While the airlines have been getting most of the news concerning the failure of pension funds, they are just the tip of a massive iceberg. As we’ll explain, both America’s private and public pensions are in jeopardy.
While the airline pensions are under-funded to the tune of $32 billion at the moment, the auto companies are down nearly twice that amount.
In fact, the lack of funding is growing at a galloping 27 percent per year, according to a recent article in BusinessWeek. Meanwhile, the Pension Benefit Guaranty Corporation, or PBGC, which recently bailed out Bethlehem Steel and United Airlines, among others, faces its own shortfall of $23 billion. The PBGC is the federal agency that insures private pensions.
One of the reasons for this mess is that the government’s own rules about how pensions are handled do not make any sense. For example, Bethlehem Steel was legally in compliance with the rules, even while it made no contributions to its pension plan for three years running prior to collapsing in 2002, when it was already $4.3 billion behind.
United made no contributions from 2000 to 2004, and it was $3 billion down when it started. On the basis of odd and useless accounting rules, United’s plan appeared to be fully funded. In reality, it was short by 41 percent. When United finally turned over its plan to the PBGC, it was nearly $10 billion in the hole, making it the largest corporate pension default in U.S. history.
As of now, there is no incentive for companies to avoid such abuses of the system. They can simply fail to pay and then wait for the government to step in and pick up the tab.
In addition, these failures often come as a complete surprise to the workers, because under the current rules, no one has to tell them when their pensions are under-funded until as much as 30 months after the fact, by which time it may be too late.
The latest series of reports filed with the PBGC on April 15, 2005 covered 15 million workers and 1,108 pension funds. They were under-funded to the tune of 69 percent, on average. But that series of reports covered only companies that were down $50 million or more.
The total shortfall in all insured pension plans exceeds $450 billion in the private sector, according to an InvestorsInsight...
