The Association of U S West Retirees



Pensions weigh on employers, workers
Traditional pension plans are putting enormous stress on long-standing companies and their retirees. Congress is shadow-boxing with reform.
Denver Post Editorial
Tuesday, November 29, 2005

Last week's announcement that General Motors will eliminate 5,000 more jobs - 30,000 in all - is only the latest warning of how much "legacy costs" such as pensions and retiree health care benefits are threatening the future of many long-standing American businesses, as well as the financial security of former employees who toiled long and honorably for those enterprises.

The U.S. Senate, on a 97-2 vote, took a feeble stab at part of that problem last week by passing a bill designed to buttress traditional "defined benefit" pensions like those at GM.  But the Pension Benefit Guaranty Corp. -- the federal agency that insures pensions for 44 million American workers and retirees -- fears the legislation might actually reduce employer contributions to many pension plans.

The Senate plan does have some merits, including an increase in premiums employers pay to the federal insurers from $19 per employee per year to a still modest $30.  But on balance, it actually reduces the contributions companies are required to make to their plans, according to federal experts.  That could worsen the PBGC's real problem -- the gap between the pensions it is obligated to pay out on behalf of bankrupt employers and the amount of employer contributions in those plans.

The Senate vote came just one day after the PBGC said it was facing a deficit of $22.8 billion, largely because of the pension liabilities it has inherited from bankrupt steel and airline companies.  If General Motors and its key suppliers were to ultimately face bankruptcy, the PBGC's unfunded liabilities could go into hyperspace.  The PBGC estimates that GM alone has underfunded its pension plan by $31 billion.  U.S. employers as a whole are a stunning $450 billion short of funding their pension obligations in full.

The House is still working on a pension bill, though it may not be able to do much better than the Senate. Requiring employers to fortify their plans might force some of them into bankruptcy, precipitating the very federal takeover such rules would be intended to forestall.  Other employers might drop pension plans entirely or, more positively, shift to defined-contribution pensions such as the popular 401(k) plans.

In the end, the PBGC may need a taxpayer rescue of a magnitude rivaling the savings and loan bailout in the late '80s.  If it comes to that, so be it.  The U.S. economy can't afford to lose the 29,651 companies that provide defined-benefit pensions, and the workers and retirees covered by such plans shouldn't be shorn of the security in their old age that they sweated a lifetime to earn.