PENSION PROBLEMS….The New York Times reports today that the failure of the United Airlines pension fund was perfectly predictable. In fact, the SEC knew all about it:
Loopholes in the federal pension law allowed United Airlines to treat its pension fund as solid for years, when in fact it was dangerously weakening, according to a new analysis by the agency that guarantees pensions. That analysis is scheduled to be presented at a Senate Finance Committee hearing today.
…. “We saw similar practices and events at Enron, but unfortunately, this time it’s perfectly legal,” said Senator Charles E. Grassley, the Iowa Republican who is chairman of the finance committee.
….The Pension Benefit Guaranty Corporation found that in 2002, when United was determining how much it had to contribute to its four plans, it calculated that the plans for its pilots and its mechanics each had more money than needed….Those numbers are on file with the Labor Department. But they do not square with the pension numbers United provided to the Securities and Exchange Commission. That agency requires companies to calculate pension values in a different way. At United, that method showed the four pension plans to be only 50 percent funded.
Anytime you see “Enron” and “perfectly legal” together in the same sentence, you just know that something is wrong, don’t you?
As Grassley points out, it’s not just airlines that are having pension fund problems. The rules regarding pension fund solvency today are about as rigorous as the rules regarding S&L solvency were in the 1980s. My guess is that the end result is going to be about the same too.
