NYT Editorial Published: August 8, 2004
First it was the steel companies. Now it’s the airlines. Is the auto industry next?
In the past three years, bankrupt companies, mostly in unionized, old-economy industries, have dumped $11.2 billion in pension obligations on the Pension Benefit Guaranty Corporation, the federal agency that insures the pensions of 44 million people. As a result, the agency has gone from having a $7.7 billion surplus in 2001 to an estimated deficit of about $9.7 billion. And the situation may soon become much worse. The agency now faces a possible $5 billion default by United Airlines and the prospect of more airline defaults. Plenty of other companies, like Goodyear, also have seriously underfunded pension plans.
Not surprisingly, the specter of a taxpayer bailout hangs over the pension agency, inviting comparisons to the savings and loan debacle of the 1980′s. Things are not that bad – yet. As long as the economy and stock market improve, so should many pensions, since their health is tied to prevailing financial conditions.
But in one way, the S.&L. comparison is apt. In the 1980′s, government missteps exacerbated the S.&L. crisis. Today, again, government bears some responsibility for current pension problems. Congress must take steps now, both to strengthen pensions and the agency that insures them.
To begin, lawmakers should allow companies to overfund their pensions to build a cushion for hard times. Currently, Congress restricts overfunding, ostensibly to prevent companies from stashing excess cash in tax-sheltered pensions. But another reason lawmakers restrict contributions is that doing so forces companies to pay taxes on income that would otherwise go into pensions, thus raising revenue to improve the government’s own dismal budget outlook. The result of this self-serving machination is that many companies entered the recent economic downturn with less in their plans than would otherwise have been the case.
To protect taxpayers, Congress should raise the amount it charges companies for pension insurance. Currently, premiums are estimated to be underpriced by one-sixth to one-half – a dangerously high dose of corporate welfare. The pension agency should also be given the authority to freeze a seriously troubled pension when an employer stops contributing to it, as United did recently.
These are tough remedies for a tough problem. But Congress would do better to tackle the problem now rather than wait until after a full-blown crisis.
(emphasis added by me)
About the best that can be said for the corporations’ scandalous underfunding of employee pension funds is that at least they haven’t been stealing them again as they did in the late 80′s and early 90′s. Instead, they’ve adopted a whole new strategy: Let us taxpayers assume their pension burden as we assumed their tax burdens, their legal liabilities, and most of their other responsibilities to the common wealth and the communities in which they live. If they’re not paying for anything else, why should they have to pay for their employees’ pensions? Just because they signed a legal agreement to do so? Hey, it’s a piece of paper. Don’t take it so seriously. Contracts are only important when they favor corporate goals; they’re so much shredder-feed if they don’t. Get this through your head: legal obligations apply to other people, not them.
And they wonder why their rep is going down the tubes.
Filed under: Pensions/Retirement