GOVERNMENT PENSION FUND INSOLVENT
November 29, 2004
The Pension Benefit Guaranty Corporation (PBGC), the government agency that insures private pension funds, announced a record deficit last week of $23.3 billion and taxpayers could be on the hook for more, writes the Wall Street Journal.
Congress has not taken measures to deal with the revenue shortfall, says the Journal. In fact, it gave a special tax break to significantly underfunded pension plans like those in the airline and steel industry. It also allowed underfunded companies to stretch out catch-up payments to up to 30 years.
The Journal notes that since most underfunded companies will terminate their plans anyways, the pension agency will be stuck with billions of additional dollars of debt, leaving the PBGC on shaky ground:
- Last year, the agency's deficit rose by $12 billion with 155 company plans terminating.
- For every one dollar PBGC takes in premiums it pays out about three dollars in benefits.
- At the current pace of pension plan takeovers, the agency could run out of money in 16 years.
Raising premiums paid by companies and adjusting them for risk is not sufficient reform, writes the Wall Street Journal, warning it is likely that healthy companies would just drop out of the system and struggling companies would be more likely to terminate their plans.
Source: Editorial, "The Next S&L Crisis," Wall Street Journal, November 22, 2004.
For WSJ text (subscription required) http://online.wsj.com/article/0,,SB110108297305480412-search,00.html
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