represent "one of the most under-reported crises in America," Sen. Harkin said.

In his testimony at the idea-sharing session, Hudson told Senators that "existing defined benefit models may not be well-suited to some of our 21st Century workforces."

While praising the defined benefit pension as "the best way to provide retirement security for Americans," Hudson testified that the traditional model may need to be "revamped" for many plan sponsors. "We have been successful in assisting some clients to create new defined benefit plans, or continue in the defined benefit arena with a better understanding of long term expectations," Hudson testified.

Cheiron has helped to develop the "Adjustable Pension Plan" (APP) a design that addresses employers' desire to reduce their exposure to risk and stabilize pension costs, while still giving participants a secure source of retirement income.

The APP design both mitigates risks inherent in pension plans and allows for sharing the remaining risks rather than place the burden on one party. (The design principles behind the APP were addressed more fully in a presentation by Cheiron CEO Gene Kalwarski at another venue.)

Speaking to Senators, Hudson also:

  • Expressed the hope that the IRS will soon give greater priority to providing determination letters on alternative pension designs,
  • Warned that PBGC premiums "are reaching levels that make sponsors take pause in thinking about retirement plans." Hudson favors the adoption of a risk-based variable PBGC premium structure, and
  • Noted that some multiemployer plans are straining under the weight of "orphan liabilities" generated by bankrupt employers formerly contributing to the plans.

Hudson's fellow panelists included Aliya Wong, Executive Director of Retirement Policy for the U.S. Chamber of Commerce, John Adler, Retirement Security Campaign Director for SEIU and Andrew Biggs, Resident Scholar at the American Enterprise Institute.

A video of the hearing is viewable from this web page on the HELP Committee's website. Click here to read Hudson's written response to questions from the Health Committee.