Pension Guarantees in Trouble—So Says the Government, as It Prepares to Make Things Worse

Sep 8, 2003

The General Accounting Office of the U.S. Congress recently put the Pension Benefit Guaranty Corporation (PBGC) on its watch list of "high risk" programs. The PBGC is the government agency that backs up company pension plans when they fail. It is underfunded by 5.7 billion dollars–and its deficit is expected to grow substantially. The General Accounting Office concluded that "additional severe losses [to the PBGC] may be on the horizon."

Pension plans covering hundreds of thousands of workers at some of the largest companies in the country have stopped making pension payments–some because companies went out of business. But what is most shocking is the number of big corporations that continue in business and yet dump their pension plans, using the bankruptcy courts to pull off this maneuver. In the last few years alone, Bethlehem Steel, LTV Steel, National Steel, U.S. Air and Polaroid, among other companies, got away with this scam.

The impact on workers is often devastating. The PBGC fund may cover current retirees pensions, but when the PBGC takes over a bankrupt pension fund, it does not pay retiree health benefits. And it also sometimes cuts the retirees’ monthly benefit payment, depending on how much it is. But that’s not the worst of it. Workers at these companies who haven’t yet reached retirement age can see their pension benefits frozen at the point the company handed the pension plan over to the PBGC. And, what’s worse, they have to work until they reach 65 before they can even begin to draw that money.

How NOT to "fix" the crisis

Now, they tell us, the PBGC itself is in crisis. Congress says it will hold hearings in September to see how to "fix" it.

The PBGC fund is a kind of insurance plan for pensions, paid for by taxes on the companies that have pensions. But payments made by companies have long been lagging behind increases in wages, cost of living, etc. So, it’s obvious that the first thing Congress should do–if it intended to "fix the crisis" in the interests of the workers–would be to increase the tax on employers, making it proportionate to what it was years ago. At the same time, Congress should increase the amounts of money that companies have to pay into their own pension plans so that if a company goes through a period of bad times or even goes out of business, the plan can pay off on all pension obligations. Furthermore, Congress would make sure that companies put in everything they are required to put in. Today, by contrast, the traditional pension funds are at least 300 billion dollars short–and that’s according to the current, inadequate funding rules. General Motors alone is underfunded by 19 billion.

But not a peep is coming out of Congress or the Bush administration about cleaning up the situation like this. Just the opposite. Bush has proposed an accounting change that would allow companies to further reduce what they pay into their funds.

Finally if, as Bush and Congress say, they want to rescue the PBGC, they would prevent companies from buying up other companies while dumping their pensions plans. In fact, this is what happened at both Bethlehem, which was bought up by the International Steel Group, the second largest steel company in the country, and National Steel, which was bought up by US Steel, the largest steel company. If a company has money to buy up another company, then it has money to cover its pension plans.

Yet, here again, not a peep is coming out of Congress nor the Bush administration. Not a single proposal to stop this outrageous practice.

Using the crisis they created to reduce pensions

The crisis of under funding in the PBGC today, threatening every worker’s pension, was created by Congress and one administration after another making it easier for companies to get out from underneath their pension obligations.

These very same bodies, led by the same two parties, are not about to rescue our pensions. Just the opposite. They are simply talking about a "crisis" in order to justify new, bigger attacks on the pension system–reductions in what the PBGC will pay out, reductions in what companies have to pay into their pension plans.

If we want to keep or get back our pensions, we are going to have to do what earlier generations of workers did to get the pensions. We’re going to have to fight, to mobilize ourselves, to demand the right to have a reasonable life in our later years, after having contributed all our working lives the labor that lets this society function.