Economics

Presenting the Pension Benefit Guaranty Corp., the Next Gigantic Black Hole in the U.S. Government's Balance Sheet

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The Pension Benefit Guaranty Corp. already has an $11 billion deficit that seems sure to grow larger.

With companies reporting shortfalls in their pension funds, it's all but certain that the PBGC will be forced to take over the pension plans of a rising number of bankrupt businesses.

The future financial health of the agency is hard to forecast. It is hinged on interest rates, the length of the recession and the PBGC's own luck in playing the market, where it has billions invested.

The agency has $63 billion in assets. But it is obligated to spend $74 billion on pension benefits in the coming years. The PBGC might have time to rebound, but over the long term it might require a bailout.

"Someday—probably more than 20 years from now—there's a significant chance that somebody is going to have to pay the piper," said former PBGC Director Charles E.F. Millard.

The PBGC is the "government corporation that insures the pensions of 44 million workers and retirees." You get one guess who is going to have to pay the piper on this one. The fund takes over private-sector defined-benefit plans when they are terminated. As the AP reports, nine of the 10 biggest pension terminations guaranteed by the PBGC have occurred since 2001.

Whole story here.

Jon Entine looked at the ticking time bomb that is union and public-sector pensions in the February issue of Reason. Read it and weep here.

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  1. another news, i now fully believe the economy has gone to hell

    the doom chorus is ringing in my head, where’s my BFG? The only way out is though!

  2. “Someday-probably more than 20 years from now-there’s a significant chance that somebody is going to have to pay the piper,” said former PBGC Director Charles E.F. Millard.

    Here’s an idea — why don’t we pay the piper now when it won’t cost as much, rather than saddle the next generation with this?

    I know such thinking is anathema to the Boomer majority, but hey, it’s worth putting out there.

  3. You know what? I don’t even care anymore. Fuck my 401k. I’m sick of this shit! I’m just gonna go whoring, gambling, and drinking 24/7. I don’t need a fucking job anyway. I’m calling in my HOPE and CHANGE cards.

  4. I dearly hope GM does not know the existence of this corporation.

  5. Just think of what would happen to the unemployment figures of pensions went bust, causing a whole slew of old people to start looking for work again.

  6. I think it was United Airlines that already stuck the tax payers with paying its pensions. It is really a great gig if you can get it. You get unions to negotiate unsustainable pensions. Then when the pension go broke, you get the same unions to pull their bought and paid for lawmakers out of their pockets and get the taxpayer to cover the whole thing. What a racket.

  7. Seriously. I read the news and think there’s no way we’re ever going to be able to dig ourselves out of this mess, and that we’re doomed to hundreds of years as a third-world country with the added bonus of being hated by everyone worldwide, so no foreign aid…and then I look outside and people aren’t fighting in the streets over canned goods, which would be the logical reaction to such a forecast, so I think I must be overreacting.

    I really don’t want to consider the possibility that everyone else is just stupid or deluded.

  8. 11 billion? That’s chump change these days.

  9. Oh, and I should also note that WHAT THE HELL IS THE GOVERNMENT DOING GUARANTEEING PRIVATE PENSION FUNDS THAT ARE INVESTED IN THE STOCK MARKET!!!!!!!!

  10. stuart,

    To logically invert and profanitize an old saying, if you don’t watch your pennies, your dollars are fucked too.

  11. Not to pile on the misery or anything, but in addition to the PBGC hole are all the state and local government holes for their unfunded pension and retiree healthcare liabilties.

    At some point, they will all be raising taxes to cover that AND engaging in additional begging to the federal government to further bail them out.

  12. Then when the pension go broke, you get the same unions to pull their bought and paid for lawmakers out of their pockets and get the taxpayer to cover the whole thing.

    There is also ample room for corruption during the initial funding of the plan. At least the benefits are capped if the PBGC takes over.

    I am not vesting in a pension plan, nor are the majority of the people employed by industries that function in a competitive market (non-public sector and non-union dominated). It is only equitable that we are relieved from any obligations once this ERISA-era train wreck grinds to a stop.

    WHAT THE HELL IS THE GOVERNMENT DOING GUARANTEEING PRIVATE PENSION FUNDS THAT ARE INVESTED IN THE STOCK MARKET

    Adding yet another moral hazard to the mix. It is hard to see how government policies with regards to healthcare, employment and retirement could have anything other than pure totalitarianism as an objective.

  13. The majority of Americans have the mentality of spoiled teenagers these days. Why aren’t people outraged by fiscal irresponsibility anymore? How did it get this way? Will it ever change?

  14. There is only one hope for the pension debacle, and that is that people finally start objecting as they get fleeced to pay for retired government employees.

    The bailout could be spun as affecting us all, making people more amenable to the spending. But it’ll be harder to spin taking money to pay the huge pensions of government employees. Plus, localities will probably jack up property taxes as one way of partly covering the shortfall, and people really feel property taxes.

  15. Goddamn, we still haven’t seen the worst of it yet?

  16. It’s pretty weird how closely this parallels Charles Stross’s vision of the USA’s future in Accelerando. America essentially turns into the worlds biggest retirement home and practically enslaves the youth with to support the aging populace

  17. Should read “enslaves the youth with taxes”

  18. The Lobsters will save us.

  19. we’re doomed to hundreds of years as a third-world country

    Not really.
    Our enormous stockpile of weapons of mass destruction makes us important.

