If Congress Can't Say No to This, It Can't Say No to Anything

A billion-dollar bailout for comfortable retirees, tucked inside a defense bill, is the clearest tell yet that Washington cannot control spending

Apart from the size or our debt and deficit that is. We are running annual budget deficits of nearly $2 trillion, with debt-to-GDP climbing toward levels last seen at the end of World War II, except there is no war to end and no postwar boom queued up behind it. The drivers are structural and familiar: Social Security and Medicare, which transfer resources from today’s workers to a retiree class that, as a group, owns far more wealth than is owned by the people paying the bills. And these programs are insolvent. So, it’s worth asking what Congress is doing while the ground shifts. This week supplied an instructive answer.

As the Washington Post editorial board pointed out this week, the President’s defense supplemental request contains a roughly $1 billion bailout for the pension fund of Delphi Automotive, an auto-parts maker spun out of General Motors in 1999 that went bankrupt in 2005 amid accounting scandals, having failed to properly fund its own workers’ pensions.

Note where this bailout sits: not in a standalone pension bill that would have to survive a vote on its merits but folded into must-pass defense legislation. That placement is no accident. It is how you move a domestic giveaway that could not pass in daylight.

And this bailout is outrageous enough that one understands that legislators would want to sneak it in. Here are the gist of the story as explained by the Post. Federal law requires employers to fund their pension promises and to insure them through the Pension Benefit Guaranty Corporation in case they don’t. The Post notes that roughly 3 percent of single-employer plans across the PBGC’s half-century need to draw on that insurance. In these instances, the PBGC takes over the benefit payments up to a cap. The Post explains:

In 2009, when Delphi’s plan entered trusteeship, it was $54,000 — about $85,000 in today’s money.

This cap is high, and it reflects how well funded the PBGC’s single-employer insurance fund is, even absent taxpayer support. Only workers with exceptionally generous pensions, or workers who retired early, might not receive the full benefits they expected. Such employees likely have substantial retirement savings of their own, on top of the Social Security benefits the government already provides…

About three-quarters of the Delphi plan’s roughly 20,000 members have seen zero reduction in benefits under PBGC trusteeship. Of the ones who have seen reductions — roughly the richest quarter of members — most are still receiving over 80 percent of what they expected.

And this is why politicians and the administration are hiding this bailout into the defense bill. These great populists are asking taxpayers to shoulder the cost of Delphi’s salaried most well-off former employees. These are not retirees on the edge of hardship.

And here is the kicker. When government hands out a government granted privilege, in this case a bailout, it is because those asking for cash are well connected and organized. These former Delphi’s employees are surely well organized. They have hired lawyers and spent years and millions lobbying for taxpayers to pay for their employers’ failure. They took their case through the federal courts, lost at the district level, and lost again on appeal in 2020. Having failed in court, they now want Congress to override the law specifically for them. That is the whole play.

Even if you set the unfairness aside, the bailout is bad news. The benefit cap exists precisely to keep employers on the hook for their own promises. Remove it, and you tell every plan sponsor that underfunding carries no downside, because retirees get made whole by someone else even after the courts rule against them. Imagine the bad incentive structure this sets.

That means this won’t be a onetime thing contrary to the claim made by those supporting the bailout. An analysis of PBGC data by Advancing American Freedom looks at what that means:

Delphi’s salaried pension plan is just one of 5,181 plans terminated by the PBGC, which also insures about 22,000 ongoing pension plans covering 19.4 million pensioners.

• A bailout for one PBGC-terminated plan¹would create pressure to bail out any of the other 5,180 terminated plans, or any of the 23,000 ongoing plans that have $2.9 trillion in total liabilities.

• The 5,700 Delphi workers are not unique; more than 187,000 similarly situated individuals have experienced similar pension reductions when their plans were terminated and trusteed by the PBGC.

• Applying the same ratio of the Delphi plan’s initial insured PBGC claims to PBGC’s estimated cost of covering 100 percent of uninsured benefits, a bailout of all single-employer pensions terminated by the PBGC since 2000 would cost more than $10 billion and would set the precedent that PBGC will cover $276 billion in unfunded pension liabilities held by ongoing pension plans.

If Congress cannot reject a bailout that the courts already rejected, that rewards corporate irresponsibility, and that pays comfortable retirees at poorer workers’ expense, then Congress cannot say no to anything. The structural deficit is not a mystery of arithmetic. It is a series of choices exactly like this one, and if one of the easiest possible “no” votes looks like a coin flip, that tells you everything about the harder ones ahead like reforming Social Security and Medicare.