Will taxpayers be on the hook for corporate misconduct?

Another plant closing, another distressed pension plan abandoned by the private sector. As the Detroit Free Press recently reported, Toyota is shuttering a former joint-venture plant with GM in Fremont, Calif., leaving behind $131 million in unfunded pension liabilities and 5,800 United Auto Workers in the lurch.

Thankfully for them, the Pension Benefit Guarantee Corporation will step in to make up most of the missing money. But the automakers’ behavior extends a dangerous pattern with potentially frightening implications for U.S. taxpayers.

The Pension Benefit Guarantee Corporation (PBGC) is a little-known federally chartered organization that protects workers’ retirements when their companies fail to fully fund their pension plans.

Congress created the PBGC in response to private sector fraud. Companies — most famously the Studebaker Corporation — hired workers with promises of guaranteed lifetime retirement annuities, only to shut down without having set aside the resources to pay their obligations. Workers have been protected from such blatant corporate abuse since the Employee Retirement Income Security Act passed in 1974. But the law has not done much to change company behavior. In fact, looking at recent history, it seems like corporate abuse has only gotten worse.

As the Government Accountability Office has reported, major companies routinely offer multi-million dollar compensation packages to their executives while massively underfunding their workers’ pension plans. Some of the cases are outrageous.

The GAO report profiles an airline company that missed nearly $1 billion in pension plan contributions, leading to an unfunded pension liability of $7.8 billion. When the company declared bankruptcy in December 2002, some retirees saw their pensions evaporate. GAO investigators spoke to one pilot who saw his pension cut by two-thirds after the PBGC took over his plan.

While workers suffered, management thrived. As their company terminated retirement plans and broke pension obligations, the top three executives took home at least $55.5 million in compensation. Indeed, the CEO had only joined the airline after receiving a $3 million signing bonus and a special $4.5 million supplemental retirement trust “in consideration of retirement benefits foregone” as a result of switching jobs.

Although the GAO report does not use names, a CREW investigation strongly suggests United Airlines is the profiled corporate malefactor.

As if such hypocrisy weren’t bad enough on its own, this irresponsible behavior puts all American taxpayers at risk. Thanks to the multiple billions of dollars in unfunded pension liabilities abandoned by major corporations like Bethlehem Steel, the PBGC now operates at a $22 billion deficit. Although it is not explicitly backed by the full faith and credit of the U.S. government, analysts believe that letting the PBGC default would be politically unfeasible.

If Congress bails the PBGC out, taxpayers will be on the hook. Companies know this, and so can strategically underfund their pensions, relying on the social safety net to avoid accountability for their unethical behavior.

It’s a painful cycle. Until we find a way to break it, we can chalk another one up to the corporate exploitation of public virtue for private gain.