Enough with the AIG feeding frenzy…

March 22, 2009 · Posted in Domestic Policy, Economy 

I don’t really have time or the brain cells at 1:00 AM to write about the latest AIG feeding frenzy, but I do feel compelled to put something out there to counter the Boston.com article suggesting that the taxpayers are now funding outrageous pension benefits.

Let’s be clear: Non-qualified benefits are subject to forfeiture, are not protected in bankruptcy, and are the absolute last thing that would be paid if the company were liquidated. If the government takes full ownership, there would be no benefits paid on those non-qualified contracts. They are required to be subject to risk of forfeiture in order to retain their tax-deferred status.

Qualified benefits are the same benefits that anyone — not just executives — covered by a pension plan can earn. They are based on salary paid of $235,000 or less, and are subject to statutory limits. These limits apply whether you are the CEO of AIG or the owner of a vegetable stand on the corner.

Here is the text of a comment I left on Crooks & Liars with regard to this issue:

Before you aim at these plans, you’d better learn about them.

As I said on Twitter, everybody wants to hate AIG. Me, too. But taking aim at their qualified retirement plans because they have to disclose the value of accrued benefits on the balance sheet is an ignorant attack, one that would be far better left alone. For starters, the calculation of benefit values and liabilities for balance sheet purposes bears almost no relationship to reality, or the actuarial requirements for pension funding set by the Internal Revenue Service. Simply put, the FASB standards for pension benefits inflate the numbers by a minimum factor of 2.

All qualified retirement plans, whether AIG, or Granny’s Home-Grown Beet Farm down the street, are subject to the same rules. There wasn’t an exception made for AIG.

[A] comment earlier in this string starts to touch on the problem that AIG and many others (including the UAW, and other “friendly entities” to Dems) have, which is that the value of the assets will be substantially lower to fund those benefits than was reflected on the balance sheets you used for this post. That means that accrued liabilities are likely to double, and if AIG does declare bankruptcy, some (but not all) of those benefits will be insured by the PBGC — the Federal Government’s version of pension insurance, similar to the FDIC.

Don’t stir the pot with this. It’s already a disaster, but if progressives start taking aim at this, and turning up more Congressional hearings, and the House writes a bill aimed at hammering AIG, every single person in this country who is lucky enough to still be covered under a Defined Benefit plan (after they’ve been used as a tax carrot and stick depending on the state of the economy for the past 20 years) will lose future benefits.

A feeding frenzy is unnecessary here. Step back, do some research first, (feel free to email me on pension questions, or contact someone at http://asppa.org for details before going off on this. As one who has worked in this field for nearly 30 years, I guarantee you that attacking qualified benefits will have repercussions that will reach down to union workers and employees of the smallest businesses. It’s ignorant to walk this road.

As one who has navigated 25 years of pension legislation written at the whim of the current mood or revenue need of the day, I seriously hope that we can limit our criticism of AIG to the (many) legitimate issues on the table. The pension liabilities on a balance sheet are not one of those issues.

(As a side note, the FASB standards for reporting and valuing pension benefits bear no relationship to reality. Similar to the mark to market rule, accountants and actuaries seem to have difficulty agreeing on much of anything).

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Comments

  • miketwo

    Where did you go…? :(

  • http://www.drumsnwhistles.com/ Karoli

    I'm still around — just blogging politics on the main site http://drumsnwhistles.com