Pensions in Peril
The federal agency that insures private pensions has a $23 billion deficit, raising the specter of a taxpayer bailout. Proposals abound, but fixing the problem won't be easy
Phil Davies Staff Writer; June 2005

  Bradley D. Belt must know how the captain of Titanic felt, gazing ahead as his vessel bore down on the iceberg. If only he had a little more time to steer clear of the obstacle ahead—or a way to melt it before the fatal impact.
  Belt heads the Pension Benefit Guaranty Corp., a little-known federal agency that insures defined benefit pension plans, a type of traditional pension common in unionized industries that guarantees workers retirement payments based on years of service and final salary. Roughly 44 million Americans participate in such plans. When an employer can't meet its pension obligations, the PBGC steps in to make good on those pledges, paying retirees monthly benefits up to regulatory limits. In 2004 the quasi-public agency paid out $3 billion in benefits owed on over 3,400 defunct pension plans.
  But lately the actuarial odds have been catching up with the PBGC, casting doubt on its ability to continue serving as a backstop for corporate failure. In 2002 the PBGC's insurance fund for
single-employer pension plans had a healthy surplus; at the end of fiscal 2004 the fund was running a $23.3 billion deficit, more than double that of a year earlier. In mid-May, United Airlines received permission from federal bankruptcy court to terminate its four pension plans, setting the stage for the largest pension default in U.S. corporate history. If other airlines seek similar protection, as some predict, “that move would probably swamp the pension agency,” according to the New York Times.
  Since the U.S. economy soured in 2000, the agency has absorbed over $10.6 billion in insurance claims from terminated pension plans, most of them in the steel and airline industries. Those liabilities are inexorably eating away at the PBGC's balance sheet. Despite taking in insurance premiums, and cash and investment income from bankrupt plans it takes over, the PBGC has insufficient assets to cover its obligations—the benefits due to retirees and workers who will retire in coming years. An analysis by the Center on Federal Financial Institutions (COFFI), a nonprofit think tank based in Washington, D.C., shows that if current economic conditions persist, the agency will hit the iceberg—run out of money to pay benefits—in 2021.
  The PBGC's looming insolvency raises the specter of a taxpayer bailout, the salvation of federal deposit insurance in the 1980s. The savings and loan debacle, the biggest public rescue in the history of U.S. financial institutions, cost taxpayers an estimated $175 billion. Determined to avoid the second-biggest taxpayer rescue in history, Executive Director Belt and his predecessor have testified to Congress 10 times in the past three years, asking for a revamping of the pension system. “The defined benefit pension system is beset with a series of structural flaws that undermine benefit security for workers and retirees and leave premium payers and taxpayers at risk of inheriting the unfunded pension promises of failed companies,” Belt told the Senate Committee on Finance in March. “Only if these flaws are addressed will safety and soundness be restored to defined benefit plans.”
  The Bush administration has responded with the first real attempt in 10 years to address the PBGC's financial woes. The Bush proposal would tighten pension funding rules, improve financial disclosure and raise the insurance premiums that companies pay to the PBGC. But the White House plan has run into heavy flak on Capitol Hill and elsewhere. Trade unions and employer groups such as the American Benefits Council, which represents large sponsors of pension plans, argue that new rules could lead companies to abandon defined benefit plans, already an endangered species in the workplace. “We're concerned that the effect of some of the proposals they're making will be to drive more companies out of the system,” said ABC President James A. Klein in an interview.
  Calls to overhaul pension insurance are nothing new, nor is spirited opposition to change by stakeholders in the status quo. Pension insurance has suffered from a systemic lack of market discipline since the PBGC was created 30 years ago. Fraught with moral hazard—the temptation to take less care when someone else pays for your mistakes—the current system gives a free ride to irresponsible employers and imposes an unfair burden on taxpayers. There are economic solutions to the moral hazard problem and the PBGC's growing mountain of debt. Implementing them will severely test the nation's political will.

A game of jeopardy
  The late Sen. Jacob Javits of New York hailed the Employee Retirement Income Security Act as “the greatest development in the life of the American worker since Social Security” when the measure he championed became law in 1974. Inspired by the plight of workers at Studebaker-Packard Corp. after the automaker terminated its pension plan in 1964, ERISA required companies to set aside money for their pension plans. And the act established the PBGC to ensure that workers received what they were promised.
