Private Pensions, Public Guarantees



Private Pensions, Public Guarantees
National Center for Policy Analysis -- Daily Policy Digest

The Pension Benefit Guaranty Corp. (PBGC) is another one of those quasi-government agencies with an implicit claim on tax dollars. The PBGC insures the defined benefit pensions of 44 million people. It is bleeding red ink, although its declining finances have not reached a crisis, according to the Wall Street Journal.

The PBGC is funded by premiums paid by covered companies and is supposed to ensure that workers will receive benefits from their pension plan if their employer goes bankrupt.

Pension liabilities are long-term and fixed, but pension plans are heavily invested in stocks, which are volatile in the short run. As a result:

o Where the PBGC had a surplus of $7.7 billion one year ago, today its deficit is $5.4 billion.

o Companies have been either opting out of the system or have decided not to start defined-benefit pensions (opting instead for 401(k)s and other defined-contribution plans).

o The underfunded pensions of bankrupt steel, airline and retail companies have ended up with the PBGC, increasing its liabilities -- but its income from insurance premiums declined last year to the lowest since 1991.

o Total company underfunding of pension plans is now more than $300 billion.

The PBGC is an example of "moral hazard." In insuring private pension plans, the agency is writing an implied taxpayer guarantee. Benefits of insured plans can be increased as long as a plan is at least 60 percent funded. Troubled companies increase pension benefits instead of wages because the cost of a wage increase is immediate, while the cost of benefits can be deferred for 30 years and ultimately passed on to the PBGC.

Thus, if healthy companies leave the PBGC, and it is left with only bankrupt pension plans, taxpayers will end up footing the bill.

Source: Editorial, "A Pension 'Guaranty,'" Wall Street Journal, June 25, 2003.


"Companies have been either opting out of the system or have decided not to start defined-benefit pensions (opting instead for 401(k)s and other defined-contribution plans)."

IMO you will see this process accelerate. I also believe at some point UPS Teamsters will experience some type of pension plan crisis (much greater than seen so far)because of a combination of 1) known and alledged long term pension fund abuses 2) ever declining membership numbers as it continues a pre-historic approach to labor relationship and representation 3) more and more people and companies see the benefit and wisdom of self administered retirement plans ie 401k, IRA's, etc. 4) Added pressure of baby boomers hitting retirement and living longer.

I have long advocated a scrapping of the current pension system and going full tilt into a 401k style system in order to "HELP" fund employee retirement plans. Also having a 401k style system, you take your money with you whether you leave after 5 years or 35 years and if the company or union goes belly up, you've still got yours and the best part is no one can tell you how to live ie work a 2nd career in retirement as our wonderful and glorious union does.

IMO, the most attracting part of the UPS plan attempted in 97' was the fact there are/were no "work after retirement" restrictions and it was a huge wake up call especially in the Central States areas when they declared "no work period in retirement" which has since been relaxed but the membership is still upset even with the relaxed rules your choices are limited. Independant self administered plans are a growing trend and IMO the way to go. JMO.


Well mac, I'm certainly not as well versed on the subject as you are but I am certain of one thing, the Teamster pension plan is a mess. I have no faith in it what so ever. And let me throw this question out there. Suppose at the end of this contract UPS decides to try and break the union, which I think is quite possible. What happens to the Teamster plan if UPS stops contributing to it? UPS is the Teamster cash cow. Without UPS they're cooked.
I truly believe that the day will come UPS will rid itself of the union. Simple scenerio. It's 2008 and we're making 28.00 an hour. UPS says we're done with the Teamsters. Come in or you're out of a job. Here's our pension plan. Our district is already in the UPS health plan. For those of you who aren't it's a better plan than the Teamster Health and Welfare I can tell you that. Anyway UPS says here's our pension plan and health plan. Decide if you're in or out. IMHO people come in droves. Think how many people you work with that have themselves in debt up to their neck.
Now I know you strong union people out there are saying that without the union UPS would run wild. Well they pretty much run the show now anyway. Remember, they will still want to be known as a good place to work to attract a new generation of employees. To me it's a simple question. If forced to choose, who do you pick?


There have been, on many of the threads, talk of busting the union and other similar actions. Let us suppose the Teamsters roll over and die. What then? Would this lead to thousands of fragmented groups throughout the country. What would happen if packages from Peoria could not get to Cleveland because the Cleveland group decided that they should take a week off for Columbus day and they would just not show up for work? Who would UPS talk to? Maybe the drivers in Los Angeles would want every Monday called Ethnicity Day and they would only work half a day with the other half spent at an Ethnic restaurant or dance party. Come on.

The Union serves it's purpose just as the Company does. I think that UPS would help prop up the Teamsters if it appeared that they might go under. Of course, there would have to be some give and take. Stability and dependability are everything for UPS. Without that, UPS could go under.

Any thoughts on this????


There is a company, which is non union, that in essence does the same thing UPS does, deliver packages. This non union compamy does not experience the problems with it's service you've discribed.

Perhaps you have heard of this company. It's called FedEx. So, in my opinion, UPS without the union would continue to offer the same service as it does with the union.

Let me add I'm not recommending that UPS withdraw from the union. Dispite a few bumps in the road, UPS and the union have had a sucessful partnership.