Pensions

"Pension Smoothing" Helps Feds, Corporations Avoid Reality for Just a Little While Longer

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The Washington Post reports on how "pension smoothing," an accounting gimmick that's part of the recently passed Highway and Transportation Act of 2014, allows both the feds and the companies that pay the gas tax to avoid reality for just a little while longer.

The law allows companies to put off otherwise mandatory contributions to their defined-benefit employee pension funds, which increases tax revenue for the Treasury, since those contributions would have been tax-deductible. Actually, smoothing increases tax revenue in the short run but decreases it later on, when companies have to make up for the missed payments. But dollars gained exceed dollars lost over the 10-year interval within which Congress, somewhat artificially, calculates the fiscal impact of its policies, so lawmakers can claim that the bill doesn't increase the deficit.

Meanwhile, pension plans will be underfunded, exposing the federal pension insurance fund, and the taxpayers who ultimately back it, to greater risk. But who cares about that. For the big companies that lobbied in favor of pension smoothing, the money saved by skipping pension contributions outweighs the cost of losing the tax deduction….

The…problem is the dysfunction of a federal government reduced to running one of its major infrastructure programs on a year-to-year basis, held together with the budgetary equivalent of chewing gum and bailing wire.

Read the whole thing.

Hat tip: Twitter feed of Mercatus Center's Eileen Norcross.

The highway bill shells out over $10 billion a year for infrastructure projects. Last month, Reason Foundation transportation guru Robert W. Poole explained why the Highway Trust Fund was running out of money and why there was no way that a gas-tax increase was up to the task of repairing the nation's highways, bridges, and the like. Poole argues that when it comes to the interstate system—which needs something on the order of $1 trillion in repairs and expansion to meet current traffic needs—the only way to go is with a "true user fee" in the form of tolls. Controversial? Yes. Compelling? Also yes.

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  1. Or, we could just sell the roads to the highest bidders.

    1. “This county route isn’t very profitable, so we want to reclaim its asphalt and use it to add a lane to our trunk link.”

      1. “This government built county road is overbuilt for the light traffic on it, so we will bid low on it and if we acquire it, let it slowly revert to gravel unless housing tracts are built that would generate enough revenue to make it profitable to upgrade.”

        versus

        “We will rob other people via taxes to get the money to overbuild this road to buy the votes of the handful of farmers there.”

        1. Or even worse

          “We got a no-bid contract to re-pave broken roads to buy votes, decided to use subpar materials so we could pocket most of the funds, and in a few years our ‘friend’ in the legislature can agitate for more infrastructure funds”

      2. Can you recycle asphalt that way? I mean, I know it works with railroads, but…

        I guess as long as you remixed the aggregate with more tar, and maybe cycled in some extra volatiles to replenish what had evaporated out, it might work.

        Actually, I wonder if you could do it in place. Build a machine that chews up the road, heats the aggregate, retars it, and then lays it out, and rolls it smooth behind. Just drive down the lane, eating bad road up front and pooping out good road behind. Just bring in trucks on a side lane to replenish the tar vat every once in a while.

        Of course, the unions would crucify you for building a machine that only took one person to operate, instead of an entire paving crew.

        1. Asphalt is completely recyclable. Most of the asphalt used for paving today comes from old roads. It’s not what evaporates out but what gets worn off by the action of tires that needs replenishing from new.

      3. See, more efficient already.

  2. Not sure why governments think they don’t need to follow standard accounting practices. Oh wait, FYTW.

      1. I prefer Vanessa Daou, Sade’s harlot little sister

    1. Not sure why governments think they don’t need to follow standard accounting practices. Oh wait, FYTW.

      Looks like it is standard accounting practice.

      Under ASC 715-30-35-18, “a gain or loss results from a change in the [measured] value of either the projected benefit obligation or the plan assets resulting from experience different from that assumed or from a change in an actuarial assumption.” ASC 715 does not require immediate recognition of such gains and losses as components of net periodic pension cost in the period in which they arise (commonly referred to as “smoothing” of gains and losses). ASC 715-30-35-21 indicates that “[g]ains and losses that are not recognized immediately as a component of net periodic pension cost shall be recognized as increases or decreases in other comprehensive income” (OCI). Under ASC 715-30-35-23, the “amount recognized in accumulated [OCI] affects future net periodic pension cost through subsequent amortization . . . of the net gain or loss.”

      Deloitte

      1. Yeah, just ’cause it is a standard accounting practice doesn’t mean it makes sense.

        1. Yeah, just ’cause it is a standard accounting practice doesn’t mean it makes sense.

          Didn’t say it made sense, only that it was standard practice, in answer to AdamJ’s question.

          1. Fair enough. I was conflating this with public sector pension accounting practices. My bad.

  3. ” But dollars gained exceed dollars lost over the 10-year interval within which Congress, somewhat artificially, calculates the fiscal impact of its policies, so lawmakers can claim that the bill doesn’t increase the deficit.”

    Ah, short term thinking, is their any problem that it can’t cause?

  4. let’s get rid of the federal gas tax.Let the states handle it.I’
    m sure they would ,of course ,raise theirs in response.It would cut out the middle man and eliminate pork barrel and strings attached projects.Eliminating the Davis-Beacon act would help also.Before someone here says the feds built the highway system,or,omg roads,I remind you ,no they did not.The feds took taxpayer money and paid private companies to do the work.Government does not build roads

    1. They can’t increase the gas tax in TX, any new taxes tax is a lightning rod due to the tea party here. Till roads have also become a no-no. Of course it doesn’t help that half of the proceeds from the gas tax goes to schools instead of roads. Which makes sense if you consider that “you didn’t build that!” They’re building the roads that lead to your factory and educating te populace that work in your office at the same time!

      1. Tax increases would be more palpable if they happened in immediate response to decreases at the federal level.

    2. There’s economic trouble.

      Light the Davis-Beacon!

    3. Shut down DC. It’s middle-men all the way down.

  5. Kinda scary when you think about it.

    http://www.Anon-Surf.tk

  6. …but decreases it later on, when companies have to make up for the missed payments

    As if that‘ll ever happen.

  7. As if that’ll ever happen

    New Jersey hasn’t been making the required state employee pension fund contributions for decades, since about the Whitman administration. Christy played a bit of catch-up but then the next budget underfunded again.

    Every trick possible will be used to extend the Ponzi. Then one day, poof – all gone.

    https://www.youtube.com/watch?v=-DT7bX-B1Mg

  8. They’re not “interstate highways”. They’re “freeways”. You can’t charge a toll, by definition.

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