George Will

WASHINGTON -- Journalism sometimes involves reporting to readers the considerable importance to them of something they never knew existed. Such as the 30-year-old Pension Benefit Guaranty Corporation. Its existence may be necessary, but it causes ``moral hazard,'' and is pertinent to the debate about how to guarantee the benefits of the biggest pension system, Social Security.

     PBGC is a government entity created in 1974 after some bankruptcies left thousands of retirees without pensions. PBGC insures -- but not completely -- companies' pension funds. Since 1991, companies with pension plans have been billed $19 annually for every worker and retiree covered by the plans. The money -- about $1 billion a year -- funds the PBGC.

     Last week the Bush administration endorsed increasing the annual assessment to $30 -- and more for financially shaky companies. This is because the agency's $8 billion surplus in 2001 has become a $23 billion deficit, a reversal largely the result of the airline industry's crisis, the worst of which is still to come.

     United Airlines and US Airways are two of the so-called ``legacy'' carriers, the older airlines -- older than the low-cost newcomers like Southwest. In 2002 the five strongest legacy carriers had costs of $95,500 per employee. Southwest had costs of $59,100.

     The older carriers are being to driven to, or over, the threshold of bankruptcy by the weight of their pay and pension costs. Some of these commitments were made before the new low-cost carriers made it impossible for the legacy carriers to pass on high costs to their customers, and some were made to buy short-term labor peace because strikes could destroy the companies.

     The PBGC is taking over the pilots' pension plan of United and will soon have all of US Airways' pensions, just as in recent years it took over many from the steel industry. Three other airlines are in bankruptcy court to dissolve imprudent labor contracts. No legacy airline can compete with another that has dumped its pension burdens in the government's lap. Some, perhaps most, legacy carriers could be one price spike in fuel costs -- meaning serious terrorism against oil production facilities -- from extinction.

     Moral hazard exists when government policy creates incentives that make bad behavior rational. One example is the policy of bailing out countries whose reckless spending policies are encouraged by banks' reckless lending. Another example is a PBGC that assumes substantial responsibility for pension promises that companies have found convenient to make.

George Will

George F. Will is a 1976 Pulitzer Prize winner whose columns are syndicated in more than 400 magazines and newspapers worldwide.
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