ERISA Evolving: Five Questions for Terrence Deneen

Pension Benefit Guaranty Corp.'s Terrence Deneen provides his perspective on the aging ERISA and the PBGC’s ongoing role at a time when the law may need more of an overhaul than a face-lift.


In October the Pension Benefit Guaranty Corp. took over the underfunded pension plan of bankrupt Sea Island Co., largely safeguarding the retirement benefits of the Savannah, Georgia–based resort operator’s nearly 2,000 workers and retirees.

Terrence Deneen, the PBGC’s chief insurance program officer, has been involved in countless such bailouts since he joined the PBGC in 1978. In fiscal 2010 alone, the PBGC paid out $5.6 billion in benefits (up to $54,000 a person) to 800,000 participants in defunct plans and assumed responsibility for a further 700,000 who have yet to retire.

Deneen, 59, who himself retires in January, has been overseeing a wide range of vital risk management and loss-mitigation functions for the PBGC. An attorney (University of Illinois College of Law), Deneen had a hand in drafting the Multiemployer Pension Plan Amendments Act of 1980, a major reform of PBGC insurance for pension plans spanning many employers (typically, those negotiated by unions). As the administrator of the PBGC’s multiemployer insurance division, he set in motion efforts to remedy the complex problems of multiemployer plans — demographic shifts, investment losses, and so on.

Outside the PBGC, Deneen may be best known as an expert on the omnibus U.S. pension law: the Employee Retirement Income Security Act of 1974. In a recent interview with Institutional Investor Senior Writer Frances Denmark, Deneen provided a perspective on the aging ERISA and the PBGC’s ongoing role at a time when the law may need more of an overhaul than a face-lift.

Was the pension world very different in 1974 when ERISA was enacted?

There was a big difference in the economy and the workforce. More than 40 percent of workers in the private sector were union-represented [today it is 12 percent]. The big focus in ERISA was on defined benefit plans, where there had been failures and scandals.

Was ERISA successful in dealing with the pressing issues?

In large measure the problems addressed by ERISA have been taken care of. Consider vesting and accrual rules. Pre-ERISA, people worked every day until they retired. If you lost your job, no pension. With vesting, say you lost your job after ten years — you still got a retirement benefit.

ERISA also created the PBGC.

Yes, and the PBGC has played a big role in backstopping pensions when companies go under. But the PBGC’s initial role evolved. Early in its history, it was relatively cheap and easy for plan sponsors to dump plans on the agency. The Single Employer Pension Plan Act of 1986 changed that. Now companies can’t dump plans on the PBGC unless there’s a bankruptcy and they meet certain criteria.

What about the decline of defined benefit plans generally?

The head count of DB plan participants actually hasn’t gone down over the years — it’s still 30 million people. But dig deeper and you’ll see that this statistic masks profound changes. Today well over 55 percent of the total [DB] universe are retirees or inactive.

If you could rewrite ERISA from scratch, how would you do it?

I’d create a national system — a central program like a defined contribution plan but with mandatory employer/employee contributions. It should be a true retirement fund with no withdrawals — centralized, minimal administrative costs, leakage prevention [to stem plan defections]. There are models in other countries where you can buy an annuity when you retire.