WHEN CONGRESS moved to shore up the nation's private pension system in 1974, it included an insurance program -- a safety net under the safety nets. The good idea was to charge employers premiums and set up a fund so that older workers and retirees would not be stranded if the companies to which they were looking for retirement income went out of business or bankrupt.

That was fine, except that the authors didn't fully reckon with the hard times and creative use of the bankruptcy statutes that were to follow. The steel industry in particular began to look to the pension insurance program as the door to a national industrial policy by another name, a back door to the Treasury whereby hurting companies could stay alive by shifting their heavy pension obligations onto a little-known agency of the government. In the leading case, LTV Corp. shifted more than $2 billion in old pension obligations to the Pension Benefit Guarantee Corp. PBGC was obligated and able to make only partial payments, but LTV then signed a new agreement with the steelworkers union to make up the difference and to carry on as before, accumulating new obligations.

The PBGC resisted, saying that it was not its mission to support what amounted to a continuing business and pension plan. The insurance agency said that if such abuses of the statute were allowed to continue, it would be the one facing bankruptcy, even though Congress had raised its premiums. It tried to turn the obligations back to LTV, whose fortunes, along with the industry's generally, had improved in the interim. LTV fought back, saying that the agency was exceeding its authority and that it, the company, still couldn't afford to pay.

Now the Supreme Court has sided 8 to 1 with the PBGC. The legal principles in the case are less important than the policy implications. The policy line in these matters is harder to draw than it sounds. The insurance system is meant to be protective, not punitive. No one wants to drive a company -- a source of jobs and benefits -- out of business if it can be saved, and LTV continues to say that its past pension costs could drive it under. But no one wants to give overextended and/or manipulative companies an open back door to the Treasury either. PBGC has to say that it will only pay the costs of companies that truly fail. If the government wants to take the ambitious further step of helping companies avoid such failures, it should do so frontally and not with pensioners as pawns.