Underfunding may trigger pension bailout.

• Position: Your Life

Underfunding of private-sector pension plans is rampant--currently more than $350,000,000,000--and has led the Pension Benefit Guaranty Corporation (PBGC) to go from a $9,700,000,000 surplus in 2000 to an $11,200,000,000 deficit. This situation increases the likelihood that more pension funds will go under and leaves the PBGC poised for a taxpayer bailout similar to the 1980s savings and loan crisis, according to a study by Richard A. Ippolito, former chief economist at PBGC.

"As long as sponsors of underfunded pension plans are not held responsible for the exposure they impose on the PBGC, ultimately either the premium level must increase, in which case some of the cost will be shifted to well-funded pensions in the short run, or, if exposures create claims that reach catastrophic levels, taxpayers will be called upon to provide a bailout through the PBGC," maintains Ippolito in "How to Reduce the Cost of Federal Pension Insurance."

Despite the dire warning, Ippolito suggests that, to avert an impending crisis, pension plan underfunding can be controlled by transforming the PBGC into a private insurance program that sets premiums according to the amount of risk plan sponsors add to it. Without changes...