The savings and loan debacle of the 1990s led to a bailout with an estimated tab to taxpayers of $480 billion. Lawmakers vowed never again — but here we are again.
The General Accounting Office says the Pension Benefit Guaranty Corp., an obscure but vital quasi-governmental agency, is at "high risk." The agency insures private industry defined benefit pension plans, where a company's retirees are guaranteed a fixed benefit for life. If the company goes broke, the agency takes over, paying the retirees' pensions up to a certain amount.
The system works great when times are good, but times haven't been so good, and defined benefit pension plans are now underfunded to the tune of $300 billion. The plans would need that amount to be able to make good on all their pension obligations. Most will be able to do so, but The Wall Street Journal estimates that a third of that $300 billion is seriously at risk, meaning the agency could be on the hook for part of it.
The agency, normally flush with reserve cash, is running a $5.4 billion deficit. And the insurance fund faces serious liabilities between corporate bankruptcies and shrinking employment in industries such as manufacturing with an older workforce and large numbers of retirees.
With Social Security facing overwhelming demands and the Baby Boom generation nearing retirement, it's vital that defined benefit plans be protected and employers encouraged to retain them. Hoping 401(k)s and other tax-deferred plans would make up for their absence is wishful thinking. The simple fact is that individuals cannot be counted on to voluntarily plan and save for retirement; defined benefit plans, like Social Security, take that out of their hands.
The agency is OK in the short term, and some stopgap measures now before Congress might help, but long-term the agency is looking at a taxpayer bailout. The House Education and Workforce Committee plans to hold hearings this fall on ways to guarantee the solvency of the agency and the integrity of defined benefit pensions.
Congress can't say it wasn't warned. Again.