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Detroit Deal Leaves Pension Protection in Legal Limbo

Municipal bankruptcies are increasingly becoming a reality in the United States, and it’s changing what we know about how—and to what extent—state laws protect pension benefits.

Detroit made big waves this week when its citizens voted to cut their own pensions. But if they had not approved the ballot measure, the city would have tried to cut their benefits by even greater margins. The fact that this took place in a state with stringent legal protections for pension benefits is making observers elsewhere wonder if a new precedent has been set. From NPR:

Pension benefits already earned have always been sacrosanct, protected by federal law and, often, state constitutions. Retirees could rest easy, knowing their money couldn’t be touched.

The in Detroit by retired city workers to cut their own benefits by 4.5 percent calls all that into question.

“Detroit has raised it as a possibility,” says Daniel DiSalvo, a political scientist at City College of New York who studies public sector labor issues. “I don’t think that most people, maybe with the exception of some unions, think pensions are inviolable.”

With several other cases pending, it’s not at all clear whether federal bankruptcy law trumps traditional pension protections. Pensions continue to have strong legal protection, and there’s not going to be any great rush among states and cities to test whether cutting benefits for current retirees is something that will necessarily fly with the courts.

But the vote in Detroit does suggest that at least some pensioners might have to give up more than they ever expected.

And it won’t be too long until the possibility of more pension cuts are raised elsewhere in Michigan. Flint is considering filing for bankruptcy, as well. From Money News:

Flint, the birthplace of General Motors that once had 200,000 residents, has also endured a spectacular drop in population and factory jobs and a corresponding rise in property abandonment, much like its insolvent big brother an hour’s drive south.

If a judge rules against Flint’s effort to cut its retiree health care benefits, the city is expected to join about a dozen cities or counties that have sought help from the courts since the start of the recession.

“If we don’t get any relief in the courts … we are headed over the same cliff as Detroit,” said Darnell Earley, the emergency manager appointed by Gov. Rick Snyder to manage Flint’s finances. “We can’t even sustain the budget we have if we have to put more money into health care” for city workers.

And, if Flint follows a similar path to Detroit after declaring bankruptcy, it could mean pension benefits are the first thing on the chopping block.

This will all become a bit clearer when Detroit bankruptcy judge Steven Rhodes makes his ruling on the city’s restructuring plan. That won’t come until sometime in September.

Longer Life Expectancy Will Lead to Spike in Liabilities In Near Future

Hundreds of pension funds across the country are struggling to rein in their liabilities, but their funding situations may soon be considered even worse. That’s because an actuarial tweak that takes into account greater life expectancy will increase the liabilities on the books of many plans. From Pensions & Investments:

The measured value of liabilities for most defined benefit plans will increase between 3% and 8% with the adoption of new mortality tables, said a report from Wilshire Consulting.

The tables, released by the Society of Actuaries in exposure draft form in February, reflect an increase in the life expectancy of Americans, resulting in increased pension plan liability values and liability durations.

For women ages 25 to 85, the liability increase ranges from 5.5% to 10.5%. For males in that age group, the increase ranges from 2.5% to 17.4%.

The tables most DB plans now use to measure pension liabilities were published by the Society of Actuaries in 2000.

Some pension plans will be affected more than others, as P&I explains:

The impact of the updated tables on a particular plan will depend on the makeup of its participants, said Jeff Leonard, managing director at Wilshire Associates Inc. and head of the actuarial services group of Wilshire Consulting, based in Pittsburgh.

Some public and corporate plans are large enough to use custom mortality table and likely will stick with them, Mr. Leonard said.

For U.S. plans that rely on the industry tables, however, the mortality assumption changes are “another nail in the coffin” and might encourage some sponsoring entities to move away from DB plans altogether, Mr. Leonard said.

These changes haven’t come out of nowhere, and they won’t go into effect right away; according to Wilshire, the new tables likely won’t affect funding ratios until 2016.

Photo by Alexander Baxevanis via Flickr CC License

Puerto Rico’s Pension Obligations May Lead to US-Style Bankruptcy

Puerto Rico may not have statehood status, but it’s picking up some of the United States’ habits. Lately, that means weighing bankruptcy. And, like the United States, ballooning pension obligations are a major reason Puerto Rico is wearing the proverbial fiscal handcuffs.

From Reuters:

Momentum is building toward a deal that would make painful losses inevitable for investors holding about $20 billion in bonds issued by Puerto Rico’s highway, water and electricity authorities even as some big U.S. mutual funds launch a legal battle to squelch a new law that authorizes a restructuring.

