A Stitch in Haste

An update to my earlier post on how the current airline pension crisis may be a preview of what is coming for Social Security, courtesy of the Wall Street Journal (subscription site -- sorry):

The Pension Benefit Guaranty Corp, the quasi-governmental pension insurer, said in a limited objection Friday in U.S. Bankruptcy Court in Chicago that the United Airlines parent is attempting through a private agreement with its lenders to "effect an end-run around federal-pension law." UAL, citing the agreement, has said it will no longer contribute to the plans while under bankruptcy protection, raising fears that it will abandon them. Also, Friday, the PBGC raised its estimate of the four pension plans' combined underfunding to $8.3 billion, from last year's estimate of a $7.5 billion shortfall.
...
The PBGC separately Friday said that if UAL terminates the plans -- which would require the permission of the bankruptcy judge and the PBGC -- it would be on the hook for $6.4 billion. The difference between $8.3 billion and $6.4 billion represents the benefits that UAL's 120,000 workers and retirees would lose because they exceed the guarantee limits set by Congress.

The similarities with where Social Security is heading are intriguing (and depressing):

First, we see the general government fund (here the PBGC) picking up the tab when the dedicated pension fund fails -- exactly what will happen when Social Security becomes cash flow negative. (Always remember -- there is no "lockbox"...there are only paper promises to divert general federal revenues -- a.k.a., income taxes -- to Social Security, which was supposed to be fully funded by FICA taxes. So much for a "healthy" system.)

Second, we see, in the blink of an eye, the forecast of the future of the system changed (for the worse) by a substantial amount. One minute the airline pension shortfall is $7.5 billion, the next it's over 10% greater. Just like how the Social Security Administration (not to mention the Forces of Darkness) relentlessly claim, as though there is any reliability to the calculations, that it is absolutely certain that Social Security is absolutely safe for however many years, until -- presto-chango -- suddenly the outlook is no longer quite as sanguine as before.

Third, we see supposedly "safe" benefits (i.e, the $1.9 billion not guaranteed by PBGC) suddenly at risk, because there are in fact no dedicated funds to pay them -- only the hope that future inflows will continue in sufficient amounts. If not, well, too bad so sad... Meanwhile, Social Security sends every one of us a bromide report each and every year telling us how much we're "promised" and at what age, fully aware that those "guaranteed" benefits are anything but.

They tell us not to worry. I'll stop worrying when pigs stop flying.

More on Social Security here and here.

UPDATE #1: The New York Times reports this morning that much the same is occurring in the coal mining industry:

And now comes a fresh blow for more than 3,000 unionized miners who will lose their health care and retirement benefits under a federal judge's ruling that it is not necessary for their troubled employer to honor its contract guarantees. ...[T]he bankruptcy judge, William Howard, found that he was well within existing law and might even save jobs if the mines can be sold and kept open in some fashion. Thus does bankruptcy law trump miners' supposedly guaranteed, doubtlessly hard-earned benefits.

The operative word: "supposedly."

Once the Social Security crisis matures into full bloom, the miners won't be the only ones getting the shaft.

UPDATE #2: Drezner picks up the PBGC ball and runs with it -- good stuff.

UPDATE #3: Atrios and Deinonychus antirrhopus make similar observations in the wake of this story.