Buckle Up

"Taxpayers had better buckle up because we will be in for a bumpy ride of bailout after bailout, as more and more corporations dump their pension plan obligations on the PBGC" said U.S. Rep. Jan Schakowsky, D-Ill., referring to the Pension Benefit Guaranty Corp. that already is operating at a more than $23 billion deficit.

Yes Jan that is correct as we reported in yesterday's blog.

"We feel sold out", said Dianne Tamuk, 49, a United flight attendant. Her pension will be reduced from $1,700 a month to $800 a month by Judge Eugene Wedoff's ruling. Wedoff called it "the least bad" of the available choices, since it gives United the best chance to keep functioning.

Flight attendants for American are now gathering in Washington to lobby for federal pension reform that would allow carriers to extend the amount of time they have to replenish under funded plans.

I hate to break the news to the Association of Flight Attendants, but extending the amount of time for companies to fund their plans just ensures that they won't. Companies get away with under funding because they are allowed to assume 10% returns on their investments even if they do not come close to it. Over time pension plans just get further and further behind. Perhaps companies should start funding their pension plans with leap puts on their own companies. That would help. For most of the airline industry it is just too late.

As for Judge Wedoff's ruling, yes it might be United's best chance to keep functioning, but it increases the pressure on other airlines with hugely under funded pension plans and gives United a competitive advantage over them in that regard.

Slowly but surely companies with hugely under-funded pension plans will bite the dust, one by one. In the meantime, United is headed back to court to take up another sensitive matter: The proposed overhauling of collective bargaining agreements. Won't that be fun?

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/