The Corner

Pension Problems and Lessons

Four years before the massive wave of boomer retirements begins, we’re beginning to see cracks in our pension system. The retirement of the boomers is a crisis in waiting. And the problem goes way beyond Social Security. On Sunday, George Will described the private pension-fund meltdown that may soon spread throughout the airline industry and beyond–leaving the taxpayers to foot a gigantic bill. In Sunday’s Washington Post, Katherine V. W. Stone used the private pension crisis to argue against the president’s plan to fix Social Security. But the real lesson is the opposite of the one Stone draws.

Stone is right that with our private pension system in danger of collapse, Social Security is even more important. But that’s all the more reason to put Social Security on safe fiscal footing. The private pension crisis Stone describes is quite like the one that confronts Social Security. Corporate pension funds are failing because, when times were good, companies raided their retirement trust funds and diverted the money to other expenses. Sound familiar? That’s exactly what we do with the Social Security trust fund. (And as John Tierney pointed out the other day, that’s what we do with the badly depleted highway trust fund.)

Once bad economic times hit the airline industry, companies burdened with huge pension debts went bust. That’s what could happen to the United States itself if we pass through an economic rough patch while also being burdened with huge entitlement debt. Should that happen, there won’t be anyone to bail America out–the way taxpayers are bailing out private pension funds today.

Technically, Social Security goes into the red in about 2017. Yet long before then, pressure from boomer retirements–and from crises like the private pension fund meltdown we’re seeing now–could spook investors and send the economy south. The way to stop the ripple effect is to send out a signal that we’re putting our economic house in order. That’s why we’ve got to reform Social Security now. More than anything else, Social Security reform would insure that retirees are protected during what’s sure to be several decades of severe demographic pressure on the economy.

If we don’t reform Social Security now, this Sunday WaPo article shows why we probably won’t be able to fix it again until 2022, four years after the program goes into the red–igniting a severe budget crunch and who knows what alarm in the markets. By then, it may be impossible to prevent an economic “hard landing.”

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