The Puerto Rican government and most of its creditors have hired U.S.-based bankruptcy experts to advise them through the Caribbean island’s efforts to solve its debt problem, and the resolution figures to look a lot like a U.S.-style bankruptcy.

The crisis came to a head late last month when Governor Alejandro Garcia Padilla pushed through the Public Corporations Debt Enforcement and Recovery Act to create a bankruptcy-like process for restructuring the debt of commonwealth-run corporations.

This isn’t coming out of nowhere; the writing has been on the wall recently. Just two weeks ago, Fitch downgraded a number of Puerto Rico’s bonds. From a Fitch press release via Business Wire:

Puerto Rico’s bonded debt levels and unfunded pension liabilities are very high relative to U.S. states, with a large amount of outstanding debt issued for deficit financing purposes. Pension funding will remain exceptionally low even with the significant pension reform effort undertaken by the current administration, and the April 2014 Puerto Rico Supreme Court decision finding recent reforms of the teachers’ retirement system unconstitutional presented the administration with yet another challenge. The Commonwealth has stated in the past that without reform the teachers retirement system would confront an annual cash flow deficit beginning in fiscal 2020.

Puerto Rico tried earlier this year to reform its teacher pension system, which is set to run out of money by 2020. The Island passed a law that increased retirement ages and employee contributions, while mandating that the system adopt more 401(k) qualities. But a court struck down the law in April.

Jerry Brown Sends CalPERS Board Back to School

California Gov. Jerry Brown wanted to make sure that the members of the CalPERS board knew what they are doing when making decisions regarding the fund’s nearly $300 billion investment portfolio. Now, Brown can rest assured that the members have spent some time in the classroom, studying up on the topics that are relevant to the governance of the country’s largest public pension fund. That’s because he just signed a bill requiring all board members to receive 24 hours of education on a variety of investment issues every two years.

From the Associated Press:

AB1163 by Assemblyman Marc Levine, D-San Rafael, originally was introduced as a way to meet Brown’s request to “bring financial sophistication” to the California Public Employees’ Retirement System’s 13-member board, which is dominated by public employees and labor union representatives.

Its original language required adding two board members who had financial expertise and did not have a financial interest in the pension system. It also proposed replacing the State Personnel Board representative with the state Director of Finance.

The bill was changed to give board members 24 hours of education every two years, require records of board members’ compliance with education requirements, and provide an annual report on CalPERS’ website.

The topics of the training are varied, but they include fiduciary responsibilities, ethics, pension funding, benefits administration, investment management, actuarial matters, and governance. All great things to learn about when you govern one of the largest pension funds on the planet.

You can read the entire bill here.

Photo by Eric James Sarmiento via Flickr CC License

Detroit’s Pension-Slashing Plan Passed, But Creditors Remain the City’s Biggest Obstacle

When Detroit bankruptcy judge Steven Rhodes considers whether to approve the city’s sweeping debt-cutting plan, he will take into strong consideration what the city’s voters had to say. He’ll see that Detroit’s pension holders overwhelmingly approved the ballot measure today which cut pension benefits and cost-of-living-adjustments, among other things.

But he’ll also see the discontent coming from another group receiving much less media attention: Detroit’s creditors. Those include banks, hedge funds, individual investors and average Detroit citizens who hold the city’s bonds, which have become worthless. Some of these bondholders are going to be paid back in full, but others won’t; Detroit is offering as little as 10 cents on the dollar to investors who own certain bond classes.

Needless to say, the owners of those bonds aren’t happy. And they expressed that discontent by voting “no” on the ballot measure that passed today. Still, Judge Rhodes will consider their opinions when ruling whether Detroit’s restructuring plan is legal.

There are twelve classes of bonds, and the Detroit Free Press has a fantastic breakdown of how those classes voted and their unique situations. You can read the whole thing here, but here are some of the more interesting ones:

Class 1: Water and sewer bondholders

Who owns or controls this debt? Major bond insurers, individuals and financial giants such as Black Rock

What they’re owed: $5.8 billion

The city’s offer: 100%

Back story: This debt is secured, which means it’s protected from cuts. Nonetheless, mediation talks between the city and the bondholders have tarried without a settlement. Why? Because the city is trying to replace the bonds without paying all future interest.

How they voted: 119 sub-classes of bondholders voted no, while 32 voted yes.

