Increasing Deficits, Sinking Pensions
Pensions are in trouble — whether they are public (Social Security) or private. The reason is the same; namely, the institutions that stand behind the pension plans are running out of the needed resources to meet their commitments. Let’s start with the private (non-governmental) plans.
Some 44 million people are covered by pension plans, usually sponsored by companies or unions — or jointly by both. To protect these millions, the government, many years ago, set up an insurance agency known as the Pension Benefit Guaranty Corporation. The purpose of this corporation was to guarantee the continuance of coverage in the event that the private pension plans are under-funded or just go bankrupt.
Over the years, the government agency has been running surpluses. In 2001, it ran a surplus of $7.7 billion. But last year it ran a deficit of $7.7 billion. And that’s just the tip of the iceberg. The agency estimates that the company plans that it insures currently owe some $300 billion more for present and future retirees than the government agency can cover.
In plain words, as things are now moving, more and more workers who are covered by company- or industry-based plans will find that their coverage will be lost under the plan and that the insurance provided by the government agency is also not forthcoming because the government agency does not have the money to come to the rescue.
Why is this happening? Because more and more corporations are going bankrupt at a rate beyond the capacity of the government insurance agency to keep up with the skyrocketing costs. In other words, “It’s the economy, stupid!”
And the same can be said about the Social Security system, which has assets of more than $1 trillion. These “assets” are, by law, invested exclusively in government securities. In recent years, Uncle Sam has been paying the Social Security Trust Fund some 7% interest on the money it borrows from the trust fund. The government uses this money for whatever it wishes. The money it borrows is treated like any other money received through taxes or borrowed from banks, insurance companies, individuals, etc.
One of the reasons that the assets of the trust fund are so huge is that for many years it took in more than it laid out. But that happy situation is not likely to continue for two reasons. Soon the numerous members of the “baby boom” generation will be retiring and will start collecting pensions. Simultaneously, the American economy is on a downward slide. So, less will be coming in and more will be going out.
At which time the trust fund will have to start drawing upon its assets. And there’s the rub. With our present policy of cutting taxes by trillions of dollars to enrich the rich and by moving into a war whose costs will run into the trillions of dollars and going into a backbreaking debt starting this very year, the inevitable question is whether Uncle Sam (the U.S. Treasury) will be in a position to redeem the trillion dollars plus that he drew from the Social Security Trust Fund to feed his rich cronies and the dragons of war.
All this won’t happen immediately. It will take a little time. So don’t worry too much, because in about 19 months you can go to the polls and turn things around.