Who Should Pay for the Corporate Pension Shortfall?

Robert Reich, a former secretary of labor, argues that the corporations that created pension plans are responsible for funding them. President Bush agrees with him:

"The President wants a law that forces companies to fully fund their pension obligations to their employees. He’s right."

How big is the shortfall, you ask? And shouldn't the PBGC ensure underfunded pensions are safe? More than 450 billion dollars. Oh, and the PBGC is short on cash, too:

"Corporate pension plans don’t have nearly enough money to pay what the companies have promised their workers. We’re talking big money here -- a shortfall of over $450 billion. And if companies can’t pay up, you know who’s left holding the bag? Not only 44 million Americans who won’t get the monthly pension payments they were promised. You and I and every other taxpayer will also be on the hook.

You see, there’s a government agency called the Pension Benefit Guarantee Corporation that’s supposed to insure most of these promises. But the PBGC itself is already deep in the red, to the tune of almost $30 billion."

Some lobbyists don't agree with the president:

"Lobbyists for big companies argue they shouldn’t be required to fully fund their pension promises. They say that such a requirement will discourage them from setting up pension plans in the first place. That’s like saying drivers shouldn’t be required to stop at stop lights because that might discourage them from driving. If companies aren’t funding their pension promises, they shouldn’t be making pension promises to begin with.

The lobbyists also argue that forcing companies with low credit ratings to pay up faster -- as is only logical, since their underfunded plans are at greater risk -- will push these companies into bankruptcy. But no one is talking about placing new obligations on them. They already owe their retirees this money. Why should retirees be treated differently from the company’s creditors and suppliers, who get paid what they’re owed?"

Let's all hope tax payers won't be the one bailing out underfunded corporate pensions.

The Pension Pinch [American Prospect, June 1, 2006]