  But ERISA and the PBGC have never worked as well as Javits envisioned. From the beginning, some employers have jeopardized their pension plans by gaming the system, often with the tacit approval of trade unions. Loose funding rules and regulatory loopholes have allowed companies to make inadequate contributions to their pension plans. With few constraints on how pension assets are invested, employers have gambled and lost in the stock market. Other ERISA provisions, such as penalties for exceeding annual caps on tax-deductible contributions to pension plans, discourage well-intentioned companies from building up funding surpluses.
  As a result, the PBGC has run persistent deficits, despite periodic premium hikes and tweaking of funding rules. Corporations have been able to get away with shortchanging their pension plans and playing the stock market in flush economic times; rising stocks increase the value of pension assets, and the high interest rates that often accompany bull markets reduce pension liabilities by letting employers make smaller contributions today to meet pension obligations 10 or 20 years in the future. In the late 1990s many companies with bulging investment portfolios were able to take “funding holidays,” putting no money into their plans. But pension managers have been caught short when the economy falters. During the recession of the early 1990s, the PBGC took over more than 20 large, severely underfunded plans, digging itself a $2.9 billion hole by 1993. Pension underfunding by companies in the single-employer program grew to over $100 billion before the system regained its footing in a revivified stock market later in the decade
 The PBGC found itself in arrears again after the dot-com bubble burst in 2000, pitching the stock market into free fall. This time, the death throes of several large steel makers and airlines added to the load of terminated, poorly funded plans dumped in the agency's lap. LTV Steel, Bethlehem Steel, Kaiser Aluminum, US Airways, United Airlines—all declared bankruptcy and bequeathed pension liabilities to the PBGC. United Airlines' pension plans, collectively only 42 percent funded when they were terminated this year, make the agency liable for approximately $6.6 billion in benefits owed to United active and retired personnel. The PBGC is bracing for more defaults in the debt-ridden airline and auto industries.
  The rash of terminations coincides with the steady erosion of the PBGC's premium base. Looking to cut costs and shift responsibility for retirement financing to the individual employee, thousands of employers switched from defined benefit plans to defined contribution plans in the 1990s, continuing a trend that began 10 years earlier. In 2003 only 20 percent of the private-industry workforce was covered by a traditional pension, down from about 30 percent in 1990. During the same period, worker participation in defined contribution plans such as 401(k)s rose to 40 percent, according to the Bureau of Labor Statistics.

The day of reckoning
  All of this adds up to $23.3 billion in red ink for the PBGC—a shortfall six times greater (in 2004 dollars) than its 1993 deficit. Workers and retirees needn't fear immediately for their pension benefits; because the PBGC has approximately $39 billion in assets today and acquires new assets when pension plans terminate, it will remain cash-flow solvent for another 15 years or so under COFFI's base scenario. But the day of reckoning will come—21 years earlier than Social Security, another social insurance program that has received much more attention and is projected to go broke without reform. If the PBGC were a private insurer, says COFFI President Douglas J. Elliott, it would be shut down. His cash-flow model, based on PBGC data, indicates that in the current pension system a massive cash infusion would be required to erase the deficit and satisfy new claims over the next 75 years.
  “It's simple arithmetic,” Elliott says. “You need to put in $78 billion today in order to take care of the legacy plus additional losses that would occur.” To avoid a cash rescue, the PBGC would have to realize a 10 percent return on its investments—double historical norms—or increase premium revenue by at least $3.5 billion annually. Even if only half of the claims anticipated by PBGC came in, a $56 billion infusion in today's dollars would still be necessary to stave off insolvency. If all major U.S. airlines defaulted on their pension plans, a $100 billion rescue would be required.
  If the PBGC were bailed out, taxpayers would almost certainly do the bailing. Technically, the PBGC is a private insurance pool, entitled to only a $100 million loan from the U.S. Treasury. But the federal government would probably step in if the agency goes bankrupt, just as it came to the rescue of the Federal Savings and Loan Insurance Corp. (FSLIC) in the 1980s. With or without a public rescue, says Elliott, Congress needs to refigure the faulty arithmetic of pension insurance to make employers pay the true cost of the termination risks they impose on the PBGC. “There's clearly an imbalance between the risks and the premiums,” he says. Unless that imbalance is corrected, the PBGC will remain a financially suspect institution incapable of safeguarding the future of millions of baby boomers approaching retirement.

What, me worry?
  Moral hazard is the corrosive force that gnaws at the PBGC's financial foundation, constantly threatening to topple it into debt. This hazard has nothing to do with moral turpitude (thievery, adultery, pyramid schemes, and so on); in economics the term refers to the tendency of people with insurance to expend less effort to avoid risks than they would if they had no insurance. Moral hazard has been an issue for underwriters ever since the first insurance policies were issued after the Great Fire of London. It induces drivers to take less care on icy roads and homeowners to rebuild in earthquake zones.
