It’s no surprise that 60 percent of Americans, according to a
new poll from Public Policy Polling for the leftist Daily Kos
website, think that the current Congress is the worst ever. Of
course, we don’t expect the Daily Kos to note that most of the
problem comes from an obstructionist Senate leadership that refuses
to put anything passed by the House to a vote. However, when
Congress does act in a bipartisan fashion it tends just to make
things worse (with rare exceptions like the recent JOBS Act).
A prime example is the Moving Ahead for Progress in the 21st
Century Act (MAP-21), also known as the highway bill, a two-year
reauthorization of surface transportation spending that passed in
late June. Once it was enacted, special interests put on their best
jilted-lover act, wailing about not receiving every handout they
had requested.
So what did Congress do? It resorted to tricks and obfuscations
to provide “pay-fors” for new spending programs. Such budgetary
legerdemain allows members of Congress to claim with a straight
face that their new spending somehow reduces the burden on the
taxpayer, even as it actually increases it.
One provision that received little attention contains a
significant pay-for used to fund the highway bill’s spending
programs and keep the legislation “budget neutral.”
For this two year measure, Congress relied on 10 years of budget
offsets — including a dangerous accounting gimmick known as
“pension smoothing.” This provision reduces pension funding
requirements under the Pension Protection Act of 2006 by allowing
plan managers to assume higher investment returns — perversely at
a time of very low interest rates on — low-risk investments such
as bonds.
The effect of this move is to make pensions seem better funded
than they are, which allows fund managers to reduce tax-free
pension contributions. By reducing contributions, more employer
income will be taxable, which is why Congress expects this trick to
generate $9.467 billion in additional tax revenues over 10
years.
In May, the Pension Practice Council of the American Academy of
Actuaries wrote to members of Congress expressing concerns that the
resulting contribution amounts will be “insufficient to settle
obligations or fund obligations with a low risk portfolio and do
not provide meaningful information about the current funded status
of [a] plan.” In other words, actuaries are worried that the change
would give pension managers a license to make up numbers, further
underfund already underfunded defined benefit pension plans, and
increase the risk of a taxpayer-backed pension fund bailout via the
federal Pension Benefit Guaranty Corporation (PBGC).
The PBGC is the federal agency charged with insuring private
sector pensions. It is funded by premiums paid by insured firms.
However, those premiums are set by Congress, which for years has
set them too low, largely due to persistent lobbying by insured
firms — the vast majority of which are unionized. As a result, the
PBGC now has a $26 billion deficit. That means that it cannot pay
for any more pension plans for which it might become responsible —
as its reluctance to take on American Airlines’ pension obligations
shows. As the pressure on the PBGC’s resources grows, so will calls
for a taxpayer-funded PBGC bailout.
The Academy recommended a number of policy tweaks that could
have improved pension funding and disclosure of funding status,
while reducing the bailout risk to taxpayers. Congress, in a
desperate attempt to fund MAP-21, ignored all of these suggestions.
Removing the pension smoothing provision would have meant losing 9
percent of the total revenue and offsets needed to pay for the
surface transportation spending levels set by Congress. House and
Senate leadership were out of options — they certainly were not
contemplating cutting spending and living within the programs’
means.
So in order to keep things going with a minimum of fuss,
Congress has degraded actuarial standards for the nation’s private
pensions — at a time when one of Americans’ chief concerns is
whether they’ll have enough to live on when they retire. There are
many words to describe this behavior; irresponsible is probably the
most polite.
For the nation to emerge from the protracted crisis that has
dragged on since 2007, it will need a complete cultural change in
Congress where tricks like this as utterly unacceptable. Until
then, there is little hope.
