When Congress created the Pension Benefit Guaranty Corp. in 1974, lawmakers thought they had mended a small but important flaw in the social safety net. When an employer with an underfunded pension plan went belly up, the PBGC would pay retirees promised pension benefits.
But no one imagined then that 15 years later some of the biggest names in Corporate America would shut down and dump their pension liabilities on the agency. That has left the PBGC with a $1.8 billion deficit. No taxpayer bailout is imminent because employer premiums will give the agency enough cash to pay retirees for at least another decade. And the PBGC is using other means to keep money flowing through its coffers. Congress, for instance, recently gave the PBGC the power to hold corporate affiliates responsible for each other's pension obligations when one becomes insolvent.
The agency now wants to go even further: It's seeking first-among-equals status in bankruptcy court for some of its claims. And that may be going too far. Pensioners have no greater claim than longtime suppliers or customers, for example, injured by a company's defective products. What's more, less secure creditors will balk at requests for aid from ailing companies with underfunded pension plans if the PBGC is known to have first dibs on assets in any later bankruptcy proceeding. That could kill off companies with a chance to survive.
Pensioners already have adequate protection. The PBGC can raise premiums, and as a last resort the Treasury stands behind the fund, as it does with other portions of the safety net. The PBGC can try to avert yet another federal bailout by helping companies to fund their plans properly in the first place. But it doesn't need top billing in bankruptcy court.