The pensions guaranteed by taxpayers
Letter to the editor

The Editorial Commentary in the July 5 issue, "What a Relief It Is," rightly described the foibles of the recent Pension Relief Act, which displays the fundamental unsoundness and unhedgeability of defined-benefit pension plans. As Thomas G. Donlan said, these plans "helped many companies slide into bankruptcy."

However, he failed to mention an essential element of these plans. This is that even if the pension plan is broke as the company slides into bankruptcy, there is no need for labor unions to worry. The pensions are guaranteed by the government, under the guise of the Pension Benefit Guaranty Corporation.

The PBGC allowed the United Auto Workers union to negotiate pensions bigger than the auto companies might be able to pay. It was explicitly modeled on federal deposit insurance. Now the PBGC has a net worth of negative $22 billion. Its model, the FDIC, has a net worth of negative $20 billion.

But don't worry! Both are managed by the government and guaranteed (involuntarily) by taxpayers.

Alex J. Pollock is a resident fellow at AEI.

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About the Author

 

Alex J.
Pollock
  • Alex J. Pollock is a resident fellow at the American Enterprise Institute (AEI), where he studies and writes about housing finance; government-sponsored enterprises, including Fannie Mae, Freddie Mac, and the Federal Home Loan Banks; retirement finance; and banking and central banks. He also works on corporate governance and accounting standards issues.


    Pollock has had a 35-year career in banking and was president and CEO of the Federal Home Loan Bank of Chicago for more than 12 years immediately before joining AEI. A prolific writer, he has written numerous articles on financial systems and is the author of the book “Boom and Bust: Financial Cycles and Human Prosperity” (AEI Press, 2011). He has also created a one-page mortgage form to help borrowers understand their mortgage obligations.


    The lead director of CME Group, Pollock is also a director of the Great Lakes Higher Education Corporation and the chairman of the board of the Great Books Foundation. He is a past president of the International Union for Housing Finance.


    He has an M.P.A. in international relations from Princeton University, an M.A. in philosophy from the University of Chicago, and a B.A. from Williams College.


  • Phone: 202.862.7190
    Email: apollock@aei.org
  • Assistant Info

    Name: Emily Rapp
    Phone: (202) 419-5212
    Email: emily.rapp@aei.org

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