Who Will Guarantee This Guarantor? Part Two

[Valin]

The American:

The director of the Pension Benefit Guaranty Corporation responds to an article on American.com.

Alex J. Pollock

July 20, 2012

 

Late last month I published a piece on the serious financial problems at the Pension Benefit Guaranty Corporation (PBGC), the government corporation that guarantees private pension plans (see “The Pension Benefit Guaranty Corporation: Who Will Guarantee This Guarantor?”).

 

The article prompted a thoughtful response from Josh Gotbaum, the director of the PBGC. His response follows, along with my additional comments:

 

(Snip)

 

I appreciate Mr. Gotbaum’s letter and salute his efforts to increase the revenues of the PBGC. He and I agree on the sharp irony that “self-financing” has created a $26 billion deficit. He is right that PBGC has not so far taken any cash from the taxpayers, but it is still financially dependent on them. No entity would be allowed to continue operating with such a huge deficit net worth if it were not guaranteed by somebody else—in this case, the taxpayers. Of course, this guaranty is “implicit,” just as it was for Fannie Mae and Freddie Mac. We all know that when financial push comes to shove, “implicit” government guarantees turn into explicit taxpayer costs. Mr. Gotbaum and I agree on this risk.

 

(Snip)