  A 1993 study of the PBGC by the Congressional Budget Office identified moral hazard as a powerful incentive for employers and labor groups to exercise less care over their pension plans, thereby increasing the risk of defaults. The study's authors, Marvin Phaup and Ron Feldman (now a vice president at the Minneapolis Fed), wrote that operating a pension insurance system is like “playing a strategic game against a large number of rational opponents who—under some circumstances—can gain an advantage by increasing the amount of risk to which other players are exposed.”
  Pension legislation in 1994 reduced the potential for gamesmanship, but companies still face no significant penalties for promising generous benefits to employees, then underfunding their pension plans and taking risks in the stock market—increasing the likelihood that the plans will ultimately fail and become PBGC liabilities.
  The existence of federal pension insurance reduces the incentive for employees to care about the financial health of their defined benefit plans. They and the unions that represent them in collective bargaining know that the PBGC (and implicitly, Uncle Sam) guarantees a high proportion of retirement benefits. For defined benefit plans that terminate in 2005, the PBGC grants employees who retire at 65 a maximum annual stipend of $45,613. That's probably not enough to buy a condo in Florida, but it provides skilled, blue-collar workers a substantial measure of security. Therefore, employees and their unions have less reason to insist that companies fully fund their plans and invest assets wisely. When cash-strapped companies offer workers fatter pensions in lieu of wages or other immediate benefits, unions often go along because the PBGC has pledged to honor those promises, even if the employer deliberately underfunds its pension plans and later goes bankrupt.
  In the early 1990s, for example, bankrupt Trans World Airlines increased pension benefits by more than $100 million in exchange for wage concessions. A decade later, United Airlines sweetened the retirement packages of its pilots and ground workers as it careened toward Chapter 11. “At times in the past,” says Klein of ABC, “it has been convenient for the employer, and the labor union that is compelled to make concessions in wages or health benefits, to make it up in the form of additional promises on the pension side, which the employer then doesn't fund. That's irresponsible, and just exacerbates the problem.”
  Defined benefit pension plans were underfunded to the tune of $450 billion—20 percent of the system's total liabilities—at the end of 2004. Companies, even financially healthy ones, habitually underfund their plans because doing so is cheap and easy. A private insurer would charge higher premiums to policyholders who engage in risky behavior, heightening the prospect of claims. That's why drivers with bad driving records pay more to insure their cars and smokers pay a premium for health insurance. But the PBGC can't effectively penalize risk-taking. By law, the PBGC charges employers a modest “variable” premium for pension underfunding—just $9 per $1,000 of the underfunded amount. And because of convoluted rules limiting tax-deductible contributions, many employers avoid paying any variable premiums. Last year, only 20 percent of underfunding was subject to variable premiums.
  In other words, says Richard Ippolito, a former chief economist for the PBGC, companies that starve their plans don't pay nearly enough for succumbing to moral hazard and imposing additional risk on the system. “If the insurance is properly priced, then there is no moral hazard,” he says. “Well, in the case of PBGC insurance, consider the reality. There really is no charge to speak of to carry underfunding.” Instead, companies that fully fund their plans subsidize risk-taking members of the insurance pool by paying a higher “fixed” premium—a flat charge per pension participant. Since 1974 the fixed premium has increased 19-fold, with the last hike coming in 1991.
  Temporary legislation passed last year to take pension pressure off beleaguered industries has worsened overall levels of underfunding. The Pension Funding Equity Act raised the interest rate used to compute the present value of future benefits—effectively reducing pension liabilities on paper—and gave airlines and steel companies five years to make up funding shortfalls. The PBGC estimates that the measure, due to expire next year, reduces required contributions by an estimated $80 billion over two years.

Risky business
  Besides encouraging underfunding, moral hazard also influences the investment decisions of pension managers. The PBGC doesn't take asset risk into account when it assesses premiums; a company that invests its pension in technology stocks or hedge funds pays the same rate as a company that puts its trust in high-grade corporate bonds or Treasuries. Thus, as long as they don't violate their fiduciary responsibility under ERISA to invest pension assets prudently, employers face no consequences for taking on additional investment risk. Aggressive investment strategies are particularly tempting for struggling companies with underfunded plans. If the gamble pays off, the company can resurrect its pension plan and pocket the balance of the financial gain; if the investment tanks and the pension plan later fails, the PBGC picks up the pieces.
