‘Pension Smoothing,’ the Highway Trust Fund’s Temporary Friend
Posted at 2:31 p.m. on July 18, 2014
The 10-month Highway Trust Fund bill that the House passed last week is hardly the first piece of legislation that features a mishmash of pay-for provisions intended to keep it from increasing the deficit. This time around, one of the primary revenue-raisers ($6.4 billion worth) is a “pension smoothing” provision.
Never heard of that accounting maneuver? CQ Roll Call’s Emma Dumain and David Harrison explain it this way:
[Pension smoothing] lets companies with defined benefit retirement plans assume higher interest rates when calculating how much money they need to contribute for their employees’ retirement. That reduces their required contributions into the plans and, in turn, raises the amount of taxes they owe, bringing new revenue to the federal government.
That’s over the short term. “But over the long-term, companies will be on the hook to contribute more to their pension funds, lowering tax revenue,” writes Alex Rogers of Time magazine in a useful explainer on pension smoothing. “It’s no one’s ideal revenue raiser,” Rogers says.
The 10-month bill is expected on the Senate floor as early as next week.