NCPA - National Center for Policy Analysis


January 18, 2005

The problems facing America's pension funds and the government agency responsible for insuring them may complicate attempts to reform Social Security, says George Will.

The Pension Benefit Guaranty Corporation (PBGC) is a government entity created in 1974 after some bankruptcies left thousands of retirees without pensions. PBGC insures -- but not completely -- companies' pension funds.

Once a source of revenue for Washington, the (PBGC) now pays out a lot more than it takes in. Today, PBGC has a $23 billion deficit, up from $11.2 billion last year -- largely as the result of the crisis in the airline industry, says Will:

  • The PBGC deficit will likely become worse as the airline industry continues to adjust, with more companies set to dump their pensions onto the agency.
  • "Legacy carriers," airlines from the era before deregulation and competition that pay higher salaries and benefits, are particularly fragile; in 2002, the five strongest legacy carriers had costs of $95,500 per employee, while competitor Southwest had costs of $59,100.

Will notes that the "financial fragility of the highly visible airline industry may be spreading an infection of insecurity about pension promises generally." As a result, the public may be slow to accept reform proposals to Social Security.

Source: George Will, "Social Insecurity,", January 16, 2004.


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