  Some pension experts draw parallels between the risky bets made by pension funds and those indulged in by savings and loan institutions in the 1980s. In the case of S&Ls, blanket protection afforded to creditors by the FSLIC led some troubled thrifts to make speculative, losing investments in commercial real estate and junk bonds. Similarly, in the 1990s embattled employers protected by pension insurance invested heavily in equities, including telecommunications and technology stocks—assets that largely evaporated in the stock market meltdown of 2000.
  A lack of transparency in the pension system exacerbates moral hazard. In open markets, monitoring by customers, investors, regulators and others with skin in the game curbs excessive risk-taking. But in the pension business, “the funding and disclosure rules seem intended to obfuscate economic reality,” Bradley Belt testified to Congress in March. ERISA regulations permit employers to file outdated reports with the PBGC, withhold funding data from investors and pensioners, and “smooth” the market value of pension holdings over several years to make plans appear healthier than they are. Bethlehem Steel, for example, reported that its pension plan was 84 percent funded in 2001, but by the PBGC's reckoning it was only 45 percent funded when it was taken over a year later. Without relevant and timely information, workers, the PBGC and other stakeholders cannot exert pressure on employers to fully fund their plans and invest prudently. (See The Top 50—Revisited.)
  Not all of the PBGC's problems can be laid at the door of moral hazard. Feldman and other analysts have observed that poor insurance management has contributed to the agency's financial losses. One example of purblind oversight by Congress is the PBGC's premium structure. Not only has the agency failed to sufficiently hold employers to account for underfunding; it has also consistently underpriced insurance coverage. A 2002 analysis by Ippolito and Steven Boyce, a senior economist at the PBGC, showed that premium rates amount to only about half of those that would be charged by a private pension insurer. Current fixed and variable premiums set by Congress don't account for market volatility-what financial economists call “beta” risk. When stock returns decline, the value of pension assets inevitably falls and default risk increases—risk that isn't reflected in the premium schedule.

Coming to the rescue
  Belt has called for comprehensive reform of the pension system. He has asked Congress to untangle ERISA's Byzantine funding rules, improve financial disclosure, restructure PBGC premiums to reflect default risk and enhance the agency's standing in bankruptcy proceedings. Other interested parties and observers—industry lobbyists, unions, politicians, financial economists—have weighed in with their own solutions to the PBGC's deficit.
  Not everyone agrees with COFFI that taxpayers will be saddled with the PBGC's debts if Congress stands pat. Some economists view the deficit as transitory, the result of a “perfect storm” of precipitous stock-market declines combined with historically low interest rates and bankruptcies in moribund industries. When the economy fully recovers, this line of reasoning goes, pension plans will become flush with assets again, currently inflated liabilities will shrink and the PBGC's deficit will fade away. “PBGC needs a tune-up, not an overhaul,” writes Christian Weller, senior economist of the Washington, D.C., think tank Center for American Progress, in a paper published last year. “PBGC's losses most likely qualify as extraordinary events that may not happen [again] for a long time, and may partially turn around.”
  Some employee groups go further, hinting at a cabal against workers covered by defined benefit plans. “The underfunding 'crisis' has been overblown, largely for political purposes relating to efforts to secure the enactment of funding relief legislation for certain companies, and in some instances as a pretext for freezing or cutting back on expected future benefits,” declares the Pension Rights Center, an advocacy group for employees and retirees, on its Web site.
  But even those who downplay the PBGC's deficit concede that the pension system has intrinsic weaknesses that threaten the agency's stability whenever the economy stumbles.
  The full spectrum of potential solutions to the PBGC's troubles was on view at a policy forum last November hosted by COFFI. Among the panelists at the Washington, D.C., seminar were Belt, Klein, CBO Director Douglas Holtz-Eakin and Alan Reuther, legislative director of the United Auto Workers. A COFFI report released after the forum lays out 15 policy options for dealing with the PBGC deficit.
  A fear voiced often at the forum is that in attempting to fix pension insurance, lawmakers will destroy the system by inducing employers to wash their hands of defined benefit plans. Rising funding and administrative costs have dampened corporate enthusiasm for traditional pensions. In a 2004 survey by Hewitt Associates LLC, a benefits consulting firm, 20 percent of large employers said they were considering offering employees only a 401(k) or other defined contribution plan. More than one in four companies said they would consider freezing their defined benefit plans—paying benefits already earned but ceasing to accrue any new benefits for existing or future employees. Delta Air Lines froze its pension plan for pilots last November, and Northwest Airlines wants to freeze all of its defined benefit plans. Many unions and policymakers believe that getting tough with companies—by significantly raising premiums to make up the PBGC's deficit, for example—could spell the end for traditional pensions, and for the PBGC.

