More Congressional hypocrisy
I really should be in bed, but laundry isn't quite finished and this caught my eye:
Yet Congress has postponed fixing the Congressional program whose problems makes the PBGC's look easy to solve. At the present time, the largest underfunded pension program in the U.S. is Social Security. There's zilch in the trust fund, in terms of actual assets, except a couple of trillion dollars of IOUs (actually I-Owe-Mes). Remember, Congress took the money and blew it on every type of spending imaginable, and we have to repay the bonds plus pay interest to ourselves.
However, it's far easier for Congress to pass legislation telling private companies what to do than pass legislation to fix perhaps the largest Ponzi scheme in history.
Senate Approves Pension Overhaul PlanCongress voted to "tighten regulations" on organizations like the Pension Benefit Guaranty Corp., a federal agency that should never have existed. For one, there's no provision for it in the Constitution, and second, it's logistically unsound -- if not outrightly stupid -- for a government to get into any type of insurance business. The problem with United's pension fund and many others using the PBGC as a backup, as I explained in August, is that workers are contributing too little for what they will collect. That's the bottom line. It's ludicrous for companies to make up any funding shortcomings in the present with current profits, because it's too dependent on continued prosperity that may not always be there. Yet companies will never take effective measures to fix the structural underfunding so long as they have a backup in the PBGC, and someday the PBGC will unfortunately have to be bailed out by the taxpayers, just like the S&Ls.
Millions of workers and retirees worried that their companies will renege on pension promises got assurances from Congress that it is moving to protect their future benefits.
The Senate, in an unusually bipartisan 97-2 vote Wednesday, approved legislation to tighten rules for companies that underfund defined-benefit pension plans — a shortfall currently estimated at $450 billion. The bill also shores up the financial viability of the federal agency that insures pension plans for some 44 million Americans.
"The stakes in this battle are far higher than most of us can conceive," said Sen. Mike Enzi, R-Wyo., chairman of the Senate Health, Education, Labor and Pension Committee. About $120 billion in pension benefit checks are issued every year, he said, and "any shortfall in those amounts will result in a decrease in the standard of living" of some 20 million retirees.
Yet Congress has postponed fixing the Congressional program whose problems makes the PBGC's look easy to solve. At the present time, the largest underfunded pension program in the U.S. is Social Security. There's zilch in the trust fund, in terms of actual assets, except a couple of trillion dollars of IOUs (actually I-Owe-Mes). Remember, Congress took the money and blew it on every type of spending imaginable, and we have to repay the bonds plus pay interest to ourselves.
However, it's far easier for Congress to pass legislation telling private companies what to do than pass legislation to fix perhaps the largest Ponzi scheme in history.
posted by Perry Eidelbus at
2:57 AM
4 Comments:
Sir:
You said "The problem with United's pension fund and many others using the PBGC as a backup, as I explained in August, is that workers are contributing too little for what they will collect.[emphasis mine]
As I understand it, many of the under funded pensions cover unionized employees. Is it not the case that in many, possibly the majority of these cases, these companies freely contracted with their employee's, through their collective bargaining representatives (unions), offering a package of direct (wages) and indirect (insurance, pensions, etc.) compensation in exchange for specified labor (work). The employees accepted (again through union organized approval process) the terms of the contract.
If the above is true, in any of these cases, then the contracting company is responsible, under the contract to properly fund the contracted amounts for the various non-wage compensation instruments. If these companies have shorted this compensation, in order to improve their profit margin and/or stock price (compensating the owners ahead of contractual obligation) then they are technically in breach-of-contract. Irregardless of any rationalization used: “We can make up the difference in investment performance.” or “We can depend on the Pension Benefit Guaranty Corp. to bail us out if we need to default.”, these companies chose to short their obligations.
Yes, it's a good point that there are contracts stipulating how much pensioners receive. However, that doesn't change the structural underfunding problem. If I give you a penny a day for year and expect you to pay me $10 at the end, contract or none, odds are that you won't be able to repay the investment -- and I should know better in the first place.
There's also the problem of people thinking a government agency can bail them out (from PBGC to FEMA), which is a pure moral hazard. Paul Krugman likes to extol the virtue of powerful government because it greatly reduces the risk in our lives. That much is true, but it's reducing our risk at others' expense.
Perry:
What I was really getting at is that most labor agreements (my experience was with the UPS/Teamsters National Master agreement as an employee and union member 'till 1999) stipulate how much, per hour of work, the employer must contribute to each employee's benefits plan. While other forms of contractual obligations may (and probably did/do) exist, if a commpany contracts to pay $1.00 per hour into a pension plan for each covered employee, and then only contributes $0.50 per hour, hoping to make the difference off the investment of the money, and assuming that the PBGC or other quasi-govermental entity (or Congress) will bail them out rather that have them fail, the the employees are not liable for the company's failure.
I will grant you that employees and their (sometimes corrupt) unions should have been more cautious, and, especially in Automotive and Airline industries, they have been the hold-outs demanding the continuation of the defined benefit pension instead of allowing companies to create defined contribution plans such as 401(k), IRA, et cetera.
Sure, but my point all along is that people are foolish to expect such an arrangement to work forever.
People are wiser to save for themselves and not expect others (especially under the illusion of permanent and continued prosperity) to make up any shortcomings. We thought the federal government could do that with Social Security, and look where that got us.
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