I guess in the wake of the United Airlines pension default, Congress has decided to do something. Make the problem worse:
Employers will be able to slash their contributions to underfunded pension schemes by tens of billions of dollars over the next five years under proposed legislation before Congress that was expected to have the opposite effect.
The legislation was proposed by the White House last year to lessen the risk of a taxpayer bailout of the Pension Benefit Guaranty Corporation, a federal safety net for pension schemes.
***Both bills fall far short of the goals set out for legislation proposed last year by the White House, which had formally threatened a veto unless certain measures in either bill are altered.
Of particular note are provisions in the Senate version of the bill which allow the airline industry up to 20 years to fully fund its pension deficits and also give it much wider leeway in the assumptions it uses to determine whether or not company schemes are fully funded. According to Coffi, many of the congressman who passed the House bill did so on the understanding that special relief for the troubled airlines industry would be included in the final version that emerges from the Conference Committee.
So far, the PBGC has sustained losses of about $10bn arising from the pension schemes at US Airways and United Airways. Delta and Northwest Airlines, currently in bankruptcy, will add a further $11.2bn.
Coffi has said that offering relief to airlines is likely to spark pleas for similar relief from other hard-pressed industries. The PBGC has estimated that the entire US auto manufacturing industry – including tyre and rubber companies and auto parts suppliers – has has aggregate liabilities of $55bn to $60bn.
Meanwhile, other provisions have also strayed far from administration proposals aimed at limiting losses on the PBGC. In particular, both significantly ease the financing requirements for employers with the weakest credit ratings, the category of employer most likely to present a claim for pension benefits to the PBGC.
Yay TEAM!
Bob In Pacifica
For the past fifty years the Republicans have run on the platform that government can’t solve the individual’s problems. Why start now?
Steve
When you run a pension plan, you can never really know for sure that it has enough money in it. You don’t know how many retirees you will be paying for 20 years from now. You don’t know how long those people will live. You don’t know how many workers will be paying into the pension plan between now and then. Since you can’t know these things for sure, the law relies on actuarial assumptions to tell you what you need to do.
Loosening the actuarial assumptions, in and of itself, doesn’t make it more or less likely that the plan will have enough money in 20 years. What it does do, as John suggests, is let you kick the can down the road. By loosening the assumptions, even if your plan is facing a future deficit, it will take longer for that fact to become apparent. Instead of there being a massive pension crisis during the Bush Administration, we’ll see one during the Hillary Administration, or maybe the Jenna Administration.
This will all be a refresher course for those who are too young to remember the S&L crisis.
Mr Furious
I won’t even pretend to fully understand this stuff, but I am not surprised a bit that the “solution” is actually worse than the problem.
And it’s not because big government can’t solve problems, it’s because everything the current Republican Party turns out is nothing more than thinly-veiled and cleverly-named larceny.
What are they going to call this one” “Employee Pension Protection Act?” “Healthy Pensions?”
Dave Schuler
Let’s see, if you indemnify managers against the adverse effects of their own bad decisions, does this encourage managers to make more or less prudent decisions in the future?
Mr Furious
I dunno, Dave, let’s ask Rumsfeld.
Steve
Well, that’s exactly the lesson of the S&L crisis. If the government says “don’t worry, if your investments fail, we’ll bail you out,” then the incentive is to make the riskiest investments possible.
On the other hand, it’s important for the government to stand behind some things, like your federally insured bank account, and pensions are another one of those things. So what you have to do is set strict standards for how the pension plan has to be run, so that the managers don’t engage in overly risky behavior.
That’s the theory, at least. What this bill does is say, it’s awfully hard for struggling companies to live up to those strict standards, so let’s get rid of them. We’ll see how that turns out.
Dantheman
John,
As I said yesterday in another thread, the Republicans do practice redistribution, it just goes in the other direction.
The Other Steve
Dantheman – In this case it’s redistribution from the future to the present.
