The Pension Benefit Guaranty Corp., the federal agency that may have to bail out GM workers, is now $33.5 billion in the red. Many more private pension failures loom.
Pensions also pose a huge problem for many cities and states. California’s government, one of the most profligate in awarding pensions, is on the verge of going broke. In many other states, pension funds are grossly under-funded. And even more so than in the private sector, public pensions, once agreed to, are impossible to modify.
Last but not least, retirement is a daunting problem for the federal government. Last month, the Social Security Administration announced that deficits will occur sooner than thought for Social Security and Medicare. Those obligations are on top of the skyrocketing federal deficit, estimated at $1.75 trillion for the current year. These are all symptoms of the same disease.
I am not against retirement benefits; older people need to be able to retire with dignity and a decent life. The lesson of GM is that benefits must be paid for as they are incurred. Corporations with under-funded pensions should be brought to heel. Otherwise, as with Delphi and other failed companies, pensions agreed to by private parties will end up being paid for by the public.
At the government level, pensions are a subset of a rampant fiscal virus: promising goodies without funding them. States that are behind, such as Illinois and New Jersey, must recognize that either they raise taxes and fund their pensions, or they reduce benefits for future employees. No other solution exists.
Congress also must bite the bullet and get Social Security on a sounder footing. That probably means raising the payroll tax. In the case of Medicare, fiscal prudence will likely demand higher taxes and service cuts. Neither private nor public pension sponsors can keep making promises that are above their means, or that they fail to fund. General Motors proved it.
– “As GM Goes So Goes California In Pensions”, Roger Lowenstein, Bloomberg, June 2
See also: “Pension Benefit Guaranty Corp Deficit Increases By $22.5 Billion In 6 Months”, Top Gun FP, May 20