Taxpayer Bailout Of Underfunded Pension Plans

Over dinner last night with friends, my husband told a joke about Kim Kardashian and Paris Hilton (or whomever you want to designate as fact-challenged individuals). The hotel heiress asks “Which is closer to us – Florida or the moon?” The reality star replies – “Hello, can you see Florida from here?” Unfortunately, this type of silliness has reared its head often over the years with regard to the topic of promising too much and funding too little. The math just does not work. To the logical observer, this flight of fantasy was always destined to self-destruct. It was more a question as to how long the downward spiral would take for impacted U.S. and non-U.S. government plans.

On July 27, 2006, I wrote “Tea Party Redux: State Pensions in Turmoil.” It was blatantly clear that trouble was heading our way. Since then, headlines about retirement plan gaps continue to dominate the news.

In what could be a bellwether situation, the State of Illinois wants to address a shortfall that is referred to as “the biggest in the U.S” and is fighting the court system to be empowered to do so. See “Illinois Fights Court Block of $111 Billion Deficit Fix” by Andrew Harris (Bloomberg, November 27, 2014). In “Why Illinois pension reform may be constitutional” (Crain’s Chicago Business, December 6, 2014), Joe Cahill explains that “important state interests” may justify the limiting of pension contracts that are deemed constitutional and therefore inviolable. He references Felt v. Board of Trustees. Those who disagree that reform is legally possible suggest that taxpayer hikes and/or reduced overall municipal spending are inevitable.

Now it appears that U.S. lawmakers may have their sights set on private pension plans too. In “Congress could soon allow pension plans to cut benefits for current retirees” (December 4, 2014), Washington Post journalist Michael A. Fletcher describes a move that, if enacted, would see lower payouts for plan participants of multi-employer plans in distress. The alternative is to have the Pension Benefit Guaranty Corporation (“PBGC”) take over any failed plans. As stated in “Solutions not Bailouts” (February 2013), Randy G. Defrehn and Joshua Shapiro write that benefits would be lowered anyhow in the event of a PBGC assumption of plans deemed as insolvent. In “The lame-duck Congress plots to undermine retiree pensions,” Los Angeles Timesreporter Michael Hiltzik urges readers to stay tuned as the December 11, 2014 vote on an omnibus spending bill may contain language that, if passed into law, would snip dollars from union retirement arrangements. He quotes advocates of defined benefit plans as pushing for careful deliberation instead of rushing ahead.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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