Pension Benefit Guaranties

Cross post with Noni Mausa, Tunnel Under Snow

The manner to which they are accustomed — Stolen Quote of the Day

What to wear for Halloween? From the Slate overview of the daily papers for Oct. 31 2008, here:

Maybe wear a suit and monocle and go as a corporate fat cat? The Journal fronts a good analysis of how the banks now being bailed out by the government owe roughly $40 billion in unpaid executive pay, bonuses and pensions. While the Treasury Department is putting restrictions on what executives at bailed out banks can earn now, it won’t affect these debts. In the case of some companies, the debts to executives are greater than their entire pension program.

The whole story, in the Wall Street Journal, is here. [subscription]

And, we might ask, how safe are those programs?

Here are the amazing numbers:

the Pension Benefit Guaranty Corporation (PBGC), the government agency that is supposed to protect the private pension system, recently estimated that the amount of money currently owed to cover pension liabilities is $450 billion; 851 pension plans are underfunded by at least $50 million. United Airlines may have been the biggest pension default ever but we’re looking at a looming financial catastrophe: The PBGC, which takes over defaulted plans, had a $23 billion deficit in 2004 and that’s just the proverbial tip of the iceberg. Part of the crisis stems from the 1990s collapse of the stock market and low interest rates (which keeps returns on bonds low).

That was from 2005. I can’t imagine it has gotten any better since then. Anxiety much?

UPDATE: An interesting chart from here:

To make the obvious more obvious: have a peek:

Why is it that the party that hates big government seems to end up taking over the obligations of companies who don’t want the fuss and bother of keeping their promises to their retirees? Or are Republican regimes just bad for business?

MORE UPDATE: In reading the 2007 report from the PBGC, I note this paragraph:

The table below shows the ten largest plan termination losses in PBGC’s history. Nine of the ten have come since 2001.

These defaulting companies and the years of plan termination are (about a third of the way down the page):

Pan American Air, 1991, 1992 [business collapsed 1991]
Trans World Airlines, 2001 [renamed TWA Airlines LLC in 2001, acquired by American Airlines in 2001]
LTV Steel, 2002, 2003, 2004 [filed for Chapter 11 bankruptcy on December 29, 2000, merged with Weirton Steel to form the International Steel Group.]
National Steel, 2003 [filed for bankruptcy in 2002, sold to US Steel in 2003]
Bethlehem Steel, 2003 [filed for bankruptcy 2001, acquired by the International Steel Group 2003]
US Airways, 2003, 2005 [Still in business, merged with America West in 2005]
Weirton Steel, 2004 [bankrupt 2008]
Kaiser Aluminum, 2004, 2007 [Still in business. “In 2005, it recorded revenues of roughly $1.1 billion and employed more than 2,000 people…” Wiki]
Delta Air Lines, 2006 [Still in business. Filed for Chapter 11 bankruptcy in 2005,emerged from bankruptcy protection in 2007. “(Delta’s) bankruptcy exit strategy was vastly different from that of United in that it expanded its way out of bankruptcy, rather than retrenching ” –Wiki]

Times are tough, okay. So I am wondering: why not just have the PBGC take over ALL pensions, since that would probably save money, time and effort (not to say anxiety) in the long run?
by Noni Mausa (cross posted with permission of the author)