Who Will Guarantee This Guarantor? Part Two

Late last month I published a piece on the serious financial problems at the Pension Benefit Guaranty Corporation (PBGC), the government corporation that guarantees private pension plans (see “The Pension Benefit Guaranty Corporation: Who Will Guarantee This Guarantor?”).
The article prompted a thoughtful response from Josh Gotbaum, the director of the PBGC. His response follows, along with my additional comments:

The Pension Benefit Guaranty Corporation, which guarantees the pensions of more than 40 million Americans, has had a financial deficit for over a decade.

PBGC pays pensions when bankrupt companies can’t afford them. Recently, some analysts decided that PBGC itself will become bankrupt and that taxpayers will end up footing the bill. Alex Pollock, a fellow at the American Enterprise Institute, notes accurately that PBGC was intended to be self-financing yet has a $26 billion deficit, and despairs that both the death of traditional pensions and the bankruptcy of PBGC are inevitable. Mr. Pollock writes, “A financial way out for the PBGC is not apparent and none is being proposed.”

As one who’s spent the last two years running PBGC, working both to put its finances in order and to preserve pensions, let me respectfully disagree.

For starters, let’s be clear: A taxpayer bailout is not our agenda. PBGC has never taken a dime from taxpayers and we want to keep it that way.

PBGC funds come from premiums paid by the pension plans we insure (and from recoveries from the plans we take over). However, Congress sets those premiums, not PBGC—and it has set them too low. From time to time, Congress raises the premiums—it did so again last month—but always bows to pressure to keep them low. If Congress keeps this up, Mr. Pollock will be right: PBGC eventually will either get a taxpayer bailout or, if not, go bankrupt.

Read more: http://www.american.com/archive/2012/july/who-will-guarantee-this-guarantor-part-two