Classes 2-4, 6: Secured general obligation bonds, other secured claims, U.S. Housing and Urban Development loans, parking bonds

Who owns or controls this debt? A variety of investors (Classes 2-3, 6); Uncle Sam (Class 4)

What they’re owed: $494 million (Classes 2-3); $90 million (Class 4); $8 million (Class 6)

The city’s offer: 100%

Back story: This debt has rock-solid legal standing and the city can’t get out of it.

How they voted: These creditors don’t vote because they are receiving full payment.

Class 7: Limited-tax general obligation bonds

Who owns or controls this debt? Ambac Assurance and Black Rock control most of it, with Syncora holding a smaller amount.

What they’re owed: $164 million

The city’s offer: 34%

Back story: Black Rock and Ambac agreed to a tentative settlement, but all of the terms have not been released.

How they voted: Bondholders representing 99.8% of the claims and the votes rejected the plan — likely because the settlement has not been finalized.

Class 8: Unlimited-tax general obligation bonds

Who owns or controls this debt? The lion’s share is controlled by bond insurers Assured, Ambac and National Public Finance Guarantee.

What they’re owed: $388 million

The city’s offer: 74%

Back story: The bond insurers agreed to a deal to allow the city to divert 26% of their debt to low-income retirees who face pension cuts. But this deal will face legal challenges during the trial.

How they voted: 87% of bondholders representing 97% of the debt voted “yes” to approve the deal.

Class 9: Pension obligation certificates of participation (COPs)

Who owns or controls this debt? Syncora and FGIC insured the debt, which is mostly owned by European banks and five major hedge funds that recently acquired about half of it

What they’re owed: $1.473 billion

The city’s offer: 0% to 10%

Back story: The fiercest fight in the bankruptcy is here. Syncora and FGIC argue they are being unfairly treated and have pushed for the City of Detroit to consider selling Detroit Institute of Arts treasures to pay their debts. The hedge funds have also objected to the city’s proposal.

How they voted: It was an emphatic “no,” with not a single “yes” vote.

Class 10: Police and Fire Retirement System pensions

Who owns or controls this debt? Police and fire retirees and active uniform employees who are vested in their pensions

What they’re owed: $1.25 billion in unfunded future pension promises

The city’s offer: 100% payment of their monthly pension checks and a reduction in annual cost-of-living adjustment (COLA) increases from 2.25% to 1%.

Back story: The U.S. government-appointed Official Committee of Retirees, a major retiree association and the pension board representing the police and fire retirees reached a deal with the city to recommend a “yes” vote. With a “yes” vote by Classes 10 and 11, the city would agree to transfer the DIA to an independent charitable trust in exchange for foundation, state and DIA donations directed toward pensions.

How they voted: 82% of police and fire pensioners representing 82% of the debt voted “yes” to support the deal.

Class 14: Other unsecured claims

Who owns or controls this debt? A variety of creditors, including people who sued the city and won settlements, as well as city vendors that had contracts canceled

What they’re owed: An estimated $150 million

The city’s offer: 10% to 13%

Where they stand: This group of creditors is not well coordinated, but it includes a major Macomb County water claim expected to vote no.

How they voted: This class voted no by a 53-47% margin in number and by a 61-39% margin in total claims.

There are two ways this could play out:

1) Detroit reaches a settlement with creditors, likely paying them around 10 cents on the dollar for many of their bonds.

And, if a settlement can’t be reached:

2) Judge Rhodes will determine whether to force the creditors to accept cuts.

The trial starts next month, but likely won’t be finished until September.

Detroit Voters Pass Pension Cuts By A Landslide

The long-awaited news has finally come: Detroit’s pension holders have approved a ballot measure that cuts their pension benefits as part of the city’s bankruptcy plan. There was much speculation about whether the measure would pass. In the end, though, it wasn’t even close. The Wall Street Journal had the final tally:

The official count, filed late Monday night, showed 82% of those eligible for a police or fire pension who voted supported the plan. Roughly 73% of other retirees and employees with pension benefits who voted favored the plan. Voting lasted through early July.
The voting margins from pension holders were seen as an endorsement for the city’s plan to confront an estimated $18 billion in long-term obligations.
“The voting shows strong support for the City’s plan to adjust its debts and for the investment necessary to provide essential services and put Detroit on secure financial footing,” Detroit Emergency Manager Kevyn Orr said.
Despite the critical nature of the vote, a sizable chunk of those eligible sat out. About 59% of police and firefighter pension holders and 42% of other pension holders cast ballots, according to the city’s legal filing.

