Pass the Spittoon, Pension Reform Edition

For the trouble of having to wade through all of the details of the pension reform bill now being gutted in House-Senate conference, Mary Williams Walsh gets a Voxy. I remember working on the early stages of this reform effort while at CEA. It started out simply enough:

With a strong directive from the Bush administration, Congress set out more than a year ago to fashion legislation that would protect America's private pension system, tightening the rules to make sure companies set aside enough money to make good on their promises to employees.

Enter the Congressional porkfest, and what do we now have?

Then the political horse-trading began, with lawmakers, companies and lobbyists, representing everything from big Wall Street firms to tiny rural electric cooperatives, weighing in on the particulars of the Bush administration's blueprint.

In the end, lawmakers modified many of the proposed rules, allowing companies more time to cover pension shortfalls, to make more forgiving estimates about how much they will owe workers in the future, and even sometimes to assume that their workers will die younger than the rest of the population.

On top of those changes, companies also persuaded lawmakers to add dozens of specific measures, including a multibillion-dollar escape clause for the nation's airlines and a special exemption for the makers of Smithfield Farms hams.

As a result, the bill now being completed in a House-Senate conference committee, rather than strengthening the pension system, would actually weaken it, according to a little-noticed analysis by the government's pension agency. The agency's report projects that the House and Senate bills would lower corporate contributions to the already underfinanced pension system by $140 billion to $160 billion in the next three years.

Two excerpts from the article say it best:

"It takes a better economist than me to understand how reducing contributions by that much is going to protect benefits and put the system on a sounder footing," said Jeremy I. Bulow, an economist at Stanford University.

That's actually funny, since there are no demonstrably better economists than Jeremy Bulow. And then we have the author's own attempt to make sense of this:

Someone must pay for this. Currently, the pension agency finances itself in part through the insurance premiums that companies are required to pay into the system. Raising the premiums to support pilots or help other victims of corporate bankruptcies, some companies in other industries are starting to say, would be unfair.

This is the contemptible legislative impulse to favor the special interest over the general interest. Read the whole thing and be amazed at how unprincipled the House and Senate are being.

The President has been losing credibility on several issues related to finances as of late. He could get some of it back if he would simply VETO this monster and send it back to the sty. If for no other reason, he should do it to show respect for the many people in his administration who worked diligently on a much better blueprint for reform.

For my own views on how to reform the defined benefit pension system, see these earlier posts.