Pension reform follies

October 26, 2005

General Motors CEO Rick Waggoner last week said bankruptcy isn't an option for the troubled automaker. But recent events at least raise that ominous possibility: GM's continuing losses, its pension liabilities for thousands of employees of its bankrupt parts supplier, its deal with the auto workers union undoing free health insurance for workers and retirees, and hints of more problems ahead, including perhaps for GM's pensions.

And that, in turn, underscores a dramatically growing financial burden shared by all taxpayers, one for which movement toward congressional relief is now disappointingly stalled.

The burden arises because taxpayers insure private pensions. If GM were to go bankrupt and its pension plan ended, a federal agency would be on the hook for about $31 billion. By accounting rules, GM's plan is fully funded as long as it keeps running, but $31 billion is the actual shortfall if it were to end today. Even short of a GM bankruptcy, more than $60 billion from underfunded pension plans is expected to be dumped over the next decade on the federal Pension Benefit Guaranty Corp., already $23 billion in debt from steel and airline bankruptcies. Overall, corporate America's long-term pension underfunding totals about $450 billion.

This urgent national problem has been brewing a long time. This year, the Bush administration finally proposed raising the PBGC's insurance premiums, tightening pension funding rules and requiring firms with underfunded pensions to put more into them. The administration then seemed to stay on track as pension reform bills made their way through the House and Senate.

But a recent Congressional Budget Office analysis found that both the House and Senate bills would actually raise the PBGC's 10-year costs, making the problem worse. And a Bush administration analysis reportedly shows the proposed reforms, in requiring firms to put additional billions of dollars into their plans, would cause them to end the plans. Given all that, it's a good thing that the Senate's version of the pension reform bill is bogged down in heavy infighting.

On that score, Maryland Democratic Sen. Barbara A. Mikulski is accused of holding up a Senate vote - in pushing for a change to the threshold for designating an underfunded plan in need of more company payments. She objects to the trigger being a lowered company credit rating. Some firms' ratings go down while their pensions are still fully funded according to accounting rules, such as in GM's case. So she fears the Senate bill would push firms enduring a cyclical downturn to drop their plans - instead of having to overfund them.

Senator Mikulski at least has an argument: Serious pension reform requires a balance. If too little or too much is required of firms, the losses of defined-benefit pension plans - for 45 million workers and retirees - may only increase. As Congress tries to find that balance, however, what's really troubling is that, according to the CBO, the two pension bills now in play would simply make matters worse and burden taxpayers more.

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