IMHO – Pocket 'Picking'

February 27, 2002 ( - There may be another Enron pension surprise coming - but taxpayers shouldn't reach for their wallets just yet, despite early reports. The online version of the February 27 Wall Street Journal cautions that 'US taxpayers could be on the hook' for losses in Enron's pension plan.

Based on 2000 SEC filings, the Journal report estimates that the Enron pension plan might be underfunded by $4 million, rather than overfunded by the $112 million reported in those same filings. Of course, the article goes on to say that the real damage could be much greater – all under a headline that screams “U.S. Taxpayers May Have to Pay Enron Workers’ Pension Benefits.”

Come on.

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OK, should the Enron plan actually turn out to be underfunded (and it might), the Pension Benefit Guaranty Corp. (PBGC) – insurer of the nation’s private pension plans – might have to step in.  Of course, the PBGC has been running a healthy surplus since the late 1990s.  And while the market has been rough on all portfolios, last May PBGC Acting Executive Director John Seal noted that the agency ended Fiscal Year 2000 with a $9.7 billion surplus – the 5th year consecutive year of surpluses in a row, by the way.

Prior to those surpluses, the PBGC racked up 21 consecutive years of deficits – none of which translated into a taxpayer bailout, mind you.  The PBGC does not draw federal funding.  Instead, it is funded by premiums paid by defined benefit programs.  However, in the unlikely event that the PBGC was drawn into a financial crisis, presumably the federal government would step in in some fashion – and I suppose one must concede that ultimately taxpayers might have to shoulder that burden.

Still, the headline seems disingenuous at best, particularly since there appears to be a real pension crisis looming elsewhere.

Steel Deal

While it hasn’t yet engendered the same kind of sweeping Congressional interest drawn by Enron, the burgeoning financial problems of the nation’s steel industry threaten to have a much larger impact – both in terms of workers and the security of the pension system overall.   In fact, the top five steel producers account for more than $10 billion in unfunded pension and health care obligations (see Steel Exec: Consolidation Depends on Government Benefits ).  We’re not talking about millions or even hundreds of millions – we’re talking BILLIONS.

And there are real live people out there now – current workers and retirees – who are confronted with no retirement, no health care, no job (see LTV Retiree Health Plan Running Out of Cash, Time ) – and, unlike many Enron workers, pretty dim prospects for future employment.  Enron laid off just 4,000 of its 21,000 workers – and continues to operate under the temporary ‘shelter’ of Chapter 11.  LTV Steel recently laid off 7,600 – but the firm’s recent acquisition by private investment firm W. L. Ross is expected to impact the size, if not the availability – of health and pension benefits of some 85,000 LTV retirees and their dependents. 

Misleading statements and practices are what got Enron into trouble in the first place.  It’s time we quit obsessing about Enron – and started taking a serious look at the bigger picture. 

– Nevin Adams 

See also The PBGC – Friend or Foe? 

See also Enron’s Pension Approach Draws Scrutiny