The PBGC and Me

Have you ever asked someone a yes-or-no question and received a confusing, long-winded, and inept answer? Such a response is a bit unexpected; nonetheless it has happened to all of us. However, when dealing with a federal bureaucracy, ineptness should have been my expectation — and yet it wasn’t. After all, Ludwig von Mises stated in his masterful book Bureaucracy: "The plain citizen compares the operation of the bureaus with the working of the profit system, which is more familiar to him. Then he discovers that bureaucratic management is wasteful, inefficient, slow, and rolled up in red tape." Oh boy, did I make this discovery in spades. So here is a brief tale of my maddening yet comical experience with a federal bureaucracy — the Pension Benefit Guaranty Corporation (PBGC) — which, by the way, is likely heading for a taxpayer funded bailout. There may be a lesson or two in here.

So what was the question posed, via the prescribed e-mail link, to the PBGC? First of all, I provided pertinent information such as my name, home address, and case number. Then I followed with this question: "Do I qualify for a lump-sum payout?" If the answer is "yes" then please provide details. If the answer is "no," then please explain why not. My expectation, navely, was to have an answer within a few days — not four months! More about this later.

Some Background Information

On June 11, 2001, Reliance Group Holdings declared Chapter 11 Bankruptcy. It was a poorly run holding company and was deservedly liquidated — the marketplace had spoken. Having worked at Reliance Surety Company for nine years (1984—1993), I was keenly interested as to whether or not the Pension Benefit Guaranty Corporation would take over Reliance’s employee retirement plan. Due to my years of service, I had become vested in this retirement plan and would receive a few hundred dollars per month in retirement income. Effective February 28, 2002, the PBGC assumed Reliance’s pension liabilities; and I surmised that my small, yet noteworthy, monthly income would be secure. Never fear, as I was now one of those workers whose benefits were "protected" by an act of Congress — as described in the PBGC’s own words:

The Pension Benefit Guaranty Corporation (PBGC) is mandated under Title IV of the Employment Retirement Income Security Act of 1974 (ERISA) to insure, under statutory limits, participants in covered defined benefit pension plans in the United States. As of September 30, 2005, the PBGC covered 44.1 million workers in over 30,000 active plans and was directly responsible for the future benefits of 1.3 million active and retired workers whose plans had failed. The PBGC receives no taxpayer monies and its obligations are not backed by the full faith and credit of the United States Government. (Emphasis added)

But not so fast. According to the PBGC’s 2004 Annual Report, this safety-net agency had a deficit net worth of $23 billion. Even Forbes Magazine is asking Who Will Bail Out The Bailer? Considering the financial woes at General Motors, Ford, and the major airlines, it is certain that the PBGC’s deficit position will only grow worse over time. By the PBGC’s own calculations, the retirement plans "insured" by it were under-funded by $450 billion. In my opinion, the PBGC will either be allowed to fail in its mission or it will be bailed out by America’s taxpayers. So much for the idea that my Reliance pension was made "secure" by Uncle Sam.

Back to the Maddening yet Comical Experience

In August of 2005, a friend who had also worked at Reliance Surety Company informed me that he received a lump-sum payout from the PBGC. Having researched the PBGC’s financial condition — which, as mentioned above, is terrible — and knowing that the Federal Reserve will continue to debase the dollar, I decided to contact the PBGC to find out if I qualified for a lump-sum payout as well. What follows is a summarized version of the exasperating exchange between the PBGC and me:

Me: August 2005 e-mail to the PBGC: "Gentlemen, do I qualify for a lump-sum payout of my Straight Life Annuity?" PBGC: No response one month later. Me: September 2005 e-mail: "Gentlemen, I have not yet heard back from you as to whether or not I qualify for a lump-sum payout of my Straight Life Annuity. I look forward to your response." PBGC: November 8, 2005 memo stating that the attached Benefits Determination Letter will explain what my benefits are. Unfortunately, no letter was attached. PBGC: Letter, mysteriously dated September 24, 2004, arrives. This letter informs me that I am entitled to a monthly Straight Life Annuity of $X per month beginning 3/1/27. My simple yes-or-no question remains unanswered. Me: November 13, 2005 letter mailed to the PBGC — and these are my exact words: "I am writing to get clarification as to my PBGC benefits. The question I asked pertains to whether or not I can receive a lump-sum distribution (today) instead of waiting until March 1, 2027 to receive my benefits." PBGC: Message left on my home phone’s answering machine on December 23, 2005: "Mr. Englund, you do not qualify for a lump-sum distribution."

Good grief! It took four months to get a simple yes-or-no answer. To make this experience all the more surreal, the PBGC has the audacity to state the following in its 2004 Annual Report: "Nothing is more important to PBGC than providing the highest quality service to its customers. The Corporation has an intense focus on meeting the needs and expectations of its customers while carrying out its statutory missions." Most certainly, without the profit-and-loss test of the free market, the PBGC and all public bureaucracies will fail miserably in "customer" service let alone financial management. Could you imagine if took four months to send you a readily available book? It would already be out of business.

And to think I just had a conversation, at the gym, with a gentleman who advocates socialized medicine. Perhaps a run-in with the IRS, PBGC, or any other public bureaucracy would change his mind? I doubt it, as socialists believe any bureaucracy can operate swimmingly with the "right man" in charge. To be sure, this is pure fantasy. Hence, here is another dose of wisdom from Ludwig von Mises’ book Bureaucracy:

The champions of socialism call themselves progressives, but they recommend a system which is characterized by rigid observance of routine and by a resistance to every kind of improvement. They call themselves liberals, but they are intent upon abolishing liberty. They call themselves democrats, but they yearn for dictatorship. They call themselves revolutionaries, but they want to make the government omnipotent. They promise the blessings of the Garden of Eden, but they plan to transform the world into a gigantic post office. Every man but one a subordinate clerk in a bureau. What an alluring utopia! What a noble cause to fight!

Against all this frenzy of agitation there is but one weapon available: reason. Just common sense is needed to prevent man from falling prey to illusory fantasies and empty catchwords.

Reason and common sense are nowhere to be found at the PBGC. My mistake was to have any such expectations in the first place.

Ultimately, I would like to see the PBGC and each if its bureaucratic brethren dry up and blow away. It is my responsibility to save for my own retirement. Thus, a more serious mistake would be to plan on receiving retirement income via Uncle Sam’s nutty wealth redistribution schemes — as administered by bungling bureaucracies such as the PBGC and the Social Security Administration. With the federal government’s unfunded liabilities amounting to $50 trillion (and growing), reason and common sense tell me that I had better take care of myself both physically and financially. To depend on the kindness of bureaucratic strangers would be utterly foolish.

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