Pension-Smoothing: One Giant Accounting Trick

A bipartisan group of lawmakers reached an agreement Thursday on a retroactive five-month extension of unemployment insurance.  According to CQ  (sub. req’d), the $9.7 billion plan was apparently “fully offset by spending cuts or revenue-raising measures.” That sounds good until the gimmickry behind these pay fors are revealed.

Among these offsets is the budget window accounting gimmick, “pension-smoothing,” which would “allow companies to lower some payments to pension funds by allowing a longer 25-year window for an interest-rate average used to peg the future value of funds.”  It is similar to an offset that was contained in the 2012 surface transportation reauthorization.  There is also “a provision to allow operators of single-employer pension plans to prepay their flat-rate premiums to the Pension Benefit Guaranty Corporation.”

The Committee for a Responsible Federal Budget says this gimmick “saves the government money in the short term, [but] it increases future deficits by more than it saves.”

The Heritage Foundation’s Romina Boccia explains this provision could lead to another taxpayer pension bailout:

This matters because the interest rate calculation is supposed to keep the pension plans adequately funded. When corporations underfund their pensions and end up in bankruptcy, the U.S. taxpayer could be on the hook for a pension bailout through the Pension Benefit Guaranty Corporation (PBGC), a federal agency.

This unemployment insurance extension may be politically expedient, but it would pose an undue risk and burden on taxpayers.

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