Unfunded Large Private Pensions

I focus a lot on state finances because they are the ones that, technially speaking, could end up a burden to others through no fault of their own.  Meaning that taxpayers in states could find themselves footing the bill for the actions of others.  But that is only technically.  In reality, we all know that we can end up footing the bill for anything the US government deems appropriate – see GM and $50 billion as an example.

So I’m linking to an article from Pension & Investments Magazine that highlights the funding status of the 100 largest defined benefit plans.  There are some oddities about how some of the numbers are reported, but the general picture is clear and rings true – there are very big promises outstanding that have almost no hope of being paid. 

Scroll down the list and pay attention to the “Funded Status” column.  It shows the amount by which the plan is over or under-funded.  You will notice some pretty big negatives.  The airlines come to mind, with American being underfunded by $5 billion (59% funded), and Delta being almost a cool $10 billion underfunded (45% funded).  These airlines keep putting off their pension liabilities and I forecast they will eventually call it a day, demanding a ‘fast-track’ just like the one that GM got.  Why would we give them such an incredible, gift-wrapped, taxpayer-funded gift?  80,000 employees for American, and 75,000 employees at Delta BEFORE the merger w/ Northwest.

That’s a lot of votes and picket signs.

And just for grins you should scan the list for GM’s pension, which at a whopping $17 billion underfunded ranks as the largest deficit on the list.  How could this be, you might ask? How can the company we gave $50 billion to and relieved of almost all of its obligations to, well, everyone, be underfunded by $17 billion to its pension fund?  Well, in their negotiation with the UAW before the bankrupcty they were setting up the trust fund for the totally unfunded healthcare benefits that they owed.  In order to put some sort of monies into that trust fund (the VEBA), GM withdrew its excess funding from its pension fund, leaving it at 100%.  That was 2007.  So basically the company took the extra cushion accumulated in the good years and swept it away, leaving nothing to fill in the gap if and when the fund experienced some market declines. 

I’d imagine we all are very clear on who will be paying for this deficit.

Read the original story at H. S. Dent