Frankly, I think a lot of this is Republicans basically saying, “Look, the country is going into the shitter. Let’s get what we can while the getting is good.”
Then they’ll move to the Bahamas and live comfortably.
Yeah, I don’t know. Like Steve said there is an issue of how do you calculate if you have enough. I mean a large part of the pension program problem today is because of the market crash of 2001.
don surber
PBGC is a congressional boondoggle given to unions in the 1970s to protect overgenerous pensions and health benefits from reality. “Legacy costs” are killing America’s steel and auto industries. PBGC’s collapse is inevitable
John, you live in a state that only funds 23% of its teacher pensions (the defined benefits — or old — TRS plan)
Sam Hutcheson
Yesterday John realized that the Republican Party was beholden to wing-nut religious factions. Today John realized that the Republican Party is beholden to corporate donor interests at the expense of the every day working man.
It’s progress.
Steve
Let’s assume you’re correct. You can either do something to ease the burden of an inevitable collapse, or you can just ease the reporting requirements and kick the collapse a few more years down the road. Which do you think is the responsible course?
Angry Engineer
Boy, the automakers have to be loving this news. Now, GM won’t face a complete wipe-out of its market capitialization due to its $11B pension liability.
I wouldn’t want to be the guy who’s in office when the PBGC collapses. Bush will probably be lucky enough to see it happen on someone else’s watch, but I wouldn’t bank on that right now – there are a lot of bad things that will happen in the manufacturing industry between now and the beginning of ’09.
Dantheman
The Other Steve,
“Dantheman – In this case it’s redistribution from the future to the present.”
Not really — it’s a transfer from the pension holders to the stockholders (or in crude Marxist terms, from labor to capital).
don surber
Steve, it was inevitable from the day it began. I have written enough editorials on this since 1987 to bore you to tears.
Oddly enough, PBGC requires companies to invest money in stocks and bonds (Bush’s Soc Sec plan) to cover pensions.
don surber
Actually, Dantheman, it is giving workers deferred payments for the work they perform today, just like management.
Defined benefits plans are little golden parachutes that mean workers do not have to pay taxes on all their earnings and sock away some of that toward their retirement. Instead they get some of the money now, more of it later.
GM’s wage and benefits now cost $73.73 per hour per worker. That’s $150K-plus per worker
Compare that to your Marxist paradise in Cuba, where ironically they still drive 58 Buicks
Steve
That’s not Bush’s Social Security plan. Bush’s Social Security plan is for the government to borrow several trillion dollars and then distribute it to individual workers to be invested in stocks and bonds.
Your comment suggests that you don’t understand the difference between Social Security and a 401(k), which is puzzling because I know you do.
KC
It really is disgusting what they’re doing. Take a real problem and make it worse. It has become the M.O. of this adminstration and I hate to say it, Republicans in Congress. I really hope Dems in Congress take note if they win a house in November
Dantheman
Don Surber,
“Actually, Dantheman, it is giving workers deferred payments for the work they perform today, just like management.”
Not really. It is more like reneging on promises to the pension holders in order to add to corporate profits. Didn’t you even read the article John cited? Here’s a hint:
“Employers will be able to slash their contributions to underfunded pension schemes by tens of billions of dollars over the next five years under proposed legislation before Congress that was expected to have the opposite effect.”
Whether trading a defined contribution plan for a defined benefits plan with respect to future benefits is a good thing is not the issue. The law allows employers to escape their existing liabilities, which they agreed to in labor contracts with their employees. Pretending that the employees are not getting shafted by this is just blindness.
The Other Steve
That’s pretty much what I said. pension holders = future earnings… stock holders = present earnings
The Other Steve
I guess you have a choice.
Do you want to fix privatized ways to deal with employe retirement?
Or do you just want to increase social security and welfare?
You decide.
Dantheman
The Other Steve,
“That’s pretty much what I said. pension holders = future earnings… stock holders = present earnings”
Only if the pension holders and the stockholders are the same persons. I strongly doubt it is true for any company with more than 20 employees, and certainly not for any company which is publicly traded.
