Threat of Pension Fund Bailouts Lurks in Senate Highway Bill

Washington, D.C., June 27, 2012 – Hidden in the ever-expanding Senate Highway Bill (S. 1813) is a provision that would make the already serious problem of pension underfunding even worse. The bill’s Section 40312 would amend the Employment Retirement Income Security Act (ERISA) to allow for an accounting gimmick known as “pension smoothing,” whereby pension managers spread losses out over several years, while overestimating projected investment returns.

Specifically, this provision would expand the range of allowable projection figures, starting this year at a 20 percentage point range, to 60 percentage points after 2015. This is essentially a license to make up numbers for income projections four years out from now. Supporters of the bill claim that this change is expected to bring in $9.5 billion over 10 years, to partially offset the Senate’s $13.5 billion general revenue bailout of the ailing Highway Trust Fund. Due to the modified pension contribution formula, employers are expected to contribute less toward untaxed pension fund assets, which will increase the total amount of taxable income.

CEI Transportation Policy Analyst Marc Scribner said: “Pension smoothing is notoriously unreliable. This accounting trick will likely expose taxpayers to potential pension fund bailouts in the future. It is absurd that the highest levels of congressional leadership did not bat an eye at this massive funding gimmick, which accounts for nearly one-tenth of total MAP-21 funding. Perhaps they did not bother to read the legislation that so many – from Sens. Barbara Boxer and James Inhofe to President Obama – championed as a model of bipartisan cooperation.”

CEI Labor Policy Analyst Ivan Osorio said: “Section 40312 of the Highway Bill threatens to make a bad problem worse. It would further remove pension investment return projections even further from reality, by expanding the range of allowable projections so broadly as to render them meaningless. To add insult to injury, by enacting this, Congress would be working at cross purposes with the Governmental Accounting Standards Board’s efforts to improve pension accounting in the public sector.”