Posted on 11/15/2005 2:13:25 PM PST by Brilliant
WASHINGTON (AP) -- The federal agency that insures the private pensions of 44 million workers said Tuesday that its deficit was $22.8 billion in 2005, as big airlines in bankruptcy dumped their pension liabilities.
The Pension Benefit Guaranty Corp. disclosed in its annual financial report that as of Sept. 30, it had $56.5 billion in assets to cover $79.2 billion in pension liabilities.
There has been an explosion in recent years in the number of big, ailing companies -- especially in labor-heavy industries like airlines and steel -- transferring their pension liabilities to the PBGC. With billions of dollars flying out of the agency's door, concern has been mounting in Congress and elsewhere over its financial footing.
"Unfortunately, the financial health of the PBGC is not improving," the agency's executive director, Bradley D. Belt, said in a statement. "The money available to pay benefits is eventually going to run out unless Congress enacts comprehensive pension reform to get plans better funded and provide the insurance program with additional resources."
The PBGC's $22.8 billion deficit for fiscal 2005 takes into account both the pension liabilities the agency has assumed and those it expects to take over in the future. It is slightly narrowed from the $23.3 billion shortfall it reported a year ago, which was a record. If events such as companies terminating their pension plans that occurred after the end of the fiscal year on Sept. 30 had been counted, the 2005 deficit would have been $25.7 billion, the agency said.
Without a legislative overhaul of the private pension system, the PBGC eventually will run out of money to pay the pension claims of the retirees of companies whose plans it has assumed, some experts predict. That would mean that people retiring from financially troubled companies would have nowhere else to turn for their promised pension payments -- raising the possibility of a taxpayer bailout.
Traditional employer-paid pension plans, giving retirees a fixed monthly amount based on salary and years of employment, are now estimated to be underfunded by as much as $450 billion. That could jeopardize the retirement security of millions of Americans, lawmakers have warned.
Tuesday's disclosure by the PBGC "serves as yet another troubling reminder that Congress needs to act on comprehensive reforms to our nation's traditional pension system this year," said Rep. John Boehner, R-Ohio, chairman of the House Committee on Education and the Workforce. "I'm committed to completing work on comprehensive reform to protect workers, retirees and taxpayers."
United Airlines and US Airways used bankruptcy earlier this year, with judges' blessings, to slash costs by dumping their employee pension liabilities -- a combined $9.6 billion -- onto the PBGC.
Delta Airlines and Northwest Airlines, which both filed for Chapter 11 bankruptcy protection on Sept. 14, may seek to do the same. The pension plans of Delta and Northwest, the nation's No. 3 and No. 4 airlines, are underfunded by an estimated $16.3 billion.
And there is speculation that auto parts maker Delphi Corp., which filed for protection from creditors last month, also could terminate its pension plan and transfer liability to the federal agency.
For months, lawmakers have been grappling with an overhaul of the rules governing company pension plans to tighten controls over employers with underfunded plans and shore up the PBGC's finances. Legislation cleared a key House committee last Wednesday, advancing what could be the most important retirement issue Congress will address this year as Social Security's overhaul has faded into the background.
The full House could take up the bill as early as this week.
Democrats generally oppose it. They say it could lead some employers to drop their pension plans or switch from traditional so-called defined-benefit plans to less expensive defined-contribution programs, such as 401(k) plans -- in which employers contribute to a retirement fund and workers receive only what the investments have earned.
Many companies are replacing defined-benefit pension plans with defined-contribution plans. The PBGC only backs defined-benefit plans, which are most prevalent in older industries such as automobile manufacturing, steel and airlines -- now reeling from record fuel costs, historically low fares and cutthroat competition.
The agency was created in 1974 as a government insurance program for traditional employer-paid pension plans. Companies pay insurance premiums to the agency, and if an employer can no longer support its pension plan, the agency takes over the assets and liabilities and pays promised benefits to retirees up to certain limits.
Some employees do not receive their full pension benefits when the PBGC takes over a plan. The maximum annual benefit for plans assumed by the agency this year is $45,614 for workers who wait until 65 to retire.
If they've got the money to bail out private pensions, then there's no reason they can't find the money to, say, fence off Mexico and deport 10 million illegals.
Note to Freepers everywhere - this is not perfectly analogous to the S&L Crisis. In that situation people laced money on deposit with organizations which could offer the federal government backing prospectively. It was a contractual obligation through federal deposit insurance. Now that was a debacle - but the PGBC is not federally guaranteed. It will take an act of Congress to take federal taxpayer money and siphon it to the pension beneficiaries of these dead and dying corporations. It will be one incredible political mess - but it is no foregone conclusion that Congress would do such a thing. Right now the Delta pilots are trying to obliterate the airline - there is no way that the general revenue taxpayer should pick up the tab for that.
Corrected:
Note to Freepers everywhere - this is not perfectly analogous to the S&L Crisis. In that situation people placed money on deposit with organizations which could offer the federal government backing prospectively. It was a contractual obligation through federal deposit insurance. Now that was a debacle - but the PBGC is not federally guaranteed. It will take an act of Congress to take federal taxpayer money and siphon it to the pension beneficiaries of these dead and dying corporations. It will be one incredible political mess - but it is no foregone conclusion that Congress would do such a thing. Right now the Delta pilots are trying to obliterate the airline - there is no way that the general revenue taxpayer should pick up the tab for that.
