United's Pension Default
There's been a great deal of coverage on the recent dumping of United's Pension Plan onto the Pension Benefit Guaranty Corporporation (or the American people...). An interesting opinion in the Wall Street Journal last week (registration required) provided some interesting perspective on the issue (whether or not you agree with some of the points). The opinion notes the following:
- The PBGC is already in hot water - to the tune of $23.3 Billion - that means it's obligations exceed its assets by that much! So where is the $23B coming from? You and me!
- If the rest of the airline industry follows, the obligation for that industry alone could exceed $40 Billion.
- The automobile industry alone is underfunded by somewhere between $45 and $50 Billion. Delphi Corporation, a recent GM spinoff, has a potential underfunded liability of close to $5 Billion.
- Elaine Chao estimates that the unfunded liability in private sector pensions is about $450 Billion! The 1980's savings and loan bailout was just a mere $200 billion.
So what does all of this mean? Will employers be more or less likely to offer defined benefit pension plans? Who knows. If employers are more able to dump them on the PBGC when times get tough, they may be more likely to keep them. But, if they can't or the PBGC premiums go through the roof (which they most likely will), employers will likely terminate their plans and adopt defined contribution plans where the employees bear all the risk. Bottom line, we all pay either way.