Wednesday, May 30, 2007

Why Real Reform Never Happens

Seems as if politicians everywhere are running away from responsibility; they just hand problems to their kids. As highlighted by Andrew Samwick from the pages of the Wall Street Journal:

Pension Crash Landing
May 29, 2007; Page A14
When Congress passed a broad pension reform last year prodding companies to get their retirement programs in order, it seemed too good to be true. Now we know it was.
That's the lesson of an amazing bit of corporate welfare the Senate tucked into the
war supplemental last week. Last year's bill included a hard-fought political compromise: Carriers that agreed to a "hard freeze" of their pension plans would be allowed to use a higher interest rate in calculating their plans -- which would reduce their net liabilities. The idea was to discourage airlines from buying union peace by running up their pension tabs, which they might later dump on taxpayers. A few airlines, such as Northwest and Delta, took this medicine.
Their competitors, namely American and Continental, headed back to the Beltway and last week their lobbying blew apart last year's compromise. Under the Senate's backroom fix, the airlines can use a higher interest rate even if they promise higher pension benefits. The airlines claim this is about "leveling the playing field," which makes little sense because American and Continental could have accepted the same rules all along. This is about giving those two a competitive advantage over other airlines that have already agreed to play by the reform rules.
The taxpayer-backed Pension Benefit Guaranty Corp. is obliged to bail out any company that can't meet its pension obligations, so there is once again little reason for these airlines to practice any pension restraint. The PBGC conservatively estimates that this airline fixeroo [sic] will result in an additional $2 billion in underfunded pension obligations over the next 10 years.

The drafters of this ornament were nothing if not clever; by including this in a war supplemental, they made it veto proof. At the state level – ignoring the pension problem seems to be the order of the day. Current efforts at addressing the $24 Billion unfunded liability consist of deferring the problem to future years. A recent article in the Detroit News illustrates the problem I've been harping on for years - but the News missed the opportunity to highlight the $14 Billion unfunded liability associated with the healthcare promises made in the pension plan. Maybe they're waiting for parts 2 and 3.

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