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PBGC Director Joshua Gotbaum; Illustration by Arthur Mount

A YEAR AGO, IN THE WEEK AFTER THANKSGIVING, AMR Corp., parent of American Airlines, gave its 130,000 employees and retirees something to be less than grateful for: The third-largest U.S. airline filed a Chapter 11 petition to restructure the company via bankruptcy court. Like Delta Air Lines, Northwest Airlines Corp. and United Airlines parent UAL Corp. before it, American contended it would need to unload its four defined benefit pension plans to return to profitability. If the company succeeded, a total of about $8.3 billion in assets to help cover $18.5 billion in promised benefits could have vanished from its books. No company had ever tried to escape pension obligations as large.

The ink on the AMR filing was barely dry when the Pension Benefit Guaranty Corp., the federal pension insurance agency, swung into action. Leading the charge: PBGC director Joshua Gotbaum.

The prospect of giant American Airlines leaving taxpayers with the bill for its pension promises gave Gotbaum a high-profile perch from which to begin the job of remaking the federal pension insurance corporation, which now oversees $107 billion in obligations. Appointed by President Barack Obama in July 2010, the 61-year-old Gotbaum soon found himself on a mission to repair an agency damaged by annual threats of looming insolvency, constant turnover at the top, years of poor oversight by long-entrenched staff in key roles, questionable governance practices and a truckload of scathingly critical reports by its inspector general and the Government Accountability Office.

But fixing the PBGC’s problems is not Gotbaum’s primary goal. As the head of what is fast becoming the defined benefit pension provider of last resort, he has joined the ranks of industry leaders out to remake the U.S. retirement system. “As a first principle, we need to find a way to make it easier and less expensive for employers and enable employees to achieve secure retirements,” says Gotbaum. If done correctly, that would ultimately put the agency out of business.

Established under the Employee Retirement Income Security Act of 1974, the PBGC is charged above all with saving pensions. According to the omnibus pension law, a company in bankruptcy must show proof in court that it cannot honor its pension promises to its employees and retirees before it is allowed to terminate its plan. Nonbankruptcy pension terminations are permitted only after a thorough accounting. PBGC staff have long endeavored to carry out this charge, often working through the courts, but highly publicized bankruptcies and pension fund terminations by major U.S. corporations in the first decade of this century have cast doubt on the agency’s ability to do so. As one former PBGC director confided to Institutional Investor, “The bankruptcy industry sees the PBGC as rolling over in a bankruptcy.”