“Pension Smoothing” Makes WaPo’s List of Worst Policy Ideas of 2014


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.


Judge Gives New Orleans Another Month To Cover Pension Debts

New Orleans

New Orleans now has until October 3rd to come up with a plan to cover the funding shortfalls facing the city’s firefighter pension fund after a judge today extended the city’s deadline.

A judge ruled last year that New Orleans had to pay back the firefighters’ pension fund for the annual payments the city had skipped between 2009 and 2013. That dollar amount could total up to $52 million. From The Times-Picayune:

The standoff between Mayor Mitch Landrieu and New Orleans firefighters showed small signs of a thaw Wednesday (Sept. 3) as Civil Court Judge Robin Giarrusso gave the city another month to produce a plan to cover its massive debts to the firefighters’ pension fund.

Tommy Meagher, secretary and treasurer of the pension fund’s governing board, said the firefighters are willing to refinance the city’s obligations in creative ways to help lower the monthly payments going forward.

“The pension board has gone above and beyond everything we can do,” he said.

Part of New Orleans plan will likely involve several accounting tactics, including pension smoothing. From The Times-Picayune:

He explained that the board had agreed to stretch the city’s future pension obligations over 30 years rather than 14.5 years — a tactic that he compared to refinancing a home mortgage. He also said the board is willing to extend “pension smoothing,” an accounting strategy that lets the fund’s actuary predict higher interest rates when calculating the fund’s future investment returns. Essentially, if the fund can show it will earn more on its investments down the road, the city can pay less to the fund each month.

The board was willing to extend its use of smoothing from three years to seven, Meagher said.

Andy Kopplin, Landrieu’s chief administrative officer, said he had been asking for such breaks since 2011 and expressed appreciation for the board’s willingness to bend.

“We commend the board for doing that,” he said.

When a judge originally ruled in 2013 that New Orleans had to recoup the payments it shorted the pension fund, the city tried to appeal the ruling to the Supreme Court. But the Supreme Court refused to hear the case.