Bailing Out on Pensions
How’s this for a self-serving flight plan? United Airlines wants a U.S. Bankruptcy Court judge to let it load four troubled employee pension plans onto the federal Pension Benefit Guaranty Corp. At the same time, it’s creating a new plan to compensate pilots whose large traditional pensions could decline under federal supervision.
Under this scenario, United dumps a potentially crippling obligation, its restive pilots recoup some of their lost benefits -- and the moment when taxpayers arguably would have to bail out the pension agency grows nearer.
The bankruptcy judge in Chicago, United’s home base, should reject the plan. At the least, he should order the airline to funnel any available cash into its existing, underfunded pension plans rather than starting a new one. That, however, would be only a stopgap measure. The real problem is that federal regulations make it too easy for companies, United included, to ignore pension obligations until it’s too late, and then pile their underfunded plans on the PBGC. As the number of failed pension plans grows, so does financial pressure on companies that continue to fund employee pensions and, as important, pay the insurance premiums that the PBGC needs to meet its financial obligations.
Traditional pensions that offer fixed monthly checks for the life of a retiree are disappearing, but the plans that still exist have promised benefits to employees who make crucial financial decisions based on their expectation of pensions. The Bush administration and Congress should act quickly to shore up the PBGC. They can start by putting some teeth into existing regulations so companies no longer feel free to ignore their pension-funding obligations. Currently, companies are allowed to manipulate actuarial tables, shift contributions from one year to another and use rosy but unrealistic estimates to inflate a plan’s supposed value.
PBGC premiums are simply too low in many cases. United has paid only about $50 million in insurance premiums in more than a decade for its four pension plans. But the underfunding could hand the PBGC billions in obligations--the pilots’ plan alone would put the agency on the hook for $1.4 billion in guaranteed benefits.
The PBGC insures pensions for 34.6 million Americans. During the last three decades, the agency has taken over 3,000 troubled plans and now directly administers benefits for 1 million Americans.
The agency estimates that total underfunding of corporate pension plans swelled to $450 billion during 2004, a shortfall that could land at least in part on the PBGC. The agency isn’t currently backed by any promise of full federal funding, but the specter of pensioners without pensions would force Congress into some tough decisions.
