Who can doubt that the recent announcement that a Chicago bankruptcy judge allowed United Airlines to unload its unfunded pension liability on the federal government is potentially the break in the dam for the next crisis of moral hazard a la the savings and loan fiasco of the 1980s? Can a similar taxpayer bailout of the Pension Benefit Guaranty Corporation be far behind? The good news from this is that it may finally force us to come to grips with the antiquated nature of these defined benefit plans, both privately and publicly sponsored, including the Social Security program, and take steps to replace the entire edifice with defined contribution plans. The bottom line is that we can no longer sustain the unreasonable paternalistic retirement and health care commitments we have made, and we are in the third generation of this lie.
Someone, I think it was George Will, recently wrote that companies like General Motors and other members of the Fortune 500 have become giant health care and retirement plan monoliths, employing thousands of people who do nothing else but handle the benefits plans of employees, retirees, and their beneficiaries, in essence as intermediaries for government. We need to get them out of this business and get them back to focusing exclusively on their core competencies. Will also noted Daniel Patrick Moynihan’s comment that we, as a people, are turning away from government and “the common ethic of provision through government”. If that is true, and I hope it is, it’s not a minute too soon. It’s just too bad that it will probably require a breakdown of both the health care and retirement finance systems and the pain that will follow for us to extricate ourselves from these fossils.