Senate highway bill contains ‘smoothing’ pension gimmick
The massive $109 billion highway bill snaking through Congress now includes a measure to disguise pension funding shortfalls.
Months of negotiations in the House and Senate have led to a compromise on the massive bill.
Section 40312 of Senate Bill 1813 allows “pension smoothing,” an accounting trick whereby pension managers downplay funding shortfalls by spreading losses across several years while overestimating projected investment returns.
The section amends the Employment Retirement Income Security Act, a federal law that regulates private sector pension plans.
The move is intended to generate $9.5 billion over 10 years for the Highway Trust Fund by reducing the amount an employer will contribute toward tax-free pension fund assets, in turn increasing the total amount of taxable income, Politico reports.
Marc Scribner, a transportation analyst at the Competitive Enterprise Institute, explained that smoothing “in theory reduces expenditures necessary to pay down these losses in the short-run, [but] it exposes the government to significant additional risk over the medium- and long-runs.”
It would allow an investment return rate for a given month to “be equal to the applicable minimum percentage or the applicable maximum percentage” of the average rate of return for a given fiscal year, “whichever is closest.” The problem is that the maximum-to-minimum range widens every year, starting this year at 20 percentage points, to 60 percentage points after 2015.
Scribner noted the pension provision favors large labor unions because it gives them an opportunity to appear to be fixing unfunded pension programs without actually doing so.
Congress will also likely attach provisions to the bill extending a rate reduction on student loans and reauthorizing national flood insurance.
The White House said in a Tuesday statement that it is pleased with the deal and hopes Congress will send the president a bill soon.
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