Quote:
Originally posted by Tyrone Slothrop
(a) You win, in that you clearly know more about this stuff than I do.
(b) Surely we can think of something to do about underfunding.
(c) If I was patronizing last night, it was surely the wine.
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Not that many plans are underfunded. The ones that are, generally belong to businesses that are not doing so hot. All defined benefit plans are required to be insured with the Pension Benefit Guaranty Company (Corporation?), which guarantees benefits up to a point. People at the top of the covered comp scale will lose some (e.g., pilots) if the plan isn't fully funded and the PBGC takes over because, e.g., the company goes bankrupt. Basically the PBGC takes over pension plans -- including the assets they have -- and pays out the benefits when a company goes bye-bye. Since there's a huge reversion excise tax (like 50%?), in theory a business could go bust and yet have a fully funded pension plan, in which case everyone would get the benefits they are do.
The PBGC was overfunded a couple years ago by a lot. There was discussion of reducing premiums, but I'm not sure if it happened. It is now potentially underfunded (not sure the extent to which the feds are required to bail it out).
It's not a bad system. Aside from all the political fluff, the issues have to do with valuing liabilities -- what assumptions are used in the actuarial models. If the rate to which valuations are pegged is volatile, a plan can look hugely underfunded one day and hugely overfunded the next.
There's one big company plan (or set of plans, more likely) that is quite, quite underfunded (I can't remember the name, but it's in the top 10 by accrued liabilities). GM's plans, while not fully funded, were quite well funded and they have by FAR the biggest set of plans as measured by liabilities and, I think, by number of participants. Obviously, the market being crap lately would make them less well funded than they might have been at the end of 2004 (the data in the report I looked at a while ago).
I don't think the situation is nearly as dire as some people are apparently making it out to be, if you are suddenly all freaked out about it. Of course, maybe you have a relative who is a pilot at United or something. Anyway, hence my thinking that you drank the Koolaid.
