Should taxpayers be forced to cover corporate pensions?

[boffking]

I saw that Sears is having the Pension Benefit Guaranty Corporation help them cover the pension shortfall, which is in the billions of dollars. It seems wrong for a company to make promises they know they can’t keep, and force everyone else to pay for it. This is just another subsidy to large business, to the detriment of everyone else.

[Tom_Tildrum]

It’s not quite what you think. Corporations pay premiums into the PBGC, in return for pension coverage should the company fail. It’s an insurance fund like the FDIC.

[Kent_Clark]

The state of Illinois pension programs are underfunded by more than $100 billion (that’s with a B). The Illinois consitution specifically guarantees state pensions will be paid in full.

So, either the taxpayer has to pay a huge penalty to replenish the state pension system, or state employees don’t get the retirement benefits that are legally promised to them.

Which do you choose?

[XT]

@boffking

I saw that Sears is having the Pension Benefit Guaranty Corporation help them cover the pension shortfall, which is in the billions of dollars. It seems wrong for a company to make promises they know they can’t keep, and force everyone else to pay for it. This is just another subsidy to large business, to the detriment of everyone else.

Here is the wiki on the PBGC…you might want to read it before getting to deep into ‘ubsidy to large business, to the detriment of everyone else’ meme:

The Pension Benefit Guaranty Corporation (PBGC) is an independent agency of the United States government that was created by the Employee Retirement Income Security Act of 1974 (ERISA) to encourage the continuation and maintenance of voluntary private defined benefit pension plans, provide timely and uninterrupted payment of pension benefits, and keep pension insurance premiums at the lowest level necessary to carry out its operations. Subject to other statutory limitations, PBGC’s insurance program pays pension benefits up to the maximum guaranteed benefit set by law to participants who retire at age 65 ($60,136 a year as of 2016).[1] The benefits payable to insured retirees who start their benefits at ages other than 65, or who elect survivor coverage, are adjusted to be equivalent in value.

In fiscal year 2015, PBGC paid $5.6 billion in benefits to participants of failed single-employer pension plans. That year, 69 single-employer pension plans failed. PBGC paid $103 million in financial assistance to 57 multiemployer pension plans. The agency’s deficit increased to $76 billion. It has a total of $164 billion in obligations and $88 billion in assets.[2]

[lance_strongarm]

@boffking

I saw that Sears is having the Pension Benefit Guaranty Corporation help them cover the pension shortfall, which is in the billions of dollars. It seems wrong for a company to make promises they know they can’t keep, and force everyone else to pay for it. This is just another subsidy to large business, to the detriment of everyone else.

As I understand it, the PBGC regulates pensions to help assure they stay healthy. That’s the price corporations pay for the insurance.

But the bigger issue is this - if the PBGC doesn’t do it, the workers are screwed. It’s not really a subsidy to business, but to innocent workers. As long as companies aren’t allowed to completely neglect their pension funds knowing the PBGC will step in, it should work out. Some companies have legitimate reasons for not being able to fully fund their pensions.

As someone noted, it’s not the taxpayers anyway, it’s insurance.

[Damuri_Ajashi]

@lance_strongarm

As I understand it, the PBGC regulates pensions to help assure they stay healthy. That’s the price corporations pay for the insurance.

But the bigger issue is this - if the PBGC doesn’t do it, the workers are screwed. It’s not really a subsidy to business, but to innocent workers. As long as companies aren’t allowed to completely neglect their pension funds knowing the PBGC will step in, it should work out. Some companies have legitimate reasons for not being able to fully fund their pensions.

As someone noted, it’s not the taxpayers anyway, it’s insurance.

Normally an insurance company can increase its rates to cover the gap but I don’t think they can cover that much of a gap. The problem is that the PBGC has had lax rules relative to the rest of the world for a long time. Most other countries require much better collateralization of their pension obligors than we do. Remember leveraged buyouts in the 1980’s that was what happened when the wall street guys realized that the legal obligation to fund your pension was waaaay lower than the economic obligation it represented so they raided the pensions to pay for their leveraged buyout of the company that was providing the pension. They frequently took healthy corporations and turned them into highly leveraged basket cases that could not weather a significant recession.

[treis]

@XT

Here is the wiki on the PBGC…you might want to read it before getting to deep into ‘ubsidy to large business, to the detriment of everyone else’ meme:

Your own cite shows that there is a 76 billion dollar gap. It’s almost certain that tax payers will be the ones covering most of that gap.

[Hari_Seldon]

@kunilou

The state of Illinois pension programs are underfunded by more than $100 billion (that’s with a B). The Illinois consitution specifically guarantees state pensions will be paid in full.

So, either the taxpayer has to pay a huge penalty to replenish the state pension system, or state employees don’t get the retirement benefits that are legally promised to them.

Which do you choose?

That’s an interesting example. I taught for four years at UI and I know that the state never made its contribution to the state pension fund (nor to social security, for that matter). When part of my salary was paid from a federal research grant, some of that grant was used to pay the “state’s contribution to my pension fund”. Since there was no state’s contribution, the money just went into the state’s general fund. When I left after four years, I got back my contribution but the fed’s contribution was simply confiscated. But that’s the way the state operated. That’s why the former governors are making the state’s licence plates.

[TriPolar]

We allowed this crooked scheme to operate so we have some obligation to those who have been defrauded. Yes, I know it’s not fraud when it’s all according to regulation, but those were unconscionable regulations.

[Kent_Clark]

Here’s a little background onwhy there’s a PBGC in the first place.

[smiling_bandit]

I think posters might be assuming there’s a risk-free way to run a pension plan. There most definitely isn’t. You can run a bad one, if you’re foolish, sloppy, or corrupt. But even the best plans are still vulnerable over the long run. In fact, over enough time pension plans are virtually guaranteed to fail eventually. The PBGC doesn’t eliminate this risk, but does mitigate it. This is not a bad thing, nor is it a corporate giveaway. It is one reason, though hardly the only one, that many employers switched over to personal contribution plans.

Many state pensions are also seriously shot and probably in even worse shape, due to years to mismanagement and over-generous promises.