As reported in the New York Times today, United's pension plans were in trouble years before it filed for bankruptcy, but pension funding rules permitted United to treat the plans as if they were safe and sound. ERISA pension funding rules create opportunities for plan sponsors to report their plans as fully funded (or close to fully funded) even though analysis of the plan under SEC accounting rules show that the plans are seriously underfunded. The discrepancy between SEC and ERISA accounting rules is nothing new and United's actions were perfectly legal. ERISA accounting rules essentially permit plan sponsors to smooth out over time their funding obligations because it was assumed that the plans would be able to pay plan benefits over long time periods, so spikes and valleys in asset valuations could be ignored. However, the economy has changed since 1974, when ERISA was enacted and the losses suffered in the financial markets in recent years has now exposed problems that Congress now needs to address.
It was the failure of a number of pension plans in the 1960's and early 1970's that led to ERISA. Now, there appears to be a new pension plan crisis perhaps analagous to the problems faced by the savings and loan industry in the 1980's. At this juncture, the PBGC, and by implication, the American taxpayer, is at risk to bear more and more of the burden of "private" pension plans.
