For someone who grew up and spent some early adult years in Michigan, this story makes unhappy reading. It quotes Chrysler retirees about their prospects in the years ahead. They had been “guaranteed,” many by UAW contracts, generous pensions. Now, assuming Chrysler goes into bankruptcy, they’ll get considerably less. That will presumably come from the Pension Benefit Guaranty Corporation, a government-sponsored entity. My American Enterprise Institute colleague Alex Pollock tells me that the man who first called for creation of the PBGC was a UAW staffer back in the 1950s.
The bottom line is that the 928,000 people—that’s a big, big number—covered by Chrysler and General Motors pension plans won’t get all they were promised.
There are some lessons here. Liberals like to argue that defined contribution pension plans, in which you and your employer contribute money and you invest it, don’t provide absolute protection, because you may invest the money foolishly or the whole market may go down. And they’re right. But it’s also true that a defined benefit pension plan, like those of Chrysler and General Motors, don’t provide absolute protection either. Just ask some Chrysler retirees. And one might add, as Megan McArdle does in a very wise blogpost, government pension plans don’t provide absolute protection either. Just read the recent stories about how CalPERS, America’s biggest public pension plan, long lauded for its sagacity, has lost oodles and oodles of money.
McArdle writes succinctly that there are problems with all three possible sources of pensions: you, some company government. I concur and add my own rule that the quest to eliminate all risk always proves, sooner or later, to be very risky.
