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Anxiety about the economy extends to concern about the ability of corporate employers to pay promised pension benefits. And well it might.

The threat is greater than most people realize. Few know that ERISA Industry Committee (ERIC) advocates a plan that would enable employers to cut loose existing defined benefit pensions with insufficient funding.

Many companies have terminated retiree health care plans, shrunk employee insurance coverage and shifted health care costs to workers.

The recent General Motors/United Auto Workers agreement transferred GM’s retiree health care program to a new "trust" operated by the union, but its funding may be inadequate.
ERIC’s "New Benefit Platform for Life Security" comes wrapped in cotton-candy rhetoric about promoting retirement and health security. But here’s what’s "new" — companies with defined benefit pension plans would have the option to off-load those plans to outside "administrators."

Company assets no longer would back pension plan promises; instead the administrator would pay from company contributions plus whatever they earned — or lost. Since 2000, they’ve lost billions.

The "New Benefit Platform" proposes that the U.S. Pension Benefit Guarantee Corporation (PBGC) stand behind plan promises. Unfortunately, PBGC already is in the red.

Reports of plan underfunding and PBGC insolvency often elicit suggestions that the government "bail out" PBGC. They invoke the economy-shaking bailout of federal savings and loans insured by the Federal Deposit Insurance Corporation as a precedent.

The two situations are not analogous: FDIC guaranteed money that account holders had deposited; but PBGC "guarantees" benefits that have not been funded faxless payday loans. Further, "The (Senate and House) expect the (PBGC) program … to be self-sustaining."

That means that fees paid by participating companies and earnings on them would fuel the program. A bailout would dishonor that rationale.

Employer-sponsored medical care and retirement plans receive more tax forgiveness than those for charitable contributions and mortgage payments.

ERIC’s justification for this "new" proposal: Pension regulations are so intricate that employers who sponsor plans can’t master them.

But the new "administrators," who specialize in plans, could. It will amaze people that companies like DuPont, FedEx, GE, GM, Hewlett-Packard, IBM, Motorola, Tyco and Wells Fargo cannot muster adequate staffs and consultants equal to the task.

The economy faces daunting problems: The disintegration of defined benefit pension plans, the collapsed earnings and employer manipulation of 401(k)s, the meltdown of employment-based health insurance and out-of-control medical care prices.

It is puzzling that so high-powered a group as ERIC has fielded so unappealing a proposal, to abandon pension obligations, with the rationale that the largest corporations in American cannot understand requirements.

The "New Platform" offers no help to the workers and retirees.

Merton C. Bernstein is Coles Professor of Law Emeritus at Washington University.

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