• Pensions: Mr. Bush is right Pensions: Mr. Bush is right By the St. Louis Post-Dispatch – January 24, 2005 The Bush Administration has come up with a solid, realistic plan for securing pensions owed to 41 million Americans. Everyone
• Pensions: Mr. Bush is right
Pensions: Mr. Bush is right
By the St. Louis Post-Dispatch – January 24, 2005
The Bush Administration has come up with a solid, realistic plan for securing pensions owed to 41 million Americans. Everyone with an old-fashioned “defined benefit” pension plan should be glad to hear that.
The plan would shore up the federal agency that guarantees those pensions, at only minor cost to corporate America. It also would tighten up pension accounting.
We’re not talking here about the company 401(k) retirement plan, where what you get out depends on what you put in, along with your luck in the stock and bond markets.
Instead, this is the kind of pension grandpa had. It’s the type that guarantees you a set amount of money each month until you die. Of course, that’s just what Social Security does. So, it’s rather odd to see the Bush administration moving smartly to protect private pensions while moving dumbly to weaken Social Security guarantees for all workers.
That said, President George W. Bush deserves credit for his proposed pension rescue.
A lucky 20 percent of American workers have defined-benefit pensions. The problem is that too many of their employers are going broke. First it was steel; now it’s airlines. When companies get into trouble, they begin shorting their pension plans. By the time they’re bankrupt, the funds often are woefully underfunded.
The burden then falls on the Pension Benefit Guaranty Corporation, which insures defined-benefit pensions. The PBGC lost $12 billion last year, and it is $23 billion short of what it needs to meet its long-term obligations. Like Social Security, the PBGC can send out pension checks for many more years. But if nothing changes, it probably will run short of money about 2020, according to one federal study.
If that happens, a cry will go out for a taxpayer bailout. It would be much cheaper to fix the problem now than to wait until it implodes.
Mr. Bush wants to raise the base insurance charge paid by companies with pension plans by $11 per covered worker per year and index it to wage growth. That increase is chump change to a corporation, and business isn’t very concerned about it.
The administration also wants to let businesses overfund pensions during good times, while taking tax deductions for it. That should let companies weather the down times.
More controversial is the administration’s plan to stick financially shaky companies with higher insurance rates and tougher funding demands. The government would force companies to make up pension funding shortfalls within seven years.
Such pressure might speed some weak companies into collapse and their workers onto unemployment. But the alternative – putting more insurance costs on healthy companies – might discourage them from offering pensions at all.
That’s also the argument against another Bush proposal: tighter accounting assumptions that will make some companies add money to their pension plans. But pie-eyed accounting just makes for more trouble later.
Much of governing is choosing among evils. The number of defined-benefit pensions has dropped by 25 percent since 1999, as companies shift the risk of retirement investing to their workers. The Bush plan may hurry that shrinkage. Placing extra charges on sick companies will hasten a few into bankruptcy. But a failure of the pension insurance system would be worse. Mr. Bush is advocating the lesser evil.