It’s been a while since I’ve complained about the Pension Benefit Guarantee Corporation, the federal program under which people whose pension plans have gone belly up continue to be paid some sort of pension. It’s another of those public/private hybrids I complained about recently. In a recent editorial the editors of the Wall Street Journal warn that the PBGC may need the next big federal bailout:
Labor unions like to promote their generous defined-benefit pensions. Yet when these benefits prove unsustainable, workers can lose their jobs and retirement savings. The kicker is that taxpayers may soon be tapped to perpetuate this double fraud.
That’s the main take-away from a new report by the Pension Benefit Guaranty Corporation (PBGC), which insures multi-employer pension plans for 10.4 million workers and retirees. The federal agency projects that its deficit for multi-employer plans will balloon to $49.6 billion by 2023 from $8.3 billion. Last year the PBGC forecasted a deficit of $26.2 billion in 2022, and its upward revision reflects the increasing likelihood that more plans will become insolvent and sooner.
Of all of the possible solutions for solving the PBGC’s money problems paying its shortfalls out of the general fund must surely be the worst.
I don’t think the PBGC should exist at all. It’s the rankest sort of corporate welfare, right up there with the Export-Import Bank. It enables companies that are so inclined to underfund their pensions and pay less than the legitimate cost of insuring the funds to underwrite them.
Additionally, it’s manifestly unjust. It forces people who have no pensions to pay for the pensions, largely through their payroll taxes, of those who do.
If you can’t bear to abolish the PBGC, my second proposal would be changing it into a real insurance plan in which premiums are proportion to costs and risks. That would at least be a disincentive for the corporate misbehaviors I mention above. Another possibility would be to limit payouts under the PBGC to what premiums bring in. If it’s good enough for Social Security, why isn’t it good enough for private pensions?
The very last thing we should do is continually stoke the PBGC with money.
That’s where much of our tax revenue goes these days — throwing it after bad, duplicitous, or irrelevant programs that are essentially immune to reform or appeal. They just go on and on like Energizer Bunnies.
The PBGC should also set standards for the funds, and the pension funds should have input in the rulemaking. This gives the well run pension funds incentives to weed out poor practices becauses they will eventually pick up these funds anyway. I would also work in the unions since they negotiated the contracts.
This is similar to how the FDIC works. The industry funds the bailouts, and the FDIC regulates bank practices. It is in the industry’s best interest for the FDIC to regulate well or they pay – feedback loops.
Incentives Dave. In an LLC, what incentives do the execs have to make sure that the pension is solvent? Not much. They are protected. Make the personal assets of the execs, their spouses and their children tied up with the pension, then they will take some care. Until then, other than the PBGC, what protections does a worker have? Not much.
Steve
Right now there are tax incentives for workers to take some of their pay in the form of deferred compensation. That’s all well and good but we shouldn’t subsidize it.
The way to protect workers’ interests is by having sound pension plans whether public or private. That isn’t happening now so something should change. I think that changing the PBGC is one of the changes.
I don’t think the PBGC would exist in an ideal world, but what you do these days? Skinning and salting corporate executives who deliberately screwed up profit centers pension funds back in the Clinton days has gone out of style, and upside-down crucifixions haven’t gotten past the novelty stage.
So. Perhaps a special tax levy on corporations of all sizes, aimed at refilling pension funds, and a special diversion of federal revenues to states with deficit-stricken pension systems, using some sort of sliding scale — the more years that have passed since your own company (or state) screwed up a pension, the lower your tax would be or the more federal funding you might get to train your police and firemen and paramedics.
As for the “moral risk” side of things, I don’t see that using federal funds to set a pension fund upright is really much worse than using federal funds to prop up mismanaged banks. What am I missing?