Washington has an unfortunate habit of picking winners and losers. Congress should resist doing so again.
President Donald Trump’s supplemental budget request asks Congress to spend roughly $1 billion to restore full pension benefits for about 5,700 former salaried employees of Delphi whose pensions were reduced when their plan was terminated.
Supporters portray the proposal as correcting a historic injustice. In reality, it would undermine the pension insurance system Congress created, invite billions more in bailout demands, and reward one politically connected group at taxpayers’ expense.
The Pension Benefit Guaranty Corporation was established to prevent what happened in 1974, when the Studebaker auto company went bankrupt, and thousands of workers lost most or all of their promised pensions.
Like every insurance program, the PBGC provides coverage only up to specified limits. For Delphi’s salaried retirees, the guarantee limit at the time of the plan’s 2009 termination was $54,000 annually, which covers about 89% of the plan’s total liabilities.
Some media reports claim that 20,000 former Delphi employees lost their pensions, but the PBGC confirms that 14,300 of the plan’s approximately 20,000 participants have received every dollar of the pension benefits they earned.
Only about 5,700 experienced any reduction, either because their benefits exceeded the $54,000 statutory insurance limit, or because they earned early-retiree benefits the PBGC does not insure.
Most of those reductions were modest. About 60% of affected participants lost less than one-fifth of their promised pension, while fewer than 2% experienced reductions exceeding half of their vested benefits.
Yet Congress is now being asked to do something it has never done before: override the insurance limits established by law and make one terminated pension plan whole. Even more remarkably, the proposal would include retroactive payments reaching back to 2009, with 6% annual interest.
No private insurance operates this way. Homeowners can’t expect taxpayers to reimburse them for losses above their policy limits after a fire. Drivers can’t expect taxpayers to pay deductibles after an accident. Insurance works because the terms are established before disaster strikes.
The PBGC should be no different.
The more important question isn’t whether Congress can spend another $1 billion. It’s what happens if it does.
Since the PBGC was established in 1974, it has taken responsibility for 5,181 terminated single-employer pension plans. More than 187,000 retirees have experienced benefit reductions under the same statutory limits that apply to Delphi retirees.
Congress has never voted to restore benefits above the PBGC’s statutory guarantee for any of those retirees. It shouldn’t start now.
But if Congress were to bail out the Delphi pension plan and then extend a similar bailout to all 5,180 other previously terminated pension plans, what would that say to the 22,000 ongoing single-employer pension plans insured by the PBGC? These plans cover nearly 20 million Americans and have roughly $2.9 trillion in pension liabilities. Once Congress demonstrates that statutory guarantees are merely suggestions, political pressure for future bailouts will become irresistible.
Supporters argue that Delphi’s plan should never have been terminated. That claim has already been litigated and lost. A federal district court upheld the PBGC’s actions, concluding that the agency acted lawfully after Delphi failed to meet funding requirements, entered bankruptcy, and faced the imminent liquidation of its assets. The Sixth Circuit affirmed, and the Supreme Court declined review.
This is no longer a legal dispute. It is an invitation to substitute political influence for established law.
Congress faces no shortage of genuine retirement challenges, including in its own retirement security program, Social Security. Absent reform, Social Security will run out of funds to pay full benefits beginning in 2032. At that point, roughly 70 million Americans will face an automatic 22% reduction in benefits, twice the 11% reduction applied to the Delphi salaried employees’ pension plan.
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Against that backdrop, spending $1 billion to enhance retirement benefits for a relatively small group of retirees, many of whom already receive generous pensions and Social Security benefits, reflects exactly the sort of special-interest favoritism voters say they want Washington to abandon.
The PBGC was created to insure pensions, not to guarantee every promise regardless of cost. Congress should preserve that distinction before one special-interest exception becomes the next taxpayer-funded entitlement.
Rachel Greszler is a senior research fellow at Advancing American Freedom