A Stitch in Haste

The increasingly important Congressional Research Service, a project of the Library of Congress, has released a report summarizing the Social Security debate and a convenient fact sheet on the Pension Benefit Guaranty Corporation system. As you may recall, I have repeatedly invoked the PBGC situation as a example in miniature of what will happen to Social Security without meaningful reform.

The Social Security report includes a convenient summary of the various reform proposals that have been introduced so far in Congress, from Representative Jim Kolbe's first bill (H.R. 440) calling for mandatory personal accounts, to Senator Chuck Hagel's bill (S. 540) calling for voluntary accounts for those 44 and younger, to Representative Robert Wexler's obnoxious "reform" bill (H.R. 2472) calling for an additional 3% tax on wages above the current $90,000 wage cap with no corresponding increase in benefits, to Senator Jim DeMint's proposed "GROW accounts" (S. 1302).

As for the defined-benefit pension crisis:

[I]n 2002 over 270 companies reported underfunding greater than $50 million. One reason cited for the increase in underfunding is the low interest rate used by PBGC to determine the present value of pension liabilities. (The higher the interest rate, the lower the present value of the liabilities, and vice versa.) Many of the underfunded plans are sponsored by financially healthy firms and pose no real risk to the PBGC. However, total underfunding in plans that may result in "reasonably possible claims," according to PBGC estimates for September 2004, rose to $96 billion with most of this exposure coming from airline and steel plans.

These numbers also ignore the parallel crisis facing state and local government pensions, which are underfunded by about $279 billion.

Those who say that there are no crises facing Social Security and our various defined-benefit pension programs are, um, lying.