Why is it that the "unfunded pension" crisis always makes people question the second term in the phrase instead of the first?
Some essentially boil down to human nature - short-term thinking, preferring politicians who make rosier promises ("assume high rate of return on pension investments and lower the taxes") against honest politicians ("increase taxes since current levels are unfunded"), etc
Some are about societal changes no one can honestly predict - avg lifespans increasing (avg life expectancy in the US was 61 when social security was enacted), pensions were promised in 70's / 80's before globalization wave hit forcing Western companies to either die or compete with leaner overseas firms, internet and e-commerce bringing b&m retail apocalypse, etc.
To find out true cost of funding a pension, try buying an annuity for the similar level of monetary coverage where seller has to do more due diligence. And that will show you the true cost, and my guess is that there is very little appetite to bear that cost in our society.
Shockingly the second causes more problems, because companies will take out a loan to fund the first but quietly under-fund the second for years until a small problem becomes a huge one.
Obviously it's a lot more complex in the case of a PE firm buying a struggling business. But at a high level, if the company has $X in debts, it is worth $X more to someone who thinks it's possible to weasel out of paying that debt than it is to someone who doesn't. And finding novel ways to make a company more valuable than its current owners think it is is kind of the whole MO of private equity. That's what's going on here - PE firms are finding novel ways to weasel out of paying pension debt, and pocketing the difference. And what people are complaining about is that in this case, the person who's out the money is not able to collect from the courts, despite the entity who ought to be responsible for the debt living in a mansion and not a cardboard box.
Under a government that allows pension debt to be discharged by bankruptcy, pensions are made to be ducked out on.
You also see this with big legacy companies that slowly get throttled by their pension schemes and are undercut but new companies full of young workers. Automakers for example. We have been underfunding pensions for a long long time because people weren't supposed to be living so long and because cuts to the pension program aren't immediately visible so they're a tempting target for unscrupulous management.
"What if your credit card company told you: 'You will charge a million dollars on your credit card during your life; please enclose the million dollars in your next bill payment'... Well, that’s what the U.S. Postal Service’s requirement to prefund its long-term pension and healthcare liabilities is like."[0]
One reason not to do this mentioned in the article is that pension investments can decline in value. There should be an expectation that a pretty bad year probably will happen every few decades, maybe a 20 or 30 percent loss, and it would be unreasonable to expect a firm to reimburse its pension fund for losses within a single year when the economy may be very weak. (All of this presumes an annual cycle of reporting and validation of the appropriateness of fund levels and contributions.)
The second reason is that when companies used to create or agree with their unions to create defined-benefit pension plans, the benefit formulas at retirement were usually based on years of service, not years of service under the plan, so the plans are born with a large unfunded obligation for the years of service that the current employees have already accumulated.
Back when I did pension math, over 40 years ago, the typical (and government approved) way to deal with unfunded liabilities from either of these 2 causes (or any other), was to increase the employer contributions a little bit, so that the unfunded amount of the liability would vanish after 30 years. Because investment results, longevity, retirement rates, etc, would fluctuate, the amount of the extra contribution would be re-figured every year, and a few good years might eliminate the deficit.
A shorter period of funding for the deficits, maybe 10 or 15 years, might improve the situation somewhat in some of these cases. But that is not a solution. Note the long discussion above about problems of state and local government plans. These are quite a bit different, because their are no greedy investors calling the shots for state and local governments, and IRS regulations about what plans qualify for tax deductions for the employer don't have traction in the public sector.
In the private sector, these stories will become increasingly rare, as workforce unionization is very low, and virtually all the non-union plans have been replaced by 401k plans and defined-contribution pension plans that do not include any concept of an accrued benefit or unfunded liability. That is America's real pension scandal, but it is another story.
The real problem is that the situation is too complicated. It is often very difficult to tell whether a company is being streamlined or being looted. Creating a comprehensive set of rules to prevent looting out from under a corporate or even multi-employer pension plan and a watchdog agency that could enforce them wisely for the benefit of workers would be a very ambitious project.