Need a recap of what exactly the “yes” vote means? Here’s an explanation from Click On Detroit:

General retirees would get a 4.5 percent pension cut and lose annual inflation adjustments. Retired police officers and firefighters would lose a portion of their annual cost-of-living raise.
Ballot approval of the pension changes triggers an extraordinary $816 million bailout from the state of Michigan, foundations and the Detroit Institute of Arts. The money would prevent the sale of city-owned art and avoid deeper pension cuts. The judge, however, still must agree.

That last line is key: the city’s bankruptcy judge still has to OK the plan. But it was always assumed that if voters passed it, the judge would too.

To read the official declaration released by the bankruptcy court, click here.

Pennsylvania Recieves Third Consecutive Credit Downgrade, and Its Pension System Is The Culprit

Just a few weeks ago, Pension360 covered the story of Pennsylvania’s pension tussle; in short, the state’s governor wanted lawmakers to address pension reform before they left on their vacations. Well, lawmakers are now on vacation and pension reform is gathering dust. The state’s credit rating is now paying the price.

From Reuters:

Moody’s Investors Service downgraded its rating on Pennsylvania debt to Aa3 from Aa2 on Monday, the third consecutive year that a new state budget has prompted a credit cut.
Moody’s cited underperforming revenues and the continued use of one-time measures in its latest downgrade. After wrestling with lawmakers over public pensions and cutting millions of dollars through line-item vetoes, Pennsylvania Governor Tom Corbett didn’t sign the 2015 budget until more than a week after the start of the new fiscal year on July 1.
The state has about $50 billion of unfunded long-term pension liabilities. About 63 cents of every new dollar of state revenue goes to pay pension costs, Corbett, a Republican, has said.
In order to close a deficit of about $1.5 billion without raising taxes, the state’s Republican-run legislature passed a spending plan that included one-time transfers of money from dedicated funds, such as one that helps volunteer fire companies purchase equipment.
Growing pension liabilities, coupled with modest economic growth, will limit Pennsylvania’s ability to regain structural balance in the near term, Moody’s said.

But the state can’t say it wasn’t warned; in fact, Moody’s, Fitch and S&P all warned Pennsylvania that they would be forced to downgrade its credit rating if the state produced an inadequate budget. A big part of what defined “adequacy”, in the eyes of the agencies, was doing something about the state’s dangerously unhealthy pension system.

Moody’s noted two key trends in its warning, released back in late April:

* High combined debt position driven by growing unfunded pension liabilities, and a history of significantly underfunding pension contributions that will be reversed slowly over the next four years
* Rapidly growing pension contributions will absorb much of the commonwealth’s financial flexibility over the next four years challenging its ability to return to structural balance or make meaningful contributions to the depleted budget stabilization fund

Moody’s, in its latest report, left the door open for upgrading the state’s rating. On the other hand, it also left the door open to downgrade it further. From Watchdog.org:

The rating could improve, Moody’s said, if the state reduced its long-term liabilities, including its unfunded pension liability. The rating could also rise if Pennsylvania replenished its reserves and revenues came in above projections, Moody’s indicated.
In turn, the rating could drop more if revenues come in worse than expected, if long-term liabilities grow and if further declines pressure liquidity, Moody’s said.
Moody’s gave Pennsylvania a stable outlook, saying that while Pennsylvania’s economy will grow more slowly than the United States on average, it has stabilized. Moody’s also cited a “recent history of improved governance, reflected in timely budget adoption and proactive financial management.”

Pennsylvania now has the third-worst credit rating among all 50 states. Illinois and New Jersey are the only states that carry lower ratings.

The University of California Retirement System Is Scrambling to Cover Funding Shortfalls

When a pension system gives employees and employers a 20-year contribution holiday, you can bet it’ll run into some funding troubles down the line. University of California’s retirement system has been knee-deep in that harsh reality for years now. That has led to the borrowing of billions of dollars to cover funding shortfalls. And the University system has now taken out another massive loan.

From Ed Mendel at CalPensions:

UC regents last week approved borrowing another $700 million internally to help close a pension funding gap, bringing the total borrowed to $2.7 billion in a pension bond-like strategy with risks or rewards, depending on investment earnings.

Five years ago University of California employers and employees were paying nothing into the pension system. In a remarkable contribution “holiday” that began in 1990, payments into the system dropped to zero and stayed there for two decades.

