The recent bankruptcies in the airline industry have critical implications for the thousands of workers and retirees who rely on these companies both for their livelihood and their retirement security. However, it also should be a wake-up call for American taxpayers.
In Washington, the interests of American taxpayers are too often last in line behind special interests that frequently have the right of first refusal over federal tax dollars. A prime example: the pork-laden highway bill, which I recently voted against because it represents a giant step back for taxpayers and fiscal discipline.
While the debate over Social Security–and its own budget consequences if Congress doesn’t act–has continued for some time, another retirement-security issue that is front-and-center in Washington could have a significant impact on taxpayers as well: the looming crisis in our nation’s private pension system.
These decisions to file for bankruptcy have been made in part because of dramatically underfunded employee pension plans. The financial drain of underfunded pension plans often cascades throughout an entire company. It certainly did with United Airlines, which terminated its employee pensions altogether. These are just the latest examples that illustrate how today’s outdated pension rules have failed to protect the interests of workers and retirees. This crisis affects millions of workers and retirees who’ve lost benefits from traditional employee pension plans, known as defined benefit plans because they promise workers a specific monthly benefit when they retire. But it also poses a direct threat to American taxpayers as well.
Over the last two years, the House Education & the Workforce Committee has examined the current pension rules, and it’s no exaggeration to say they represent some of the most irresponsible public policy I’ve seen during my time in Congress. We’ve learned that some companies have gone years without making a single financial contribution to fund their employee pension plans. Employers and union leaders have negotiated benefit increases even when pension plans are severely underfunded. And workers have been left in the dark about the status of their pensions until it is too late.
Workers and retirees at United now must rely on the federal Pension Benefit Guaranty Corporation (PBGC) to step in and pay their pension benefits, sometimes at a fraction of their vested benefits. While Congress oversees the PBGC, the agency is funded through regular employer contributions rather than tax dollars. Unfortunately, the PBGC has a $23-billion deficit, largely because of a wave of corporate bankruptcies and the fact that employer contributions paid to the PBGC haven’t sufficiently covered the agency’s shortfall.
Although the PBGC has enough resources to make benefit payments for the near future, the long-term outlook for the agency is anything but certain. With some $450 billion in pension plan underfunding among financially weak companies looming on the horizon, the PBGC’s debt could balloon even further. Would American taxpayers be called upon to bail out the agency if its financial condition continues to deteriorate? It’s a fair question.
More than a decade ago, the federal government stepped in to bail out the savings-and-loan industry at the cost of more than $120 billion. While there are clear differences between the S&L bailout and the events that have led to the current pension crisis, those of us in Congress have a responsibility to ensure the end result–taxpayers being left on the hook for a crisis they didn’t create–doesn’t repeat itself.
This fall, we have a choice. We can sit idly by, pursue cosmetic “reform,” and hope these pension problems fix themselves. Or, we can tackle comprehensive reform that not only will place the PBGC on more secure financial footing and prevent a taxpayer bailout, but also reform antiquated laws that govern defined benefit pension plans. I hope we’ll choose the latter.
The Pension Protection Act, a comprehensive reform proposal passed by the Education & the Workforce Committee, is expected to receive a House vote this fall. I’m hopeful the Senate will act as well. American taxpayers shouldn’t be left to pick up another multi-billion dollar tab if Washington fails to act in a responsible manner.
–John Boehner is a Republican congressman from Ohio, and the chairman of the House Education & the Workforce Committee.