The feds are raiding pension funds in order to cope with the mounting costs of student debt. Here’s the scoop from my pal Daniel Indiviglio at Reuters:
The hocus-pocus is tucked away in a transportation bill, passed as most Americans were gearing up for Independence Day festivities. Federal spending on highways and related infrastructure has grown too large to rely on the gasoline tax alone. So to cover the $14 billion hole and another $6 billion to reduce student borrowing rates, Washington essentially raided its pension guarantee fund.
The Pension Benefit Guaranty Corp, which insures private retirement plans, can ill afford it. The fund’s net deficit last year increased to $26 billion.
Congress is leaning on the PBGC in a similar way it did Fannie Mae and Freddie Mac earlier this year to pay for a temporary payroll tax cut. Then, it hiked mortgage insurance premiums for 10 years to pay for a mere two-month extension. This time, it uses a decade’s worth of boosted pension guarantee premiums for roads and a year of cheaper tuition loans.
It gets worse. Congress also conjures up another $9 billion in revenue over 10 years to fill the remainder of the gap by relaxing accounting standards for pension funds. It allows employers to use discount rates based on average corporate bond rates over 25 years instead of two years. That lets them contribute less money for the same expected return. With fewer contributions, corporate tax deductions fall and government revenue magically rises.
It’s a clever solution for everyone but taxpayers. To cover coming payouts, pension contributions needed to rise by at least $50 billion annually for the rest of this decade…