An editorial / By Dale McFeatters
Scripps Howard News Service
May 17, 2005
Last week, as part of a bankruptcy filing, a federal judge allowed United Airlines to unload on the federal government the responsibility for the pensions of 134,000 workers and retirees and the $6.6 billion shortfall to pay them.
The burden falls on an obscure but vital quasi-federal agency, the Pension Benefit Guaranty Corp., which insures defined-benefit pension plans. Those plans pledge that on retirement a worker will be paid a set amount of money each month based on salary and years of service.
Defined-benefit plans have been rapidly declining in popularity - down from 120,000 in the mid-1980s - but there are still 30,000 of them, covering 44 million workers and retirees. The plans are especially prevalent in traditional, unionized industries.
When a company defaults on its pension obligations or sheds them in bankruptcy, the PBGC takes over the plan. It now administers 3,500 plans. The PBGC insures pensions up to $45,614 annually, meaning some high-paid, long-serving workers face severe cuts in expected retirement pay.
The problem is that the PBGC is short the money to make good on these pensions. It has $39 billion to cover $62.3 billion, and faces a theoretical but not totally implausible liability of $450 billion, which the taxpayer is on the hook for.
Congress is considering raising employers' insurance premiums and tightening plan standards, but that might only encourage wavering employers to dump their defined-benefit plans.
The real worry is that other airlines will follow the examples of United and US Airways in shedding their pension plans to remain competitive and that, in turn, will spread into other big industries, like the Big Three automakers and their suppliers.
The alternative to defined-benefit plans is defined-contribution plans, like 401(k)s, but these plans transfer all the risk to the worker, have no assured outcome at retirement and younger workers often decline to participate.
Social Security reform is all well and good, but the warning shot from the United case is that it must inescapably be part of a national rethinking of how to finance the retirements of low- and middle-income workers.
Distributed by Scripps Howard News Service, http://www.shns.com