Monday, February 16, 2009

Another Shoe to Drop

Turn the bailout hose this way. Here is one waiting for a future one of unknown proportions: “Government pension agency braces for recession”

The magnitude of the potential problem is best understood by going to The Pension Benefit Guaranty Corporation’s web site for a description of its mission. The PBGC “is a federal corporation created by the Employee Retirement Income Security Act of 1974. It currently protects the pensions of nearly 44 million American workers….PBGC receives no funds from general tax revenues. Operations are financed by insurance premiums set by Congress and paid by sponsors of defined benefit plans, investment income, assets from pension plans trusteed by PBGC, and recoveries from the companies formerly responsible for the plans. PBGC pays monthly retirement benefits, up to a guaranteed maximum, to more than 631,000 retirees in 3,860 pension plans that ended. Including those who have not yet retired and participants in multiemployer plans receiving financial assistance, PBGC is responsible for the current and future pensions of about 1,274,000 people.”

The PBGC already has an $11 billion deficit but the astounding part of the article cited above is the former Director, Charles Millard’s contention that “a new investment strategy, which allows the PBGC to invest more aggressively in stocks and alternative investments, makes it less likely that it will need a multibillion-dollar congressional bailout.”

That is the “strategy” to “protect” current and future pensions? Here is yet another government “safety net” that is not only vulnerable to the economic downturn but also has hitched it’s star to the future prospects of the stocks and alternative investments.