Pension Backstop Posts Record Shortfall. Is a Bailout Next?

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Put another nail in the coffin of private pensions. The Pension Benefit Guaranty Corp., a government agency that insures corporate defined-benefit plans, has been running a record deficit. Now it’s sending up flares for either a taxpayer bailout or higher insurance premiums from the companies that still offer these plans. Good luck on both fronts.

A taxpayer bailout of such private-industry programs hard on the heels of financial-crisis handouts to banks and automakers would be almost unthinkable. Hats off to the PBGC for having the chutzpah even to float it.

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Meanwhile, asking companies to cough up higher premiums to insure their pension plans is an invitation to kill the plans. Heck, the corporate world has been doing away with traditional pensions for years anyway, replacing them with defined-contribution 401(k) plans. Another excuse is all some companies would need to speed the transition.

This is all part of our rotting safety net. Social Security benefits are eroding. Private pensions are disappearing. It’s why financial literacy and financial education have become such buzzwords. Increasingly, we all must have enough understanding of saving and investing strategies to ensure our own long-term financial security. We’re on our own.

The PBGC is pretty much saying so. This agency, which covers retiree benefits when companies go bankrupt and their pensions fail, just reported the largest deficit in its 37 years: $26 billion. It has $81 billion in assets and $107 billion in pension obligations. Without help, someone is going to get shorted.

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How did it fall so far behind? The recession triggered a wave of costly bankruptcies that produced $4.5 billion in new PBGC obligations in 2011. Some 57,000 pensioners in 152 failed plans were added to the PBGC beneficiary list. Poor investment results in a sluggish time for the markets hurt, too. The PBGC portfolio earned about half what it did last year.

The PBGC hasn’t raised premiums in five years. So the agency might prevail with some private pension sponsors, maybe even most. “Most pension plans are sound,” says PBGC director Joshua Gotbaum. “The vast majority of pensions are not going to come to the PBGC.” Read: Companies can afford to pay more for insurance.

Those that still offer a traditional pension are heroes for staying with it this long. But if they decide the time has come to ditch their pension plan and cut costs, they’ll have plenty of cover.

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