Oligopolies get pension break
The airline and steel oligopolies, among others, got a nice Easter basket from the US government, as President Bus signed into a law a new pension law. Under the new law, major companies are allowed to lower their contributions to their pension plans to the tune of $60 billion over the next few years.
Even the pro-business Economist sees this as a disastrous decision ("Pension pork", 4/17/2004).
Already wobbly companies will thus continue to make pension promises they cannot keep. If anything, the new law will make a bad problem worse.
Pensions have been hit by low interest rates and the stock market collapse of a few years ago. They were given a temporary rate adjustment for the required assets in their funds, one that was about to run out. "Feeble companies were keen to use as high a rate as they could get away with. In an election year, the lobbying power of the weak has been great."
Pension plans are federally insured, so that, if worse comes to worse, pension funds can dump liability on the government. In this way, once again taxpayers are being asked, indirectly, to subsidize large corporations, many of whom, it has been recently revealed, manage to avoid paying nay income taxes at all.
While the legislation is partly trying to give short-term relief to a few embattled industries, the power of the oligopolies in other businesses is such that they have managed to get a long-term government-funded pass on their liabilities.
The danger is pointed out by the conservative Heritage Foundation, which sounds the alarm on its website.
By allowing companies to avoid funding their pension plans' deficits, the new law makes it likely that taxpayers will have to pick up that liability. The sad fact is that many companies that qualify for the funding holiday will be in equally poor financial shape in 2006. The delay is likely to cause these plans to accrue even higher funding deficits. Moreover, once the companies submit their even more underfunded plans to PBGC, that agency will be further down the road toward an inevitable taxpayer-funded, multibillion-dollar bailout.