After restarting in 2010, the employer contribution to the UC Retirement Plan increased from 12 to 14 percent of pay this month and most employee contributions increased from 6.5 to 8 percent of pay, a total of nearly $2 billion a year.

But the steady increase of contributions that were once zero still falls short of closing the pension funding gap. Last year UC Retirement had only 76 percent of the actuarially projected assets needed to pay pension obligations over the next three decades.

To help close the funding gap, UC borrowed $1.1 billion from its own Short-Term Investment Pool in 2011 and $937 million from external sources. The $700 million loan approved last week is from the short-term pool.

The UC Retirement fund, with assets valued at about $50 billion, expects to earn an average of 7.5 percent a year, the same as the California Public Employees Retirement System. Critics say the earnings forecast is too optimistic and conceals massive debt.

In what some call arbitrage, money borrowed at a low interest rate from the UC short-term pool (which earned 1.7 percent last year) and invested in the pension fund earns a profit if the return is the expected 7.5 percent or even a little less.

“I do feel we are on a little bit of a slippery slope here,” said Regent Fred Ruiz. “I think we have to be very cautious … The market changes from year to year, and if we don’t get the returns we need to have, then we are in great trouble.”

This is the same concept, essentially, as Pension Obligation Bonds. And, just like POBs, the outcome of this borrowing can either be of great benefit or great harm to the U of C pension system. Whether this turns out good or bad depends on future investment returns.

STUMP blogger Mary Pat Campbell gives her take on the dangers of U of C’s decision:

One should always match one’s borrowing to one’s accrual of expenses. It’s okay to finance the acquisition of an asset (such as a car or a house) with a loan that amortizes over the life of the asset. It’s not okay to take out a 30-year-loan to pay for a trip to Disney. The first is based on good financial principles, the second indicates you are living way beyond your means.

Short-term financing for operational expenses is fine if one has “lumpy” cash flows (which the UC system may have, depending on how they pay their staff. I get paid for my adjunct teaching only during the semester.) But even though they’re calling it a short-term pool, it sounds to me like what they’re doing is borrowing under short-term limits, but keeping rolling over the debt, as if it were a longer-term loan.

I really don’t like the sound of that.

That is something that could escalate rapidly should interest rates start to rise.

Bottom-line: borrowing money for a fake arbitrage is bad finance. The 7.5% return is just an assumption, not a sure thing. Real life returns vary a lot the way they invest it — and the loan interest is a sure thing, just as the pension benefits are a (supposed) sure thing.

We won’t know for years how this decision ultimately plays out for the University of California system. But you can bet the Regents have their fingers crossed.

The Double DB Plan: An Experiment in Plan Design

Several retirement plan consultants have put their heads together and come up with an interesting new idea for designing defined benefit plans. Why is it interesting? Because it’s a defined benefit plan, but it is fixed-cost; on top of it, the creators claim that both employees and employers will benefit.

It’s called the “Double DB”. Will the plan work? We won’t know until its put into action. For now, it’s certainly serves as an interesting though experiment.

You can hear an in-depth conversation on the topic in the video above. Or, you can read an explanation below, from Kamp Consulting:

Here is an example for illustrative purposes only and does not imply any future results as outcomes are based on specific plan and market data.

Suppose that a plan sponsor of an existing traditional DB plan wants to soon transition their employees to a DC structure. Let’s also assume that the plan sponsor’s existing DB has current annual cost of 30% of salary, with 20% paid by the employer and 10% by the employees. Instead of shuttering the DB plan and adopting the DC plan, the plan sponsor can adopt Double DB, a hybrid DB structure whose assets can be commingled with the existing trust assets.

For accounting purposes, there are two component pieces in the Double DB design. Once the plan is established, each of the two DB components receives 15% of payroll in the initial year (or, half of the hypothetical current annual cost). The first component (DB one) is a regular DB plan with features similar to a traditional DB plan, but with more modest fixed benefits. The second DB component is referred to as a partner plan, and its benefits are not fixed.

Based on our selected funding method, actuarial assumptions and plan design, assume that the traditional DB plan is calculated to provide a multiplier of 1.5% of FAS (final average salary). However, if investment experience in the first year is poor and the first DB plan now requires 16% of the contribution instead of the 15% paid in year one to support the 1.5% multiplier, DB one (regular DB) gets 16% and DB two (partner DB) gets 14%.

