Last Thursday, in my Post, "A City with A Bright Future," I wrote that anyone who is seeking to retire on any kind of a pension, to include Social Security benefits, should be very concerned about whether that pension will still be there when they stop working. As if to confirm my assertions, yesterday, there was this story from Bloomberg:
Harry & David Holdings Inc., a specialty-food retailer, received bankruptcy court permission to terminate the pensions of more than 2,700 workers, the Pension Benefit Guaranty Corp. said.For those of you not familiar with the Pension Benefit Guarantee Corporation (PBGC), that’s the federal agency that insures private pension plans and takes over when a company is no longer able to make good on its obligations to its retirees. As you can imagine, in the current economic climate the PBGC has been under a bit of stress lately. Here’s Wikipedia:
PBGC said in a statement today that it had told the court that Harry & David could afford to keep the plan and that the company was terminating it largely to increase investors’ returns, not out of necessity to emerge from bankruptcy.
“We’ve fought hard to get Harry & David to keep their pensions going,” PBGC Director Josh Gotbaum said in the statement. “Unfortunately, they decided not to, and the judge supported them.”
In May, the Medford, Oregon-based company filed papers in bankruptcy court seeking a so-called distress termination of the pension plan, saying it was under-funded by $23.6 million. Without termination, the company said that proposed investors wouldn’t provide $155 million needed to implement the Chapter 11 reorganization plan.
During fiscal year 2010, the PBGC paid $5.6 billion in benefits to participants of failed pension plans. That year, 147 pension plans failed, and the PBGC's deficit increased 4.5 percent to $23 billion. The PBGC has a total of $102.5 billion in obligations and $79.5 billion in assets.So in other words, the Harry & David ruling is going to result in a direct increase in the federal budget deficit as the PBGC now has to step in and make the company’s pension payments. Even worse, given that the economy now appears to be heading into the dreaded “double dip” recession, we can expect to see many more similar stories going forward. This will place even more pressure on the bottom line of a federal government that just lost its AAA credit rating, sending the world financial markets into another major tailspin.
For the time being the retirees of Harry & David will continue to receive their pensions; they will just be paid out by the federal government instead of the company itself. These pensions, however, are now at the same risk from a potential federal debt default as are Social Security benefits, Medicare and Medicaid payments, food stamps, welfare benefits, housing assistance and any other form of entitlements, not to mention bank accounts that are “insured” by the FDIC.
As I wrote in yesterday’s post, the burden for supporting the livelihoods of ordinary Americans is gradually being shifted more and more away from the private sector and onto already stressed governments at every level. When the day finally comes that governments can no longer provide such support; that will be the day when collapse arrives in America.