The NYT reports on the dastardly acts of dastardly corporation raiders who drop their pension plans upon take-over in Whoops! There Goes Another Pension Plan
. The article focuses on Wilbur Ross who has done this before and plans to do the same in his bid for Delphi. This process rids the acquired company's balance sheets of billions of dollars in obligations and forces the federal government to assume the abandoned pension obligation. The federal agency that assumes obligations of failed pension plans is in the red: as of last year it had a deficit of about $40 billion as of last year and the CBO estimates the deficit will reach $87 billion in 2015 and $142 billion in 2025 (all number admitted rounded up for effect).
Writer Mary Williams Walsh focuses on the ill-intent of the corporate take-over executives who abuse of the system honorably put in place by our Congressional protectors to bail-out employees of financially strapped companies.
Premiums per employee are charged to every employer at the rate of $19 per employee without consideration of risk. That would be like everyone paying the same auto premiums regardless of accidents or the same life insurance premiums regardless of age and health. Thus, healthy or less accident-prone companies are picking up the cost of the unhealthy or accident-prone competitors.
Pension law professor James A. Wooten explained that Congress that passed this boondoggle legislation:knew it was creating an imperfect system when it established the pension corporation in 1974, and that it expected to make improvements later. The bill was highly contentious, and Congressional leaders struggled mightily to achieve compromise in the last chaotic months of the Nixon presidency, with the Watergate scandal roaring around them.
I guess it was Nixon's fault for distracting Congressmen as they performed brain surgery on the economy. If only Nixon did not make so much noise while they were reading the complicated draft legislation.
Has anyone ever heard of the term "moral hazard"? Certainly not Congress. A few years back taxpayers had to pay for the billions lost by S&L's in their bad banking practices. Critics of FDIC legislation warned of that kind of bail-out potential back in the FDR years. Now, we have Social Security in the red because business assumptions changed with a diminution of paying employees for the retirement benefits of retirees. Wage and price controls and protective tariffs have hurt our economy over the years (and extended the Depression). But Congress keeps stepping into business activities as the "just try to help the little guy".
Quoting Professor Wooten about Congress:"They took cautious steps, and those cautious steps weren't enough to prevent the abuse of the insurance program," Mr. Wooten said. "Once there's insurance, you have an incentive to run up liabilities to get more out of the insurance."
Imagine if they took bold steps!?
Wilbur Ross is merely legally taking advantage of loop-holes our lawmakers never saw coming as they drafted and approved the legislation. But Ross offers a solution:
[T]he country should look for a new way - maybe a value-added tax on imports - to bolster the pension-insurance program or to provide health care to retirees. He said he had suggested this approach to some members of Congress, but in vain. "So far, they've really seemed more interested in lashing out at China," he said.
That's it Mr. Ross. The best way to protect workers and jobs and the economy and our competitive stature world-wide is to assume all responsibilities for healthcare and retirement benefits. If we did that, we sure could forget about China! We could be just like Europe!