Another Fine Pension Mess

[Geee]

American Thinker:

Amidst the raucous squawking occasioned by Obama's Kinetic Military Action in Libya, a story has gone unremarked in the general press. It concerns the pension tsunami that is looming at all levels of government.

The story is the flimsy state of the Pension Benefit Guaranty Corporation (PBGC). It is covered magisterially in a new paper written by the fine economist Charles Blahous of the Mercatus Center at George Mason University. Entitled "The 'Other' Pension Crisis: Options for Avoiding a Taxpayer Bailout of the PBGC," it is easily found on the internet, and is a real eye-popper.

The PBGC is an ill-conceived, federally chartered corporation, established in 1974 in the wake of several business failures that left their pension funds broke. Congress, in effect, set up an agency to guarantee pensions negotiated between private industry and private industry unions; the taxpayer would be the guarantor of last resort for particular private pension contracts.

As such, the PBGC wasn't just redundant (duplicating Social Security's initial purpose) but was and is the ultimate exercise in moral hazard. It encouraged unions to demand unsustainably high pension plans, and companies to grant them, because all parties knew that the U.S. would be there no matter what.

Blahous starts by reviewing the current unfunded liabilities facing the PBGC. Its single-employer pension insurance covers about 33.8 million workers in some 26,000 plans. If a plan fails, the PBGC assumes both its assets and its liabilities (obligations). The fund pays the employees their pensions, up to $55,000 a year. As of last year, it was already paying out about $5.6 billion to over 800,000 retirees.