Who is Responsible?

Thursday, May 12, 2005
A Judge ruled yesterday that United Airlines will be allowed to default on its Pension obligations. Why should you care? Because you are about to pay for it instead.

When companies like this default on their pensions, the Pension Benefit Guaranty Corporation assumes responsibility for the plan. This government backed agency is funded by your tax dollars. I no doubt have sympathy for the thousands of workers who will now see a reduction (as opposed to an outright removal) of benefits when responsibility is transferred to the Guaranty Corporation. But should the government really step in here?

Think about it. It now gives an incentive for other large companies to default on their obligations. United now has a large advantage in the airline industry because it is no longer saddled with this debt. Imagine, if GM (remember my post a few post ago) does the same thing. Believe me its possible. We could see a wave of companies declare bankruptcy, default on their obligations, and be allowed to continue on running a business. That's absurd.

But now the burden is placed on the Taxpayers, YOU are now forced to pay for these benefits even if you have never flown on United or if you never flown on an airplane at all. How fair is that?

I'm not sure what the answer is. I wouldn't want to see 1000's of workers on the street but at the same time I refuse to say that everyone else is responsible either. I certainly don't think United should be allowed to continue to operate without having to pay for these obligations at some point.


Kat said...

dangerous precedent. scary. same thing happened with enron, no?

Jose Anes said...

It is worse than a precedent. The precedent is there already. That is why the board exists, to cover those companies defaulting on their pension obligations.

What is worrisome is that even on the 21st century some employees still trust the pension systems as opposed to be using retirement instruments that they control.

Yes, we the taxpayers will pay for the pensions. But the pensioneers will suffer also. The pensions will be capped (I think they will be capped at 34k USD a year), even when some pilots where expecting pensions of over 100,000 USD a year.

Thank god they will be capped (I do not want to keep paying for Airlines mistakes). But also gives us food for thought. Don't trust pension systems that you can't fully control.

Choose IRAs and 401ks. Don't trust pensions.