Oh, I think the Government will find a way to pay for it. They will just end up sacrificing little things like Defense, Homeland Security, and Law Enforcement. That and raising taxes on anyone who actually bothered to save for retirement. In other words, legimate government functions will be gutted to pay old people benefits. Who cares if we haven't had a new fighter aircraft for the last 40 years--as long as Grampa gets his prescription drugs (for free). This is really what the Dems have been after for decades and soon it will come to fruition. Lets just hope they don't add reparations and social security for illegal aliens on top of that.
Have the people put anything into these pension funds? - other than years on the job, I mean. I thought these pension plans were simply funded by the company, and not some sort of 401K plan people bought into.
If the retirees did put their own money in, don't they have a right to remove their own money from the fund and control it? That's the way a company 401K works.
$22.8 Billion just for this year. Like social security and medicare, the deficit goes up from there.
Yep, the "rich" are just exploiting the poor workers.
I would agree that in general Public pensions are more secure than private ones, but they are not immune. At any level beneath the State your taking your chances. For instance the LA Unifed School District has huge underfunded pension liability and no obvious way to pay for them. The city of San Diego is likely to go bankrupt, and in the process will discharge some of it's pension liability.
It seems unlikely that a State would go bankrupt, but it has been discussed in Oregon where the huge bloated state run pension system is THE driving factor. Taxes are at the limit, and there are structural laws that prevent easy new taxes from being created. It's unlikely but not impossible that Oregon will go bankrupt, and if they do so the explicit purpose will be to discharge pensions. (Voter initatives designed to address the absurd PERS system were thrown out by the Supreme Court, the justices are of course all PERS recipiants, but I'm sure this had nothing to do with it.)
Federal pensions from organizations like the US Army and Post Office are as good as it gets. One assumes the only default likely here is due to inflation. But the amounts will be paid, or if not only canned tuna fish, ammo and gold will have any value and we'll all have a lot bigger problems to deal with .
If the retirees did put their own money in, don't they have a right to remove their own money from the fund and control it? That's the way a company 401K works.
No. These pensions are "defined benefit". In a defined benefit plan you earn the benefit based on length of service, and perhaps job classification or pay grade. Let say you work for Big Airline Inc. Big Airline, as part of their benefits when you join at 25 says: Ms. Stewardess for each year you work Big Airline will give you a pension of $200 a month when you retire. So you work 30 years, and you have a defined benefit of 30x$200 / month, which works out to $6,000 a month or $72,000 a year.
Supposedly the company was supposed to be building a fund to pay this off. But in the real world perhaps they misinvested it in Enron in the 1990s (the idea being to show more profit for the company by putting less money into the pension fund and using super aggressive investments to meet the funding requirements). Or perhaps their actuarial assessments were wrong, expecting most retirees to die by 69 and they are now living to 72. Or perhaps there business just went to crap and they had no way to put any money into the system for 4 years. Net / net is you have no individual account, only a promise.
What companies like Delphi are doing is going to chapter 11 and saying: we can't stay in business and pay all these benefits. So the pensions are sent to the Pension Guarantee Board, along with some cash, maybe some stock in the company, maybe some future profit sharing plan. Oh, yeah, the benificiaries have their benefits reduced in this process. So Ms. Stewardess will be told something like: the maximum the PGBC pays is $4,000 a month, not $6,000. That is your new pension.
There is an expectation that taxpayers will now bailout the PGBC. This is just another bogus intergenerational transfer of wealth. While one feels for those who are not getting their promised pensions, it certainly is odd to say that todays workers, who are on the job and not being promised (in general) ANY guaranteed benefit (and are already paying more to oldsters for Social Security than they will ever recieve from THAT system) have to keep the promises that they were not involved in making. On the other hand seniors vote, and most have shown no disinclination to vote like liberals, that is take money they have not earned from whoever they can take it from.
These unions and businesses had signed the contracts. Are contracts to oblige the workers but not the employers? Is it what "free" market is about?
It's not legal (yet) to make you share with other people directly. A little bit of inflation will have you sharing indirectly, though.
This protection of your pension account is why OJ was able to keep his pension, btw.
Congress and the administration are hard at work to raise the PBGC insurance premiums that employers pay each year. Why have the voting taxpayer pay for Congress' mess when evil corporations can bear the brunt?
Once defined benefit plans are dead, they'll pick on the defined contribution plans.
Unions?
My wife and I are enrolled in the New Jersey Pension Fund . I just went to the web site and the fund has invested assets in the neighborhood of 72,000,000,000 (billion ) dollars . That is a ton of money.
The fund also made up all its losses in the dot com bust . The state is also sited in a lawsuit for nor repaying a loan for a few billion and not contributing to the fund 100% during the "gay guy" McGreevey years .
Companies frequently want to fund their employees' benefits. A couple of factors sometimes prevent this from happening.
First, a company may run into the "full funding limitation." If the market is flying high, there may be so much money in the trust that a company is not allowed to deduct additional contributions and may be subject to an excise tax, as well. When the market then comes back to earth, the plan may be underfunded.
Second, a company is not generally allowed to take contributions out of the trust. Therefore, many companies will not contribute any more than is required. If a company could take money out, there would be less disincentive to put money in.
The 22.8 billion is a cumulative shortfall, not an annual one.
There are few limits to what one can promise in a contract, but I have zero sympathy for idiots who agree to a contract where a party promises things that they cannot reasonably deliver. Any damn fool who goes along with that deserves to get stiffed as an object lesson to the other fools in society thinking about doing the same thing because someone promised them the moon.
Any employee who agrees to a contract without doing due diligence on the terms deserves whatever they get. The unions got greedy and did not look too closely or think too hard about what they were agreeing to.
Putting aside the question if an average worker can predict the future or be an expert on economy, are you suggesting that the employers KNOWINGLY made false promises?
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.