Pension problems

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(Host) Commentator Allen Gilbert remembers the savings and loan scandal of the 1980s and fears that we might be headed for a similar debacle involving another federal government agency.

(Gilbert) I first remember hearing about the federal Pension Benefits Guaranty Corporation sometime in the 1980s. It came up in connection with the federal savings and loan scandal. PBGC was mentioned as another federally-backed insurance agency that had huge liabilities. We were assured at the time, however, that it had sufficient assets to cover its liabilities.

Well, the PBGC has come up again, and this time assets may not cover liabilities.

Congress established the PBGC in 1974 to make sure that the money in someone’s pension plan would be there upon retirement. Private companies pay annual premiums for each worker. The PBGC guarantees pay-out if the company folds or can’t meet its pension obligations.

Great idea — in concept. But, as with the federal agency that insured deposits in savings and loan institutions, companies can scam the system. They can walk away from the company’s pension obligations and have the PBGC pick up the mess.

And that’s exactly what several corporations have hinted they may do.

Among them is United Airlines. It can’t pay the benefits that are owed pilots, mechanics, flight attendants, and others. If United drops its plan, the PBGC would have to come up with 500 million dollars this year alone for the airline’s 120,000 workers. The bill over four years is estimated at 4 billion dollars.

Considering that the PBGC already has an 11 billion dollar deficit, that’s a problem. Worse, other corporations have said that they might follow United’s strategy. Depending on who’s counting, corporate pension plans are underfunded somewhere between 165 and 450 billion dollars. Blame competitive pressure, or bad investment of pension funds. The money isn’t there.

This is a ticking time bomb — a bomb that would land in taxpayers’ laps. The cost could rival that of the savings and loan bail-out. That bill was 600 billion dollars, and we’re still paying it off.

Looming pension problems don’t stop at the federal level. State governments may also be underfunding plans for which we, the state’s taxpayers, are liable. Recently, there have been charges that our state government has been underfunding the teacher retirement plan. A stock market turn-around could possibly plug the gap, but the liability is unsettling.

We are shifting incredible financial burdens into the future. Our children, and grandchildren, will be paying the debts that we as a society are piling up now. The federal deficit is approaching half a trillion dollars. Medicare and Social Security will soon be deep in the red. We no longer pay the full bill for our children’s education; much of the cost of going to college has been shifted to the future through loans. Our kids pay the bill when they’re facing other expenses in starting a career or family.

I understand that governments often deficit-spend. And families take out loans to buy many things. But competent governments and responsible citizens have plans in place to pay off expenses. Right now, we as a country seem in denial about our financial situation. We’re spending money we don’t have.

This is Allen Gilbert.

Allen Gilbert is a former journalist, teacher, and consultant currently serving as executive director of the ACLU of Vermont. He has a longtime interest in public policy issues.

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