The Underfunded Pension Shoe Dropping?

from BusinessWeek:

The Hidden Pension Threat

New rules are hitting companies that are already down, and could make a painful recession worse

John Moore is fighting to keep his company afloat. People no longer
want to buy the gas-guzzlers sitting on his auto lot in Los Gatos,
Calif., an upscale town that's home to several Silicon Valley pioneers.
His sole supplier, General Motors (GM),
is begging the government for aid. With sales down 35% over the past 12
months, the 59-year-old Moore, who as a teenager worked at the
family-owned dealership, wonders if there will be a business to pass on
to his son, Bret. Already, the recession has claimed 115 dealerships in
the state, roughly 1 in 10.

But Moore's most pressing problem might be one that's hidden from
plain sight: his employee pension plan. Moore's dealership is among the
300 or so companies that participate in the Automotive Industries
Pension Fund, a so-called multi-employer plan that covers 27,000
retired and working mechanics in the Bay Area, including two dozen at
his shop. The plan has $1.2 billion or so in assets, but needs $2.1
billion to pay pension benefits for current employees and retirees. To
erase that shortfall, the plan's operators are debating whether to
raise annual company contributions by 7.5%—a move that would further
squeeze Moore's profitability. He has no way of escaping: If he were to
sell or shut down the business, federal rules would require him to fork
over $1.7 million to cover his company's share of the plan's deficit—a
sum equal to the dealership's profits for the past decade. "I pray that
the managers hit the lottery or their investments pay off," says Moore.

This is another area where regulators have failed miserably for years. Allowing accountants to make super optimistic assumptions about pension fund return on investment helps boost company earnings by reducing contributions to the fund. The hue and cry for more financcial regulation seems to be ignoring the fact that inept regulation is worse than none. We have had sufficient regulation on the books but they have not been effectively enforced.