Defined-benefit pension plans are very difficult to finance successfully: That is why so many of them, both private and public, are deeply underfunded. It is also why they are a disappearing financial species. General Motors, though it went through a government-directed bankruptcy, still had unfunded pension liabilities of $25 billion at the end of 2011, and has announced that it hopes to eliminate defined-benefit plans for all current salaried employees this year.
That they are “deeply underfunded” means that the liabilities of the pension plans greatly exceed their assets. One subgroup of these plans, the union-sponsored “multi-employer” plan, has liabilities $369 billion greater than its assets, according to a recent estimate by Credit Suisse. The excess liabilities of the 100 largest corporate (“single employer”) plans are estimated at $357 billion by the actuarial firm Milliman.
So here was a “big idea” of a half century ago: Let’s have the government guarantee these pension plans!
Read the full article at The American.
Alex J. Pollock is a resident fellow at the American Enterprise Institute.