Here's the nightmare envisioned by some pension experts: United Airlines, arguing that it needs to be more competitive with Jet Blue and Southwest, defaults on $5 billion in pension obligations. Other major carriers follow suit, arguing that they need to remain competitive with United. And soon automobile manufacturers and other employers saddled with high pension costs join the rush to dump their obligations. In the end, the people picking up the tab would be taxpayers and, in many cases, employees and pensioners.
It's too soon to say what United will do with its pension obligations or whether the federal agency charged with insuring $1.5 trillion in retirement plan benefits will go bust. But there's a reason it all sounds familiar. During the late-1980s, taxpayers were forced to pay a multibillion-dollar bailout of a federal agency that insured deposits held by the nation's savings and loan industry.
Congress hoped to avoid this mess in 1974 when it created the Pension Benefit Guarantee Corp. to ensure that pensions got paid, without taxpayer assistance, by collecting premiums from companies that offer pensions (just as the federal agency levied premiums on S&Ls). And even though traditional pensions are dwindling, the PBGC still insures 31,000 plans covering 44.3 million workers and retirees.