Tuesday, April 26, 2005

Feedback on my most recent PBGC post

Comments from an actuarial colleague have brought to my attention that my flippant comment about "bad for John Q. Taxpayer" may have left readers with an incorrect impression. To clarify the situation, I have reproduced his comments (with which I agree) here.

PBGC has never received any money from the US government (i.e., tax revenue). It is funded entirely from premiums, investment income, assets from trusteed plans and amounts recovered through bankruptcy proceedings.

There has been talk, especially from labor unions and some Democrats, about a taxpayer bailout of the PBGC. This is *extremely* unlikely, perhaps impossible, so long as Republicans control the Congress. Here's why:

Only ~25% of American workers enjoy defined benefit plans. By "coincidence," they tend to be in industries that are unionized. I cannot imagine a Republican administration or Congress agreeing to tax 100% of American workers to bail out 25% of American workers who enjoy better retirement benefits and are Democrats to boot. It just isn't going to happen.

If you've been following the Administration's pension funding proposal, they are proposing increases in the flat dollar premium and significant modifications to the variable rate premium (creating a risk-based premium, eliminating the credit balance when calculating whether a plan qualifies for the full funding limit exemption, etc.).

One last thought. If you pay close attention, you'll notice that the PBGC changed its logo last year. (Look for a copy of a premium payment package or a premium form.) The fine print under the logo used to read "U.S. Government Agency" but now it reads "Protecting America's Pensions." (The image in the logo was also changed to look sleeker.) Rumor has it that the language was changed to eliminate the suggestion that the PBGC is backed by the "full faith and credit" of the U.S. government. It certainly seems plausible.


UnknownVariable said...

OT: UAL Commentary?

I’d figured you’d have something to say about the pension bailout from yesterday's news.

ALD said...

Not really. I guess I had already figured it was a done deal; I didn't really consider what I read in the WSJ today "news." I will post a link to the story right away; I might have something to add later.