The GOP Is Floating A Pension Tweak to Fix the Highway Trust Fund – Is It A Good Plan?

431px-US_Capitol_dome_Jan_2006

We’re used to hearing news of pension wrangling coming from politicians on the state and local level–but today, we get some rare news of a pension debate happening in the United States House of Representatives.

First, some context: The Highway Trust Fund is going to run out of money sometime in August. It is funded by gas tax revenues, but that money has proved insufficient in the face of increased transportation spending.

Courtesy of the Department of Transportation

Courtesy of the Department of Transportation

 

The Fund is a fairly important one: it is the source for federal spending on highways, roads, bridges and transit. So its insolvency, in short, is problematic. Democrats have previously proposed raising taxes to infuse the Fund with some extra cash. But Republicans have stood in staunch opposition to that method, and they’ve just recently come out with a plan of their own (and it involves pensions):

The proposal, which would be financed in several unusual ways, is expected to generate about $10 billion to keep the Highway Trust Fund from becoming insolvent on Aug. 1 and to pay for projects the fund does not cover. The committee will begin work on the bill Thursday.

The plan would be financed through a financial maneuver known as pension smoothing, which increases tax revenues by allowing companies to delay tax-deductible pension contributions, and by unspecified user fees. Money would also be transferred from a fund that is used to clean up leaky underground storage tanks.

In other words:

Essentially the GOP will allow private firms with retirement plans to contribute less to them next year. That will bolster firms’ profits and, therefore, increase tax collections. In other words Congress will violate its own standards, put into law to protect pensions with sensible accounting, for a short term revenue boost.

The plan would generate about $10 billion and would buy Congress more time to figure out a long-term fix to the HTF’s solvency woes. But it doesn’t come without its drawbacks, as Steve Malanga 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.

Mr. Malanga presents this chart:

Courtesy of Public Sector, Inc.

Courtesy of Public Sector, Inc.

 

Congress appears to be in a major conundrum–do they fund the HTF now at the expense of the future? Do they leave the Fund empty, and put many major infrastructure projects on hold? Or do they come up with another solution? The third option is simultaneously the most logical and the least likely. Stay tuned.

 

Share This Post

Related Articles

One Response to “The GOP Is Floating A Pension Tweak to Fix the Highway Trust Fund – Is It A Good Plan?”

  1. […] more Pension360 coverage and analysis of pension smoothing […]

Leave a Reply

Privacy Policy | © 2020 Pension360 and © 2014 Policy Data Institute | Site Admin · Entries RSS ·