Three ways to cheat pensions

David Cay Johnson, Al Jazeera America -There are three basic ways politicians cheat pensions: smoothing, starving and spiking. Smoothing is the polite term for putting less money into a pension plan than is prudent.

President Barack Obama and members of Congress in both parties engaged in smoothing by agreeing last month to let corporations reduce the amount of money they put into their pension plans. That will increase corporate profits, which means larger corporate income tax revenues. The extra revenues will be used to keep the federal Highway Trust Fund from going broke this fall, which would have thrown construction workers into the unemployment lines. When the real costs of pension smoothing hit, some time after 2025, you can expect big companies to plead for relief from Washington.

.. Under federal budget rules the real costs of the pension smoothing become invisible because make-up contributions are more than 10 years into the future. When the real costs hit, some time after 2025, you can expect big companies to plead for relief from Washington. More pensions will also fail, dumping the costs onto the federal Pension Benefit Guarantee Corporation, an insurer whose obligations ultimately fall to taxpayers.

The second ploy is spiking, in which public sector workers artificially inflate their income in the last year or sometimes last day on the job. Most traditional pensions pay out based on the average earnings of the last five years in the job.

... Many state and local governments have moved to limit or prevent pension spiking. Phoenix, Ariz., put an end to pension spiking this summer after its municipal pension costs grew from $7.2 million in 2003 to $130 million this year. The association representing police sergeants and lieutenants then filed suit, asserting they had a right to their grossly inflated pensions.

CalPERS, the California state public worker pension plan, recently added 99 new ways to spike pension benefits even though the pension pool already does not have enough resources to pay all the benefits earned to date. The spiking bonanza drew a sharp rebuke from Gov. Jerry Brown, a Democrat, but he does not have the power to undo the damage. The California legislature, with both chambers controlled by Democrats, appears unlikely to buck public employee union leaders, who curry support from their members by encouraging spiking.

The worst stratagem for cutting pensions is starvation. New Jersey put no state money into its public employee pension plan in 15 of the last 20 years under governors from both parties, even though local governments found ways to make the required payments and balance their budgets.

Gov. Chris Christie, a Republican who hopes to become president, made fixing this mess his signature financial issue. He ran for election, and then a second term, with a plan to put billions of dollars into the pension pool, making up a significant share of the shortfall.

But then, without telling anyone, Christie began cutting back on the flow of money into the pension pool. Now he proposes severely under-funding. That will only end in disaster for the workers and taxpayers, but not until years after his career will likely come to an end, even if he wins the White House.

At the same time, Christie has steered contracts to manage the pension pool money to political supporters, as thoroughly documented by journalist David Sirota, prompting scathing news, columns and editorials in a number of Garden State newspapers.

... Smoothing, spiking and starving are three words voters, taxpayers and workers should watch for in the news because they all add up to future disaster — not prudently investing money today equals huge increases in tomorrow’s burdens.