From the e-mail inbox, Senator Harry Reid (D-NV): “Washington, D.C. – In a letter to Speaker John Boehner and Minority Leader Mitch McConnell, Senate Majority Leader Harry Reid today offered two bipartisan proposals to pay for a one-year extension of student loan rates to prevent them from doubling on July 1st. The first proposal expands an offset that recently passed the Senate on a strong bipartisan vote of 74-22 as part of the transportation jobs bill. The combination offers a bipartisan path forward to break the impasse currently facing the student loan bill.”
OK, but I’m still not happy. First, there is really no excuse for putting student loan interest rates up for revision on an annual basis. Last time I looked it still took four years to get a college degree, and longer if the individual was interested in advanced degrees. Advanced degrees being the kind that get a person into the 3.6% and below unemployment categories. [DoL]
Secondly, not so long ago it was declared unnecessary to put the cost of military operations in Iraq and Afghanistan on the books, and thus the Bush Administration ran those activities via emergency supplemental appropriations without any mention of “pay fors.” Neither was it deemed necessary to subject the Medicare Part D program to “pay fors,” with some demonstrably budget busting results as of January 1, 2006. However, when we’re speaking of educating our future work force — now, suddenly it’s absolutely essential we “pay for” every federal expenditure.
Granted, it is more fiscally responsible to know from whence the money is coming to pay for federal expenditures. However, would it crush the Job Cremators so much to have a loophole for ultra-wealthy hedge fund and lobby shop operators closed? — as was suggested, and as caused Senator Dean Heller (R-NV) to issue his usual cri de coeur for “small business.”
And thus we continue to tinker, Senator Reid offering the following:
(1) Reforms to employer pension payment contributions. The proposal outlined by Senator Reid would create a “stabilization range” for employers to compute their pension liabilities. Instead of being forced to use the two-year corporate bond rates in computing their pension liabilities, the new proposal would allow them to compute liabilities using rates for a 25-year period within which the two-year rates must fall. To the extent that the two-year rates fall outside this range, the company would be allowed to use a rate closest to the two-year rate that falls within the stabilization range to compute its pension funding requirements. This more flexible approach would narrow fluctuations in computing pension contributions and result in businesses taking fewer tax deductions for contributions.
(2) Change contributions to Pension Benefit Guarantee Corporation premiums. In addition, Senator Reid proposed increasing premiums paid by employers for the insurance provided by the Pension Benefit Guaranty Corporation. Currently, employers pay a flat dollar premium of $35 per pension plan participant as well as a variable premium equal to $9 for each $1,000 that the plan is underfunded. To help improve the PBGC’s finances, these premiums could be increased as part of this proposal.
“The combination of these two proposals will provide sufficient resources to fund both a one-year extension of the current student loan interest rate and re-authorization of the nation’s surface transportation programs.”
OK, if we adopt these proposals then we get a continuance of the 3.4% student loan rate AND the re-authorization of the surface transportation programs. And, I can hear it now — OMG, a more flexible approach to calculating pension fund contributions will be “a plague upon Capitalism?” Or, increasing the premiums for the PBGC will be a “onerous burden on job creators?” The former argument is offset by the fact that BUSINESS groups are the ones asking for the recalculation of the pension funding formula. [WallStJournal]
There are reasons to be concerned about the recalculation of pension fund contributions, none of which have anything to do with plaguing Capitalism. One major cause for careful consideration is that changing the formula could have detrimental effects on defined benefit plans. [WallStJournal]
The Pension Benefit Guarantee Corporation is already facing some serious issues, some of which were outlined in a 2010 report from the GAO:
“Plans in the worst condition may find that the options of increasing employer contributions or reducing benefits are insufficient to address their underfunding and demographic challenges. For these plans, the effects of the economic downturn, declines in collective bargaining, the withdrawal of contributing employers, and an aging workforce will likely increase their risk of insolvency. Without additional options to address plan underfunding or to attract new employers to contribute to plans, plans may be more likely to require financial assistance from PBGC. Additional claims would further strain PBGC’s insurance program that, already in deficit, it can ill afford.”
Economic growth, as we’ve seen in the private sector over the past 27 months, will help these issues, but asking employers to pay increased premiums to backstop an already serious issue isn’t too much to ask. If the corporations make additional contributions, then the PBGC isn’t further behind the eight-ball when companies fail.
On the optimistic side, both suggestions from Senator Reid have received bi-partisan support in the past. On the pessimistic side, chucking their previously held positions over the side has become a Republican art form — witness the individual mandate for health care insurance coverage, and “cap and trade” schemes for pollution elimination.
Since it’s been “campaign season” since January 20, 2009 I am a bit leery of Republican cooperation in the U.S. Senate. Meanwhile, the clock is ticking as students and their parents try to get body and soul together concerning educational expenses for the next school term.