OPINION: Potential Crash Worse Than 2008? Unfunded Pension Liabilities Could Be To Blame
With all the good economic news — stock market highs, record employment and consumer optimism, rising wages, and falling poverty rates — there is on the horizon a dark cloud that could endanger everything.
Multi-employer pension plans have more than $600 billion of unfunded liabilities and are dangerously close to failing. Once these endangered plans fail, others may not be far behind.
State and local governments have about $6 trillion in unfunded pension promises. If these potential failures come to fruition, it could be a disaster far worse than the 2008 housing bust. Before that housing bust, the economy appeared strong and few anticipated an economic meltdown.
But even if one is determined to ignore the trouble signs, any pension plan failure will have a very real human cost and an obvious cost to taxpayers. As pension plans fail, Americans who have worked and been taxpayers their entire adult life will be forced onto welfare rolls — food stamps, welfare payments, housing aid, and disability benefits.
We saw welfare programs dramatically grow in the aftermath of the 2008 housing bust. Vast numbers of Americans becoming welfare recipients rather than taxpayers would be a real tragedy.
The good news is that this situation is entirely preventable — if Congress makes the necessary pension reforms in a timely fashion. Conservatives would be foolish to do nothing and allow this pension problem to become a crisis because once the crisis hits, it will be used to exponentially grow big government and waste trillions in bailouts and giveaways.
We can never forget how the advocates of big, bloated government view dire circumstances. Remember Rahm Emanuel’s words, “You never want a serious crisis to go to waste.”
It would be short-sighted for conservatives to do nothing or to delay. Once the crisis hits, the herd mentality will be too strong, and the political pressure too great. Big government solutions and crazy spending will be enacted despite conservative objections. That’s exactly what happened in 2009.
The conservative thing to do is to use conservative solutions to prevent this problem from becoming a disaster. Fortunately, conservatives are coalescing around a solution that will eliminate the risk: (i) that our robust economy falters, and (ii) that millions of American taxpayers will be forced into becoming welfare recipients, and (iii) that government will waste trillions in bogus bailouts.
Conservative organizations like Frontiers of Freedom and Americans for Limited Government and others are advocating that conservatives in Congress find a solution — protecting both the economy and taxpayers.
For more than a year, I’ve been advocating a practical and permanent solution that includes four important elements.
First, Congress must reform the law governing the affected pension plans by requiring them to meet new, more rigorous and realistic actuarial standards. Pension plans should lose the special treatment that many plans receive which allows them to operate in unsustainable ways.
Second, the stakeholders must share in the costs of returning pension plans to a firm footing. Retirees must accept modestly reduced benefits during the time period required to get the plan back on an actuarily sound foundation. Once the difficulty has passed, retirement benefits can return to levels that reasonable and responsible actuarial standards permit.
Third, for pension plans that make the needed and required reforms and demonstrate that they are serious about actuarial soundness, Congress should authorize short-term loan guarantees. This will allow the pension plans to get through their short-term cash crunch. Without going into all the details, pension plans have a current cash payout problem.
But over time, with these loans, they can get back on a firm financial and actuarial footing. The total cost of these loans would be roughly $25 billion — which would be repaid because only those pension plans that did what was necessary to get back on a firm financial footing would qualify for them.
So in the end, the taxpayers are not on the hook for the loan guarantees, or porkbarrel bailouts motivated by a financial crisis, or increased welfare expenditures caused by retirees losing their pensions.
Fourth, Congress must reform the Pension Benefit Guarantee Corporation (PBGC) to make it function like a real insurer where risks and costs balance out. If nothing is done, the PBGC will be bankrupt within the next six years, leaving taxpayers on the hook to make good on its promises. That would cost taxpayers hundreds of billions.
As a committed conservative, I wholeheartedly agree that markets work efficiently and that government almost never does. Many of the problems currently observed with pension plans are the result of poorly conceived government laws and regulations.
We must fix this before the problem grows and becomes catastrophic. But failing to act plays into the hands of those that will never let “a crisis go to waste.”
George Landrith is the President of Frontiers of Freedom an educational foundation whose mission is to promote a strong national defense and peace through strength.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.