Recently there has been substantial press attention paid to underfunding in state and local government pension plans, a longstanding problem made more urgent by recent troubles in the larger economy. There has of yet been comparatively less attention given to a similar (though smaller) set of mounting financial risks associated with private-sector worker pensions covered by the Pension Benefit Guaranty Corporation (pbgc). Yet here, too, public policy corrections are required to address underfunding and avoid another taxpayer-financed bailout we can ill afford.
pbgc’s latest annual report shows a net deficit of over $23 billion, of which roughly $21.6 billion is attributable to its single-employer insurance program. What’s worse, pbgc estimates its exposure to reasonably possible plan terminations at approximately $170 billion. While these figures may appear small relative to the potential losses in state and local government plans, they reflect underfunding in employer-provided plans that is proportionally comparable.
Elected officials face a fundamental value choice about whether employer-provided pensions should be funded and insured only by plan sponsors, or whether the dollars of others (i.e., taxpayers) should be tapped to fill the gap. Either policy requires substantial changes to existing law. If the former policy is not enforced so that pbgc is kept solvent, the approaching cost of the latter course should be disclosed. Each scenario requires unattractive actions but is nevertheless preferable to the current situation, in which taxpayers face a growing financial risk that is disguised rather than forestalled by the existence of the PBGC.
