NCPA - National Center for Policy Analysis

Another Pension Bailout

February 2, 2004

President Bush should veto the bailout for airlines and steel that just passed the Senate under the guise of pension "reform," says the Wall Street Journal.

The Senate bill provides relief worth about $80 billion by allowing companies to discount liabilities with corporate bond rates for two years. But it also adds a very special relief, worth another $26 billion, for plans with the most severe underfunding.

These dangerously underfunded companies -- and they are mostly in the airline and steel industries -- are supposed to close their funding gaps by making something called deficit reduction contributions (DRC):

  • Any company plan that is under 90 percent of its funding requirement must make catch-up payments on an accelerated basis -- in three to seven years instead of the more generous period of up to 30 years.
  • However, the Senate bill relieves these companies of 80 percent of DRC obligations in the first year and 60 percent in the second year.

Such special relief for politically favored industries is always a bad idea. But worse, it subsidizes the most underfunded plans at the expense of the plans that have been good (or, at least, better) citizens. That is unfair. But what really rankles is that the history of this type of subsidy demonstrates that it only postpones the day of reckoning, says the Journal.

And when that day comes, the problem will have grown even larger. Think thrift industry here. The subsidies will only add to pension shortfalls so that when the federal agency that insures these plans ultimately does step in, the tab will be vastly larger than it would have been, says the Journal.

Source: Editorial, "Another Pension Bailout," Wall Street Journal, February 2, 2004.

For WSJ text (subscription required),,SB107567926250117483,00.html


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