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"The art of government is to make two-thirds of a nation pay all it possibly can pay for the benefit of the other third." — Voltaire

A federal bankruptcy judge recently ruled that United Airlines could hand over $6.6 billion in pension liabilities to the federal government through the Pension Benefit Guarantee Corporation (PBGC). The PBGC is the government sponsored insurer of the nation’s private pension plans. Bailing out the crumbling steel industry pensions was the biggest hit until now. The UAL deal is a new record. The PBGC is still solvent but a line is forming at the payment window.
The feds are punishing the airline industry with ham fisted security protection. It shouldn’t be long before UAL’s competitors will want to pack their pension obligations into the baggage car of the federal gravy train. That would come to another $30 billion, more or less.

There are other industries as well that are groaning under the burden of carrying retired employees. GM has 110,000 hourly employees and 370,000 retirees. The pensioners cost over $6 billion last year. GM hasn’t made money selling cars for years. If it weren’t for its profitable GMAC credit division, GM would be losing money. Its bonds have been down graded to “junk” status. If GM, or equally risky Ford or Chrysler, or all three see a chance to dump pension obligations onto the taxpayers don’t be surprised if they take it. 

The PBGC reported that as of 2003 over 1,000 companies have underfunded pension plans. That figure is up from 166 in 1999. Apparently a lot of pension fund money was invested in A lot still is. The potential shortfall, for which taxpayers may soon receive a bill, is over $275 billion. The next time the market tanks, that figure will explode.

That astronomical number doesn’t include Uncle Sam’s obligations for Social Security, which is entirely “unfunded,” nor for obligations for generous pensions to civil servants and politicians. It also doesn’t include taxpayer liabilities for extravagant pension and benefit packages promised to employees of state and local government. Pension fund meltdowns could make the S&L debacle look like dinner and a movie.

A recent employment survey here in the Keys found employees in government jobs now earn more than those in the private sector even before you include their generous benefits. The turnover in the public sector is a small fraction of that in the productive economy.

It’s hard to account for the dramatic difference in stability with the pay difference alone. It’s really not that much. The picture becomes clearer, however, when you examine the plush private cars reserved for public employees on the retirement gravy train.

For workers in the private sector, the enjoyment of a long term retirement income requires savings. Either the employee has to save or the employer or both. At today’s safe investment interest rates of under 5% you need a million dollars worth of government bonds to have a retirement income of around $45,000. Because I’m jiggering my numbers to make my point that is also the maximum the PBGC will pay to a retiree when it rescues a private pension fund.

A financial calculator helps explain the loyalty of public servants to their jobs. Let’s say you are a city, state or county employee, started young and retired at age 45 after 20 years of service. In your last year you earned $80,000. Let’s say your retirement income will be about half of that with an extra $5,000 in benefits, or, hey what a coincidence, $45,000.

Let’s say you are going to live another 25 years. Since I’m not that clever with a calculator, we’ll ignore your 3% annual inflation raise. Using a 5% interest rate, if your employer was thrifty and saved enough to give you a 25 year retirement at $45,000 a year, he would have to have set aside over $13,000 a year for you. Even in those early years when you were slaving in a hot cubicle for $20K a year. Most public agencies are not that thrifty. But they can count on taxpayers to make up any shortfall.

Receiving a $45Kx25 year annuity is like getting a $634,000 cash gift at your retirement party. Beats a gold watch any day. Inflation adjustments make it more. If you live longer than 25 years, more still. Nice bonus for 20 years of pestering your fellow citizens with paperwork. And it’s hardly even mentioned in public agency budgets.

Promises to an aging populace and relentless expansion of the American Empire have plunged taxpayers into the deep end of the risk pool. As the world’s most famous bureaucrat, Alan Greenspan, said a while ago: “We may have promised more than we can deliver.”

What he means is there might not be enough mules to pull the overloaded gravy train over the mountain of debt we built while conquering the world. To insure a comfortable retirement Americans who are not working for the government might consider putting aside a few gold coins
and learning useful hobbies like bridge fishing, sock darning or vegetable gardening.