Monday, July 28, 2014

The Senate Is About to Approve a Plan to Use Pensioners Money to Fill Potholes

The highway trust fund is the finance source that is used to fix potholes and bridges at the Federal level. It is on the brink of insolvency. Congress appears ready to "solve" the underfunding problem via a method known as "pension smoothing." A more accurate term would be "looting pension accounts."

Since the government has jettisoned free market corporate pension plans and controls the rules by which corporations manage their pensions, through "pension smoothing" Congress can change the rules so that companies will have longer to fund their pension deficits. Since companies' pension contributions are tax-deductible, lower contributions means more tax revenue for the government; this will be used to fund the highways---it will, also, ultimately result in more companies not having enough funds to make retirement payments down the road (no pun intended), since not only will the shortfall in contributions have to be made up, but the foregone interest that would otherwise have been earned will have to be made up.

Within the S&P 500 companies, alone, pensions are already underfunded  to the tune of $228 billion, despite the bull market in stocks. Things will only get worse when the ultimate down phase of the business cycle occurs because of the Fed manipulated economy."Pension smoothing" will only add to the problem with a likely cut in pension contributions between $50 billion and $60 billion this year.

Will a government that is rigging the books and looting pensions come to the rescue of pensions that aren't funded? Hah!

As Economist magazine notes, when companies go bust with underfunded pensions, the PBGC (Pension Benefit Guaranty Corporation) steps in; any measure that stops pensions from being properly funded makes life more risky for the PBGC, which already has a deficit of around $36 billion.

The House has already passed the "pension smoothing" measure and the Senate is expected to vote on the plan this week.

Helluva of a plan.



  1. "Will a government that is rigging the books and looting pensions come to the rescue of pensions that aren't funded? Hah!"

    Yes it will. Money printing is easy, and allows this kind of juggling. Of course, the pensioners will need more currency units to purchase goods because each unit will be worth less. But, who's counting?....

  2. So my gasoline taxes are going where?