Money Masters, Part 4: Outstanding Contribution Award, Joshua Gotbaum
Pension agency head Joshua Gotbaum’s latest effort on behalf of defined benefit pension plans forced American Airlines to keep its promises despite bankruptcy.
It wasn’t a surprise when President Obama tapped Joshua Gotbaum in November 2009 to head the Pension Benefit Guaranty Corp., which insures U.S. private sector pensions. The son of longtime labor union leader Victor Gotbaum began serving Democratic presidents during the Carter administration in the late 1970s. But the Harvard Law School grad has also devoted decades to corporate mergers and acquisitions, workouts and restructurings. Gotbaum’s new role has allowed him to bring the two sides of his career together to improve pensions at U.S. corporations. He has become a national voice calling for new forms of defined benefit plans that would require risk-sharing by both employers and employees rather than by one party or the other, as under most current options. And Gotbaum, 60, would like to see more use of large collective investment pools rather than individual accounts, to lower participants’ costs. “There are challenges in retirement security and challenges in pensions that are exposing people more and making them less secure,” asserts Gotbaum, who has been speaking at pension industry conferences, writing op-ed pieces and issuing press releases to highlight the retirement security debate. As PBGC director, Gotbaum last year oversaw the process of bringing 19 companies out of bankruptcy with their pensions intact. One of his most recent feats involved the attempt by American Airlines to escape its obligations. In November its parent company, AMR Corp., filed for Chapter 11 bankruptcy protection and announced it would terminate its four pension plans and dump its $9 billion obligation on the PBGC.
But the $80 billion PBGC is now struggling with a $26 billion deficit of its own. With Gotbaum out front, the agency went public with its finding that AMR had sufficient assets to make good on its promises. In March the airline announced it would freeze rather than dump three of its pensions, for ground crew, agents and flight attendants.
In the 1990s, Gotbaum learned firsthand how public policy is made, during stints at the U.S. Office of Management and Budget, the Treasury and the Department of Defense. Later he was appointed CEO of the $500 million September 11th Fund, where he developed grant programs for individuals who needed cash, mental health services, job training and small-business assistance.
Then it was on to Hawaiian Airlines in 2003 as a court-appointed CEO to help the airline work out its bankruptcy. There Gotbaum met with the PBGC to secure that airline’s pension plan and helped achieve 100 percent recovery for creditors. Since exiting Chapter 11 in 2005, the company has become one of the most profitable U.S. airlines.
Gotbaum says his experience from 1981 to 1994 at Lazard Frères & Co. in mergers and acquisitions, restructuring and corporate finance in North America and Europe gave him a sense of how difficult yet important it is to preserve pensions. “Pensions are an unusual part of compensation,” he observes. “You pay now for a benefit in the future and hope that people appreciate it.”