Gray
OK, I know this belongs in the thread below, but wtf:
Hehehehehehehehehehe!
So ein Tag, so wunderschön wie heute, so ein Tag, der dürfte nie vergehn!
Davebo
Don,
Was it inevitable? Is Toyota or Honda underfunding their pension plans for US employees? Or Southwest Airlines, the most unionized (and profitable) airline in America?
stickler
What was that about corporate managers and Republicans stealing today so they could retire in luxury?
Fortunately, I guess, global warming will raise the sea levels by twenty feet. There won’t be a Bahamas to retire to.
Remfin
I don’t understand, the Free Market is great…up until normal workers start bargaining for a better position, because evidentally the Free Market system has some hidden rule that only CEOs are allowed to bargain for giant salary and bonuses?
Let’s get the timeline clear here: Workers use their rights in a Free Market to bargain – CEOs agree to bargain – CEOs STEAL part of the worker’s paychecks (which is what pensions are, they are part of your wages) – Pension funds run out of money
PBGC is not “for” unions. It’s “for” CEOs because there are 2 choices thanks to the realities of public opinion – someone picks up the pension defaults they created by their THEFT, or they get to spend years in a jail cell with a Bubba who hasn’t seen a woman in 30 years. If the CEOs weren’t stealing the money there would not be a need for the PBGC (at least, not of this scope)
This will start to happen with 401(k)s too. In fact it’s already started to happen in some of the smaller bankrupticies so people haven’t heard much about it yet, we haven’t had an Enron-sized theft yet but that day will come. I wonder if the people who whine about Union pensions will just shrug it off when the same thing happens to the “common” man’s 401(k)?
The Other Steve
I was referring to the give away to the stockholders today, at the expense of the pension recipients in the future.
Whatever. It’s not worth arguing with people who are purposefully obtuse.
The Other Steve
Gray –
Never Forget! This news must be trumpeted throughout the blogosphere, of how the Washington Post tried to balance responsible journalism with irresponsible hackery.
Plagerism. What a tool.
And he’s deeply linked to the Redstate.org blog, as well as the Republican party.
Dantheman
The Other Steve,
“It’s not worth arguing with people who are purposefully obtuse.”
You have certainly proven that. But I’ll take one final shot.
I would not have a great problem with people taking their own money from future consumption for their own present spending. The problem is that the people receiving the money now are not the same people whose future consumption is being taken from. The people receiving the money are the shareholders of the company. The people whose money is being taken are the workers. Therefore, this is a redistribution of income from the workers to the shareholders (as I originally said).
The Other Steve
yes! That is Exactly what I was saying.
Pb
The Other Steve,
Never Forget! This news must be trumpeted throughout the blogosphere, of how the Washington Post tried to balance responsible journalism with irresponsible hackery.
:)
Oh, and that’s ‘plagiarism’, btw.
You know, 6 months ago, I might have been dismayed at how far Red State had fallen. But not now–try as they might to run from it, Ben Domenech is their cultural representative to the rest of us, and the rest of us are rightly recoiling from what they see.
Hey Red Staters, so you like to quote Bible verses at the rest of us? Well here’s one just for you:
Galatians 6:7 – Be not deceived; God is not mocked: for whatsoever a man soweth, that shall he also reap.
don surber
Just a reminder: Who called for WaPo to dump this Ben Domenech before plagiarism surfaced?
Ow
I just dislocated my shoulder patting myself on the back
Pb
Don Surber,
I just looked over your blog, and it scares me how much I agree with you on the Domenech fiasco–nice job! :)
DougJ
This may seem like an important story but when you compare it to the misdeeds of Jane Hamsher, Howard Dean, and Cindy Sheehan, it’s pretty small potatos.
DougJ
Good for you, Don. Seriously. I’ve looked your blog over a few times and I really respect how you run the place. If everyone called them like they see them the way that you do, the blogosphere and the country would be a better place.