Antidotes to moral hazard
  Several proposals come to grips with moral hazard, reducing the incentive for some companies to indulge in risky behavior at the expense of others. One obvious solution is to impose tougher penalties for underfunding. Raising the variable premium, or collecting a premium on all funding shortfalls, combats moral hazard by shifting the cost of insurance toward companies at greatest risk of defaulting. Higher variable premiums would raise additional revenue for the PBGC, reducing the deficit while leaving companies that choose to fully fund their plans unscathed. But for struggling companies, markedly higher variable premiums could be the final straw. “I don't think there would be a death spiral,” COFFI's Elliott says, “but I do think there's a genuine possibility that many firms will choose to exit the defined benefit system by freezing their plans.”
  Variations of this proposal, modeled on changes to deposit insurance in the wake of the S&L crisis, base variable premiums on investment or credit risk. Financial economists have shown that volatility in the investment returns of pension funds poses a substantial risk to the PBGC. Ippolito and Zvi Bodie, a finance and economics professor at Boston University, have recommended that companies “immunize” their pension plans against stock market downturns by buying long-term bonds, which are better matched to pension liabilities than are stocks. Treasury notes and other high-grade fixed-income securities deliver virtually guaranteed returns at maturity, and if interest rates fall the pension plan reaps a capital gain. Charging equity—heavy plans a higher premium would give firms a powerful incentive to invest in bonds instead. Claims on the PBGC would decline over time, because a less volatile investment portfolio reduces the likelihood of future underfunding.
  Charging higher premiums to companies with dubious credit also makes sense; a creditworthy firm is much less likely to go bankrupt and default on its pension plan than one whose debt has been relegated to junk status. A PBGC analysis found that nearly 90 percent of the companies that dumped large claims on the agency had junk-bond credit ratings for the preceding 10 years. Credit ratings (from Standard & Poor's or Moody's) or measures of debt-to-equity ratios (similar to the methods used to assess risk-based premiums in banking) could be used to judge a firm's creditworthiness.
  Understandably, neither approach has won accolades from business groups. Pension managers favor stocks because in the past they have earned higher returns than bonds, which lowers the cost of funding defined benefit plans. And those returns count as income that boosts the corporate bottom line. As for indexing premiums to credit risk—a key element of the Bush reform plan—Klein of ABC argues that doing so would place an intolerable burden on already weak companies, forcing them to terminate their plans. He contends that a low credit rating isn't always the employer's fault; United and US Airways were brought to their knees by rising fuel costs and the travel slump that followed the 2001 terrorist attacks.
  In banking, deposit insurance reform in the early 1990s mitigated moral hazard by denying full federal protection to uninsured depositors at small institutions. In a similar vein, another approach to reducing the PBGC's exposure disallows or withdraws coverage for benefit increases in severely underfunded plans. Under this plan, a distressed company's proposal to sweeten its pension package in exchange for wage concessions would visibly imperil its workers' retirements. Less protection would force employers to reconsider making unfunded promises, reducing claims payouts if those plans terminate and thereby trimming the deficit. Of course, further limits on pension coverage (early retirees already receive less than the maximum benefit) are likely to be vehemently opposed by employee groups.

Just like starting over
  Rather than reducing the PBGC deficit by reforming pension insurance by degrees, two other proposals aired at the COFFI forum simply wipe it away, forgiving the mistakes of the past and allowing everybody to make a fresh start. In both scenarios, the taxpayer comes to the rescue, pouring $30 billion or more into the PBGC's coffers to cover much of the liability from steel and airline bankruptcies.
  An immediate taxpayer bailout, advocated by the United Auto Workers, would cut the agency's losses before they mushroom further and avoid charging healthy plans a higher fixed premium that could trigger more freezes and terminations down the road. In their 1993 CBO report, Feldman and Phaup broached this as one solution to what was then a much smaller PBGC deficit. The idea still makes sense, Feldman said in an interview—if Congress decides that the defined benefit system is worth saving. “You can't force the people who are solvent to pay for the sins of those who have already failed,” he says. In his view, past and imminent claims from defunct pension plans can be considered a sunk cost that must be wiped from the PBGC's books if the pension system is to remain viable going forward. Once the debts of bankrupt steel, airline and auto companies are paid, premiums and funding rules can be adjusted to properly price pension insurance and keep the PBGC solvent, making future bailouts unnecessary.