If instead, the plan’s experience in year one was favorable and the regular DB plan requires only 13.5% of pay to support the 1.5% multiplier, regular DB gets 13.5% and the partner DB gets 16.5%.

This process continues year after year. The actuarially determined percentage of payroll cost of continuing the 1.5% multiplier in the regular DB is always provided and the partner DB always gets the residual amount. Annual benefits to the pensioner from the regular DB are always 1.5% of one’s FAS times the number of years of service. Partner DB assets contributed to one’s final benefit will be determined year-by-year and by experience.

Upon retirement, the beneficiary will receive one check with the benefit from the first DB component being added to the variable benefit from second DB accounting to provide a monthly payment. With this plan design, the assets of both the traditional DB and residual DB can be commingled, whereas a traditional DB and its new DC assets can’t be combined. The same investment management team can be used, as well as all service providers, granting the plan sponsors greater economies of scale, less complication, and potentially happier employees who don’t have to manage their retirement program.

Photo by American Advisors Group via Flickr CC License

Roadwork, Pensions and Congress’ Plan to Replenish the Highway Trust Fund

We could get a vote this week on the issue of replenishing the near-empty Highway Trust Fund, the federal fund used to finance transportation projects across the country. It’s funded by gas tax revenues, but due to run out of money within the month.

A solution has already been proposed and passed through the house, and now the Senate takes the reigns. If the fund runs out of money, many construction and infrastructure projects across the country would grind to a halt. But some critics say the the proposed solution could close the door on one problem and open the door for another.

What does any of this have to do with pensions? Josh Barro explains:

The Federal Highway Trust Fund is expected to run out of money in August. So, naturally, Congress is debating a temporary fix that involves letting corporations underfund their pension systems.

The latest proposal, which passed the Republican-controlled House Ways and Means Committee on Thursday, works like this: If you change corporate pension funding rules to let companies set aside less money today to pay for future benefits, they will report higher taxable profits. And if they have higher taxable profits, they will pay more in taxes over the 10-year budget window that Congress uses to write laws. Those added taxes can be diverted to the Federal Highway Trust Fund.

Unfortunately, this gimmick will also result in corporations paying less in taxes in later years, when they have to make up for the pension payments they’re missing now. But if it happens more than 10 years in the future, it doesn’t count in Congress’s method for calculating budget balance. “Fiscal responsibility,” as popularly defined in Washington, ignores anything that happens after 2024.

The official term for this method is called “smoothing.” Len Boselovic at the Pittsburg Post-Gazette gets into even more detail on the topic:

Smoothing affects the way pension funds value their liabilities, the benefits they are obligated to pay to retirees and their beneficiaries. The current value of those future obligations is based on a discount rate, which is determined by current interest rates. As Mr. Cole explains at www.taxfoundation.org/blog, if the future value of a pension benefit is $1, using a 4 percent discount rate puts the current value of the benefit at 96 cents. Using a 6 percent discount rate values it at 94 cents.

In other words, the higher the discount rate, the lower the current value of a pension fund’s obligations. The lower those obligations are, the less money a company has to contribute to its pension fund to comply with federal pension funding rules.

Interest rates have remained stubbornly low — forcing companies to contribute more to their pension funds. While that should make the funds better funded and put current and future retirees at ease, it crimps federal tax revenue. That’‍s because pension fund contributions are tax deductible. The more a company contributes to its pension fund, the less it contributes to the IRS.

Lawmakers who grasp that concept figure they can kill two birds with one stone: give pension funds relief from low interest rates and boost federal highway funding. They want to “smooth” the impact of lower interest rates by allowing companies to use a higher discount rate. That would lower companies’‍s pension funding requirements but raise their tax bills. The extra tax revenue would pay for transportation projects.

It’s an interesting way for Congress to approach this problem. But, as Pension360 has covered in the past, it’s a solution that causes its own problems, as Public Sector Inc. explains:

None of this is free, of course. Aside from the dangerous trend of allowing private firms to purposely underfund their pensions, the plan boosts federal revenues today at the cost of increasing the deficit over the long term.
Given this proposal, you would think that everything is just peachy with funding of private sector pensions in America. But The Pension Benefit Guaranty Corporation, which is responsible for insuring private pensions, just put out a report estimating it’s on an eight-year path to insolvency itself.
The nation’s laws dictating private sector pension standards were enacted to protect retirement plans. But Congress, in its endless quest for more revenues, can’t even live by the standards that it imposed on companies.

Pension360 will keep you updated on subsequent developments in this story.

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