28 August 2005
Pensions Not Debts of Bankrupt Corporations?
Many corporations have been transferring cash out of their pension reserves to meet their cash flow needs for current operations. Using funds previously set aside for future payout needs, companies can use the incremental cash for current salaries and expenses when sales revenues lag expenses of doing business. If revenues from operations do not generate enough cash to "repay" pension funds, there are no civil or penal sanctions because a "loan" is not repaid into funds for pensions. The law allows it. So, it appears we taxpayers can look forward to bailing out corporations who reneg on their pension obligations having spent those reserves on failing business plans.
If changes aren't made in the basic business model for employee compensation, however, cash-pinched companies will use their pension funds as they move into bankruptcy.
Why is it that bankruptcy courts allow corporations such as United Airlines to eliminate employee pensions and healthcare premium payments from the required legal obligations for emerging from bankruptcy? All pensions are deferred compensation--or at least non-current wages--that companies commit to pay out in the future if you will work for less money now. Pensions plans reduce the ongoing amount of cash needed for a major component of the cost of goods or services sold. By allowing corporations in bankruptcy to retroactively reduce salaries and wages for work received (another way of showing how this works), the employees and retirees become victims of bad management.
It's time the federal government introduced legislation to place employees' pension obligations at the front of the line of creditors, rather than at the end of the bankruptcy settlement requirements. Handing these pension obligations off to a politically vulnerable federal insurance program is wrong. In 1936, Social Security established the minimum household income of retired Americans and, until now, corporate retiree plans included Social Security payments for calculating their employees' total income expectations upon retirement. Congress should enact legislation to assure that retiree benefits are restored first in bankruptcy, not last.