  Boyce and Ippolito conclude in their 2002 paper that taxpayers—the de facto underwriters of pension insurance—already subsidize the PBGC because they absorb beta risk when stock assets lose value. This hidden public subsidy amounts to about $1 billion annually. So why should taxpayers hand another subsidy to companies that benefited from artificially cheap insurance, then broke their pension promises? Perhaps because by doing so, they could be relieved of responsibility for pension insurance once and for all.
  Ippolito has proposed bailing out the PBGC with a one-time cash infusion, then privatizing it—converting it into a true self-insurance pool with no possibility of further federal aid. Companies in the pool would set a variable premium that would apply to every dollar of underfunding. Calculated to reflect the true risks of bankruptcy absorbed by the pool, including beta risk, the rate would fluctuate from year to year, depending on business and financial market conditions. After a period of time, firms would be free to leave the pool and shop for coverage from private insurers. In a paper published by the Cato Institute last year, Ippolito suggests that a private entity would prove a more capable insurance underwriter than the federal government.
  “Once taxpayers were removed as ultimate guarantors of the insurance, the plans themselves ... would have an incentive to align premiums with exposure, and plan sponsors would have to face up to the problems that their own underfunding creates,” he writes. This drastic plan—likely to be opposed fiercely by both corporations and employees—would substantially raise premiums for weak companies without the wherewithal to fully fund their pension plans.
  Other proposed salves for the PBGC's wounds include raising flat-rate premiums, tightening funding rules and raising tax-deductible pension funding limits. (For a complete discussion of policy options for dealing with the PBGC deficit, see “PBGC: Policy Options” at COFFI.)

Economics vs. politics
  Any permanent remedy for the PBGC's deficit and the dysfunctions of pension insurance will likely blend several of these approaches in an effort to prevent more plan defaults while significantly boosting the agency's income. As the COFFI policy forum demonstrated, lawmakers have the means to avert a collision with the iceberg threatening the PBGC—not just until the stock market tanks again, but for as long as employers choose to offer defined benefit plans. Countering moral hazard, correctly pricing coverage and ensuring that the pension system's assets match its liabilities are straightforward economics.
  But how and when Congress intervenes on pensioners' behalf will probably be determined more by politics than economics. The challenge for lawmakers, illustrated by the controversy generated by President Bush's reform proposal, is implementing any plan that exacts a significant price from employers and pension participants. Corporations don't want to pour precious revenues into defined benefit plans or pay higher premiums; unions don't want their members' benefits cut back or to give companies another reason to dump their defined benefit plans. Both management and labor are apparently content to have taxpayers stand behind underfunded pension promises. There's a real possibility that their lobbying will reduce any reform bill to a palliative that plays well in the media while sanctioning business as usual. Delta Air Lines and Northwest Airlines, supported by the Air Line Pilots Association, are pushing for legislation that gives them up to 25 years to fully fund their defined benefit plans, even after they're frozen.
  George Benston, a finance professor at Emory University who has studied the S&L crisis, said in an interview that he hopes the agency's house of cards collapses sooner rather than later, before the PBGC deficit grows even larger. The longer moral hazard goes unchecked, he says, the more opportunity employers have to “loot the system,” as some thrifts did while Congress dragged its feet on S&L reform. But both he and Ippolito believe that Congress is likely to repeat history, failing to fix the flaws in pension insurance—with or without assistance from the taxpayer—until either the PBGC deficit swells to S&L proportions or the agency runs out of cash to pay benefits. After all, constituents aren't picketing their employers' offices, complaining about the PBGC deficit. According to COFFI's estimates, retirees in terminated plans will keep receiving benefits for another 15 years—an eternity in politics. Why would a politician risk antagonizing private industry and unions today, when overhauling pension insurance can be postponed to the next election cycle? Meanwhile, mounting deficits in much bigger and more familiar federally backed entitlement programs—Social Security and Medicare—occupy the front burner in Washington.
  “It's kind of discouraging, because the prospects for fixing the problem aren't all that great,” Ippolito says. “The people who are going to be affected in the short term, the corporations and the unions, are going to violently oppose [reform], and the taxpayers who are sitting on the potential bill don't even know the insurance exists. ... It's fairly likely that either nothing is going to be done in the short term, or if something is done, it'll be minimal.”