Last week, Delta Air Lines and Northwest Airlines sought protection of Chapter 11 bankruptcy. Financially weak for years, the airlines may have found higher fuel and security costs too much to bear. But the opportunity to pass some employee retirement costs along to the Pension Benefit Guaranty Corporation, an obscure federal agency, also encouraged bankruptcy.

The PBGC insures defined-benefit pension plans. A defined-benefit plan pays retirees a benefit based on a formula related to the employee’s work history, such as 50% of salary during the final year of service adjusted for inflation.

Retirement costs are substantial for older airlines. Delta has $10.6 billion in unfunded pension obligations. Northwest’s pensions are under funded by $5.7 billion. Bankruptcy courts often assign the vast majority of pension liabilities to the PBGC.

Two other airlines currently in bankruptcy, United Airlines and USAir, have shed their pension liabilities to the PBGC, substantially reducing costs.

Other airlines have observed with envy how United Airlines moved from one of the highest cost airlines to the lowest. United has substantial leverage in bankruptcy court to negotiate with labor unions and to renegotiate the terms of aircraft acquisitions.

Who will be next? The few companies continuing with defined benefit plans tend to be large corporations, in business since well before 1975 and often in some financial difficulty today. The PBGC has taken over the pension plans primarily of bankrupt airlines and steel companies. American automakers loom as possibilities as well.

With each new major bankruptcy, the size of the PBGC’s own unfunded deficit grows. Each year, the PBGC collects a small insurance premium for each employee covered by a defined benefit plan, but the premiums do not begin to cover PBGC’s liabilities.

The Congressional Budget Office estimated that the PBGC had debts of $22 billion as of last September and is likely to incur more than $115 billion in additional debt over the next 20 years. As large companies with defined-benefit plans enter bankruptcy, the PBGC has become increasingly insolvent.

Both the White House and Congress are aware of the PBGC’s problems. While an excellent start, their proposed solutions – more taxpayer money for the agency and higher insurance rates paid by insured pension plans – do not go to the heart of the problem.

A better approach would be to phase Uncle Sam out of the pension-insurance business altogether.

The vast majority of American workers have defined-contribution retirement plans, where employees contribute a fixed amount for retirement – say $10,000 annually – and allocate funds among approved plans. These plans have many advantages, especially portability during a career with frequent job changes, now the norm rather than the exception. Most government employees have defined-contribution plans.

The federal government need not resort to law or regulation to require companies to move from defined-benefit to defined-contribution retirement packages. Simply announcing that the PBGC will no longer accept new claims after a certain date should have the same effect.

Employers or employees committed to a defined-benefit plan could still have one based on investments in simple annuities or private insurance. The cost of annuities, however, tends to be high relative to perceived benefits. And as long as the PBGC insures defined benefit plans with premiums that do not cover costs, no competing private insurance market will develop.

In most other industrialized countries, fringe benefits from health care to retirement are government-provided or -subsidized. Indeed, many American firms competing in international markets complain bitterly about the implicit subsidies in government-sponsored fringe benefits in other countries. Other governments should point to the PBGC in response.

The proper answer is not to imitate our international competitors with more government subsidies of pensions. Nor should we continue incentives for businesses to enter bankruptcy in part to seek financial protection from their retirees. Instead, we should have an American answer, one based on confidence in the private sector as best able to resolve purely financial issues.

That answer could be privately insured, fully funded, defined-benefit plans. It could be annuities. Or it could be defined-contribution plans controlled by individual employees within prescribed investment plans. But the answer is not the PBGC.

A former FCC commissioner, Mr. Furchtgott-Roth is president of Furchtgott-Roth Economic Enterprises. He can be reached at hfr@furchtgott-roth.com.