I see several problems with this whole situation.
The PBGC charges a "participation" fee to companies who have defined benefit plans. I believe it is a "headcount" fee, but could be wrong. However, it is minimal.
In exchange for that fee paid, a guaranty to participants to pony up defined pension allotments (if the company bellies up) is extended.
Embedded in this process is two fallacies:
First, the company makes minimum contributions based upon "projected earnings" from investments (sic: anywhere from 8% - 10% 'guess' on what investments will yield going forward). The downturn of 2000-2003 headlined all the errors in those assumptions, including the erasing of the investment BASE. Wasn't about 3/4 of the S&P 500 companies - who had defined benefit plans - underfunded????
Second, the PBGC set fees which are based upon "projected liabilities" going forward. The downturn of 2000-2003 caused the PBGC to report a near "collapse" of the agency. The solution? Increase MINIMALLY the fee going forward.
Corporations were wrong; the PBGC is wrong. Bethlehem Steel is a pitance compared to UAL with regard to the future effects on the PBGC. Instead of defending the agency and trying to find ways that 'it can all work to keep everyone happy', they should lay the cards out on the table. If you are right about GM, this UAL offer of notes to the PBGC is a wasted effort to get 'through the day' (because everyone would lose at the end of the day). The agency simply CAN NOT bear the weight of those benefits... even reduced. The PBGC, as of my last reading, is upside down. It cannot meet the obligations of the massive number of retirees who will look to it for a check. They will need the same printing press that SS needs.
We can say this about alot of things... especially about those agencies which buy risk for a fee. Can we not easily project that life insurance companies cannot pony up the huge cash promises they've made when the Grey's start fading away? Can we not say that the re-insurers will have the same fate?
Did Greenspan not JUST say "The approaching surge of American retirees was adding urgency to the need to deal with budget constraints in light of uncertainty about the scale of looming medical and retirement costs..." The KEY is "Scale of Looming".
Bethlehem Steels' pension actuaries got it wrong; the PBGC's actuaries & accountants got it wrong; the market downturn of 2000-2003 proved MOST corporations/accountants/governments/actuaries/insurance agencies ALL got it wrong.
And, they are "right" now? Nothing has changed: they are STILL wrong... and folks STILL rely on their findings... and folks STILL reel at the slightest HINT that the outcome they relied upon does not pan out as planned.
The best laid plans of mice & men oft' gang agley... (sp)
Remember that Bethlehem Steel is not a done deal... there is no 'etch in stone' that they will be paid in the event that the PBGC can not pay OTHER participants (UAL & previous obligations). In the event of a default, they all collectively sink with the ship. Collectively.
Now then, the PBGC has been clear about its instability (and, with this UAL deal they are merely trimming the potential pot of losses... not eliminating... just 'trimming'). What have we read about the Governments' stability in its OWN pension system? This will be a biggy for taxpayers... my guess is that (like all other things), they have not considered the REAL "Scale of looming" liabilities.
AI
