• Airline pension bailout: zombie airlines? Airline pension bailout: zombie airlines? St. Louis Post-Dispatch, June 26, 2005 Hundreds blame workers of American Airlines employees walked the halls of Congress last week, urging members to delay a reckoning on airline pensions.
• Airline pension bailout: zombie airlines?
Airline pension bailout: zombie airlines?
St. Louis Post-Dispatch, June 26, 2005
Hundreds blame workers of American Airlines employees walked the halls of Congress last week, urging members to delay a reckoning on airline pensions. We can’t for appealing for mercy; they deserve the pensions they’ve been promised.
We can, however, blame Congress if it fails to take the painful actions necessary to put the nation’s defined-benefit pension system on solid footing.
Airlines, like quite a few other troubled employers, have promised workers richer pensions than the companies can afford. Unless strong action is taken soon, the American taxpayer will be stuck with the bill.
President George W. Bush has proposed a rational reform plan. A House subcommittee passed a slightly weakened version of that plan earlier this month.
The danger is that Congress will cave in to the pleas of financially shaky but politically connected companies and let them off the hook. That’s happened before, and the nation suffered mightily for it.
In the early 1980s, the savings-and-loan industry was caught in an interestrate squeeze. Many were on the brink of failure, and they ran to Congress for help.
Rather than letting them fail – thus containing the problem – Congress performed some financial voodoo. It loosened regulations and adopted phony accounting rules. S&Ls that should have died staggered on, zombie-like, merging with healthier S&Ls and infecting much of the industry with financial anemia and addled management.
A problem that could have been dealt with cheaply in the early 1980s festered into the S&L debacle of the late 1990s, costing taxpayers nearly $500 billion and helping bring on the 1990 recession.
Now, we have zombie pension plans. Most pensions, of course, are adequately funded. But quite a few – including those at major airlines – are so cash-starved as to count among the walking dead. The system as a whole is $450 billion short of what it needs to meet its long-term promises, according to federal estimates.
This mess concerns “defined benefit” pension plans, the old-fashioned sort that send a retiree a check for a set amount each month as long as he lives. We’re not talking about 401(k)s and similar “defined contribution” plans, where the employer contributes a set amount to a worker’s retirement pot but takes no responsibility for the investment results.
The Pension Benefit Guaranty Corp., a government agency, is supposed to insure defined benefit plans. But a rash of pension plan failures has put the PBGC under water to the tune of $27 billion over the long term. An expected cascade of new failures could deepen that hole to $71 billion over the next decade, according to the Congressional Budget Office.
That kind of shortfall would require a taxpayer bailout.
