Courtesy the Washington Post, another installment in the saga of the shift in the balance of economic risk away from capital and toward labor. This time brought to us by the Pension Benefits Guaranty Corporation.

A significant portion of the skyrocketing deficits is due to declared or likely-to-be bankruptcies in the airlines and steel industries. Deregulation of airlines may have expanded services and reduced the price of flying for us as consumers, but it looks like we may be picking up some of the tab as taxpayers.

Oh, and perhaps we should consider this little item when we're figuring out how to fund the transition cost of privatizing part of Social Security. Although it must be admitted, $20+ billion is easy to overlook when you're talking in fractions of a trillion.

Struggling under a cascade of bankruptcy filings in the airline and steel industries, the government's pension insurance agency said yesterday that its deficit has more than doubled in the past year -- to $23.3 billion.

The figure is so large that an overhaul of the way traditional pensions are funded and insured has become essential, several experts said. Pensions of about 44 million workers and retirees are insured by the Pension Benefit Guaranty Corp.
[...]
"The bottom line seems to be that there really is a PBGC crisis, though to date neither Congress nor the [Bush] administration has been treating it as such," said Dallas L. Salisbury, who heads the Employer Benefit Research Institute in the District.

There are three basic ways that the deficit can be made up: (1) revaluation of assets through a bull market (combined with some "aggressive" portfolio management); (2) increasing revenues through larger premium payments from employers; and (3) taxpayers making up the difference.

Door Number 1 isn't what you'd want to bet the farm on, as hopefully someone learned in 2000.

Door Number 2 demonstrates the perverse incentives of insurance schemes (not a comments against them, just the way they work):

[Douglas J. Elliott, president of the Center on Federal Financial Institutions, a research group], said one idea would be raising special premiums on companies whose plans are underfunded. Such premiums exist but are paid on only about 10 percent of the total underfunding, he said.

"As the deficit keeps growing, you've got healthy employers who don't want to be stuck with higher premiums," said Ken Steiner, of benefits consultant Watson Wyatt Worldwide. "The alternative is to look at unhealthy employers, who are the real risk at the PBGC, but you run the risk of driving them out of business." [uh, no... that sounds like a lousy idea, ed.

And it could get hairier.

Salisbury pointed to another peril that does not appear in the PBGC's balance sheet: the effect if courts disallow so-called cash-balance pension plans.

Last year, the cash-balance plan at International Business Machines Corp. was found by a federal judge to violate federal age-discrimination laws. If that ruling is upheld and Congress does nothing, Salisbury said, operators of those plans may well start terminating them.

"PBGC's most recent data showed that 25 percent of premiums being paid are in cash-balance plans. A meltdown in the cash-balance area would be even more disastrous than other threats they are facing because it would be loss of a huge amount of premium revenue from essentially well-funded plans," Salisbury said. [my, that's comforting to know, ed.]

So looking better and better for Door Number 3. Taxpayers hit the jackpot once again. Yesssss!

But you'll be relieved to know, Congress is on the job.

Congress last year approved a bill that called for lawmakers to come up with a comprehensive pension reform plan within two years. Yesterday, Rep. John A. Boehner (R-Ohio), chairman of the House Committee on Education and the Workforce, said in a statement, "We're making progress in putting together comprehensive pension legislation and remain committed to addressing the significant underfunding problems that are putting worker and retiree benefits at risk."

As an aside, Mr Elliott must be a busy fellow these days at the Center for Federal Financial Institutions. Same day (Nov 16, 2004), same page (E1) Washington Post:

Fannie Mae, accused by regulators of deliberately flouting accounting rules, said yesterday that it could not meet a deadline for a quarterly financial report and may be required to record $9 billion of previously unreported losses if the Securities and Exchange Commission determines that its accounting was wrong.

Such a correction would erase nearly 38 percent of the District-based mortgage funding company's reported income since Jan. 1, 2001, when the key rule took effect.

Careless of them, hmmm...?