Printer Friendly

Pension tension: our other retirement time bomb.

THE DEBATE over Social Security reform has put the retirement program's fiscal woes in the headlines. But public attention hasn't yet fixed on the foundering Pension Benefit Guaranty Corporation (PBGC), the government program that insures private employers' pension programs--and that Sen. John McCain (R-Ariz.) calls a "looming train wreck that could cost the taxpayers of America untold billions of dollars."

In fiscal year 2004 PBGC, which covers more than 34 million workers and retirees, paid out some $3 billion in benefits to pension plan beneficiaries--more than twice what it took in from employers in premiums. The total accumulated deficit of its insurance program came to $23.3 billion, more than double the figure for the previous year.

A March report from the Government Accountability Office found that PBGC's problems aren't just the result of economic bad luck, though recent airline bankruptcies have dumped some hefty new liabilities in the insurer's lap. The report found that because the law requires the corporation to keep premiums low--half the rate private insurers would charge, according to one estimate--"premiums paid by plan sponsors under the pension insurance system have not adequately reflected the financial risk to which PBGC is exposed." As a result, there's a perverse incentive "for financially troubled sponsors to increase pension benefits, possibly in lieu of wage increases, even if their plans have insufficient funding to pay' current benefit levels."

The 30-year-old program was intended to safeguard workers' nest eggs against market fluctuations. As currently structured, it seems better at encouraging companies to roll the dice with employees' retirement funds, secure in the knowledge that taxpayers will pick up the tab.
COPYRIGHT 2005 Reason Foundation
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2005, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:Citings
Author:Sanchez, Julian
Publication:Reason
Article Type:Brief Article
Geographic Code:1USA
Date:Jun 1, 2005
Words:271
Previous Article:A homeschooling group in Simpsonville, South Carolina, chose a local park for its meetings because it was next to a police station.
Next Article:Free to B&B: Seattle's zoning tyrants.
Topics:


Related Articles
Before the FASB's OPEB ruling: the first steps to take.
Police pension and retirement system: a deferred option plan.
Staying off the cover of Time.
You've frozen your pension plan: now, the work really begins; Freezing a defined-benefit pension plan is not a 'done deal.' Rather, it requires a...
Quote/unquote.

Terms of use | Privacy policy | Copyright © 2020 Farlex, Inc. | Feedback | For webmasters