    That, and American Exceptionalism.

  20. The Lobsters will save us.

    Those fucking lobsters don’t stand a chance against chimp-fu.

  21. There is only one hope for the pension debacle, and that is that people finally start objecting as they get fleeced to pay for retired government employees.

    Speaking for myself, nothing, but nothing, infuriates me more than the realization that, very soon, I will be working and paying taxes so that people the same age as me can sit back and draw full pensions, people who spent their careers either making bad cars or polishing a chair at some government office.

  22. They are Space Lobsters. The apes don’t have a chance until they finally figure out a way to get in orbit… DAMMIT!

  23. So they’ve been slowly socializing medicine under the Bush administration?

    But… he’s for free markets!

  24. Here’s an idea — why don’t we pay the piper now when it won’t cost as much, rather than saddle the next generation with this?

    I know such thinking is anathema to the Boomer majority, but hey, it’s worth putting out there.

    There is nothing wrong with the social security trust fund. Nothing.

    You free market extremists are just trying to destroy the legacy of FDR! Creating false scare stories to disturb up in our suburban slumber.

    The trust fund will be solvent FOREVER based on CBO projections based on current growth ….. er…. 2004 growth rates. 2004 growth rates will continue FOREVER!!! Exponentially!

  25. But… he’s for free markets!

    But even the great champion of free markets was able to see where it would fail. You have to give credit to Bush for not allowing his ideology to get in the way of caring for the elderly. It’s just one example of how our push for bipartisanship is working and getting results for the voters instead of being gridlocked in ideology.

  26. It’s really hopeless. I was watching a show on Air Force One about how much manpower and resources are tied up for the President to travel.

    Weeks of preparation, probably millions of dollars (the dear leader has to bring all his food with him, premade by a team of chefs), and probably 15 flights of supplies, military support, etc.

    And after all this was spent, the president (Bush at the time of filming) cancelled the whole trip. I almost tossed my TV out the window.

    It was a trip to fucking Tanzania. Name one thing that can be accomplished in Tanzania that would have justified the cost of the trip, even if if it wasn’t cancelled.

    Fuck! We are so far from being a free, just country anymore that I want to puke…

  27. If these guys are only down 15% after 2008, they are doing something right. My retirement funds are down 28%. I’ll be working longer to make up the difference, I’m sure these pensioners will do the same.

  28. Does anyone wonder why traditional pensions are disappearing? PBGC is funded by premiums on the employers who sponsor pension plans. These premiums have been creeping up for years and will probably explode before PBGC does.
    On top of this expense, the ERISA laws, passed by Congress, add more burden: my employer has maybe 120 participants in the pension – that requires nearly $10K for an audit, $15K for administration, and another $10k for legal fees to amend the plan and placate the IRS everytime Congress farts out another ERISA change. Due to these rising costs, more and more companies are ending traditional pension plans or never starting one in the first place.
    Which just increases the prominence of social security to fund one’s retirement.

  29. There is only one hope for the pension debacle, and that is that people finally start objecting as they get fleeced to pay for retired government employees.

    Speaking for myself, nothing, but nothing, infuriates me more than the realization that, very soon, I will be working and paying taxes so that people the same age as me can sit back and draw full pensions, people who spent their careers either making bad cars or polishing a chair at some government office.

    [looks around aimlessly, whistles tunelessly]

  30. “Speaking for myself, nothing, but nothing, infuriates me more than the realization that, very soon, I will be working and paying taxes so that people the same age as me can sit back and draw full pensions, people who spent their careers either making bad cars or polishing a chair at some government office.”

    Well if you really want to blow a gasket, go check out the article in the latest issue of Forbes about the sweetheart deals that state and local government employees have with pensions and retiree health benefits and the games they play to boost their payouts – all at the expense of the taxpayers. Taxpayers who, I would venture to guess, 99% of don’t have anywhere near such generous benefits as the ones they’re being asked to pay through the nose for.

  31. satisfaction = one government employee + hot tar + fluffy feathers;

  32. I think it was United Airlines that already stuck the tax payers with paying its pensions.

    Yes and no.

    PBGC did pay a portion of benefits, then the pensions were terminated.

    The bigger time boms is the pensions of government workers. There is no PBGC to back them, the backing is explicitly the taxpayer.

  33. “The bigger time boms is the pensions of government workers. There is no PBGC to back them, the backing is explicitly the taxpayer.”

    What you’ll invariably see is a population exodus from states that have to jack up taxes to pay for their legacy costs (e.g. California) to states where taxes are significantly lower (e.g. Wyoming, Alaska, Galt’s Gulch).

  34. “What you’ll invariably see is a population exodus from states that have to jack up taxes to pay for their legacy costs (e.g. California) to states where taxes are significantly lower (e.g. Wyoming, Alaska, Galt’s Gulch).”

    Which will then trigger increased begging from the politicians from those states losing population for more federal bailouts so that those leaving can still not escape paying for it – they’ll be doing it through increased federal taxation.

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