The Editorial Commentary in the July 5 issue, "What a Relief It Is," rightly described the foibles of the recent Pension Relief Act, which displays the fundamental unsoundness and unhedgeability of defined-benefit pension plans. As Thomas G. Donlan said, these plans "helped many companies slide into bankruptcy."
However, he failed to mention an essential element of these plans. This is that even if the pension plan is broke as the company slides into bankruptcy, there is no need for labor unions to worry. The pensions are guaranteed by the government, under the guise of the Pension Benefit Guaranty Corporation.
The PBGC allowed the United Auto Workers union to negotiate pensions bigger than the auto companies might be able to pay. It was explicitly modeled on federal deposit insurance. Now the PBGC has a net worth of negative $22 billion. Its model, the FDIC, has a net worth of negative $20 billion.
But don't worry! Both are managed by the government and guaranteed (involuntarily) by taxpayers.
Alex J. Pollock is a resident fellow at AEI.
