Private or public, pension plans are failing

It seems some stories just keep repeating themselves over and over.

Recently, Delphi, a maker of auto parts that has over 180,000 employees filed for bankruptcy. It became the largest American company to file for bankruptcy protection due to its rising pension obligations. Delphi’s pension plan faces a $4.3 billion dollar shortfall.

How does Delphi plan to make up for its multi-billion dollar boondoggle? By forcing through wage and benefit cuts for workers. If this sounds familiar, that’s because President Bush spent a better part of a year talking about a similar problem. Bush was explaining the shortcomings of what we could call the national pension plan: Social Security.

Like Delphi’s pension plan, Social Security is badly under-funded because of demographic trends. Instead of having more than ten workers per retiree we have 3.3, and we’ll soon only have two. As Delphi CEO Steve Miller says, “As a society, somebody has to pay,” and it’s future generations and workers.

Though it is not necessarily the case with Delphi’s pension fund, many private pensions suffer from opaque and misleading accounting that overstate the assets actually on hand and able to pay benefits. This could not be truer than it is with Social Security. Social Security has a mythical “trust fund” that holds payroll taxes. Unfortunately, Congress raids this fund every year to pay for pet pork projects in their districts in order to help ensure their re-election. They are effectively trading the future of the younger generation of Americans for the votes of their parents.

The final problem shared by Social Security and many private pensions, like Enron for instance, is what happens when workers are tied up in a single retirement investment without being able to diversify their holdings. Obviously with cases like Enron it means financial ruin for its employees. The Federal Government, though, makes Americans do the same thing. We all must buy the “company stock”, government bonds, which Congress then spends, and we don’t allow the workers to diversify their retirement portfolio.

For many Americans, Social Security is the largest tax they’ll ever pay. After paying the tax they have little or nothing left over to invest with on their own. Instituting personal accounts would change the payroll tax into most Americans largest savings program and allow them to build a diverse nest egg for their retirement, or for their children’s future.

“Delphi is simply a flash point, a test case, for all the economic and social trends that are on a collision course in our country and around the globe,” Miller has said. “I fear something like inter-generational warfare, as young people increasingly resent having their wages reduced and taxed away to support social programs for their grandparents.”

Congress can prevent this conflict from breaking out by implementing real and meaningful reform now. Personal accounts would solve the demographic problems associated with America’s Pension Plan, and ensure that we are all invested diversely and not in the company stock we know is going bankrupt.

Chris Schrimpf is Communications Director for Students for Saving Social Security.