Michael Medved, United Airlines Bailout and Social Security

This is a note I posted to Michael Medved on this afternoon's show.

Dear Michael,
I was surprised to hear you fumble a question on United Airlines and Social Security. There is no parallel. Here is the explanation. United offered its employees a defined benefit retirement program - in that kind of retirement system employees contribute something but are guaranteed a benefit in the future (sound like something else???). Unfortunately, some corporations, including United, failed to fund those future expenses thoroughly. (Again, does this sound like anything you've heard of?) The President's proposal is a defined contribution program where the employee and the employer contribute something to savings for retirement and the employee then owns the asset. Had the United pension fund been like the President's proposal to divert some of the contributions to private accounts the employees would not have been cut by 85% - which is what the Pension Benefit Guarantee Corporation has estimated employees will loose as a result of the mismanagement of the fund. Corporations that offer defined benefit plans are now required under the rules of the Financial Accounting Standards Board to fund those expected liabilities (something the federal government and most state and local governments have not had to do.) I hope that clarifies why the United situation actually reinforces the case for the president's proposal - in reality it actually argues for an even greater proportion of funds going to the private accounts. Dear Michael,
I was surprised to hear you fumble a question on United Airlines and Social Security. There is no parallel. Here is the explanation. United offered its employees a defined benefit retirement program - in that kind of retirement system employees contribute something but are guaranteed a benefit in the future (sound like something else???). Unfortunately, some corporations, including United, failed to fund those future expenses thoroughly. (Again, does this sound like anything you've heard of?) The President's proposal is a defined contribution program where the employee and the employer contribute something to savings for retirement and the employee then owns the asset. Had the United pension fund been like the President's proposal to divert some of the contributions to private accounts the employees would not have been cut by 85% - which is what the Pension Benefit Guarantee Corporation has estimated employees will loose as a result of the mismanagement of the fund. Corporations that offer defined benefit plans are now required under the rules of the Financial Accounting Standards Board to fund those expected liabilities (something the federal government and most state and local governments have not had to do.) I hope that clarifies why the United situation actually reinforces the case for the president's proposal - in reality it actually argues for an even greater proportion of funds going to the private accounts.