Private Pensions at Risk
January 14, 2004
The Pension Benefit Guaranty Corp., the federal agency that insures the nation's private pensions, is expected to show a record $10 billion loss in 2003. Should it be in business?
That amount -- $10 billion -- might not sound like a lot, especially not in a $2.2 trillion budget. But consider this: The PBGC insures 44 million Americans at 32,500 companies. The potential exposure is enormous, says Investor's Business Daily.
Right now, the PBGC can take care of itself by dipping into the premiums it collects. But eventually, as it takes over more insolvent retirement plans and its own losses grow, taxpayers may have to bail out the PBGC.
- That's not a cheery thought, since U.S. corporations owe their retirees $350 billion more than they've set aside, data show.
- With the massive 77 million baby boomer group ready to start retiring in just five years or so, that sets the stage for a financial nightmare.
So how did things get so bad? Many companies, mainly unionized ones, promised workers big payouts and generous health care benefits upon retirement. And why not? They knew they wouldn't have to pay for them, says IBD.
When times were good, many companies raided their pension funds for surplus cash. But when times got bad they let PBGC, which insures pensions at below-market rates, pick up the tab.
Like Medicare and Social Security, the PBGC is a bad problem getting worse. Rather than more government, we need broad-based reforms that encourage more workers to save for their own retirements - through private Social Security accounts, enhanced IRAs and other types of tax-free savings, says IBD.
Source: Editorial, "Bad, Getting Worse," Investor's Business Daily, January 14, 2003.
Browse more articles on Tax and Spending Issues