This year, the U.S. Congress addressed the insolvency of the Highway Trust Fund by allowing companies to engage in a practice called “pension smoothing”.
The plan addresses the Fund’s insolvency but comes with future costs.
On Wednesday, the Washington Post named pension smoothing one of the 11 “worst policy ideas of 2014”.
From the Post:
The Highway Trust Fund, which helps states pay for vital infrastructure, has been running out of money for years (here’s a quick explainer on why). This summer, Congress needed to find about $10 billion dollars to temporarily prop up the fund (in the absence of a long-term solution, that is). So what did Congress do to generate that money? Raise the gas tax? Create a better road user fee? In a rare act of bipartisanship, Congress found more than half that money instead through “pension smoothing,” which is widely derided by everyone outside of Congress as a mere budget gimmick.
In effect, Congress allowed corporations to underfund their future pensions to create the semblance of more tax revenue today. A succinct NPR explainer of the trick:
It allows employers that offer traditional pensions to set aside less money for future retirees. That makes the companies appear more profitable in the short run so they — or their employees — pay more money to the government in taxes.
Read more Pension360 coverage and analysis of pension smoothing here.