Congress should end pension tricks
Millions of American workers are counting on pensions for retirement. They’ve been told the money is there now and will be there when they need it. They’ve made plans accordingly.
What happened at United Air Lines should shake them up. And it should shake up Congress, too.
United Air Lines declared bankruptcy in 2002, which allowed the company to dump $9.8 billion in pension liabilities onto a federal insurance agency, the Pension Benefit Guaranty Corp. The agency was created to make sure workers get some of what they were promised when a company declares bankruptcy. It will cover about two-thirds of what UAL workers thought they would get.
The PBGC itself says it is running a $23.4 billion deficit. The Congressional Budget Office says the number is closer to $100 billion. That figure is sure to grow as companies with defined benefit plans realize they cannot cover them. Delta Air Lines has a pension deficit of $5.3 billion. Northwest Airlines has a $3.8 billion deficit.
Automakers are hinting that they could be the next industry looking for government help. Overall, private sector defined benefit plans are underfunded by $450 billion.
Congress is considering legislation that would shore up the PBGC.
An infusion of tax dollars is quite possible. But lawmakers also need to rewrite pension accounting rules so companies can no longer disguise their financial status. Currently, companies can stretch out payments or “smooth” their contributions to make plans look healthier than they really are.
Chief executives are drawn to these accounting tricks, which are perfectly legal, because they’d rather pour capital into expanding their businesses. Plus, they know the feds will pick up the pieces to some degree if they can’t meet their pension promises.
If that sounds familiar, it is. The expensive savings and loan bailout of the 1980s was abetted by the fact that savings up to a point were guaranteed by the feds. A massive pension bailout is possible under current laws.
Of the 373 companies in the S&P 500 that have defined benefit plans, pension costs would rise for 217 of them if the rules were tightened to reflect reality, according to an Associated Press article.
Corporations are warning what that will mean for their bottom lines, but if pension laws aren’t rewritten, taxpayers will be left with much of the bill and workers will suddenly find that their retirement dreams are a mirage.
Transparency is the key. The longer the problem is allowed to be disguised the bigger the pension headache for taxpayers. And the sooner workers know that their pensions are in jeopardy, the sooner they can craft reality-based retirement plans.