Barry’s Pickings Online: Transparency for All

If greater transparency is so good for retirement plan providers, then it’s good for retirement industry regulators too.

PS-Portrait-Article-Barry-JCiardiello.jpgArt by Joseph CiardielloDilbert says: “Change is good. You go first.”

The findings clause of the recently introduced Pension and Budget Integrity Act of 2016, which proposes to take Pension Benefit Guaranty Corporation (PBGC) premiums out of the budget, includes the following language:

The revenues from PBGC premiums are deposited into the revolving funds of the PBGC and are credited to the operating budget of the PBGC, cannot be used for any purpose other than PBGC expenses, and are counted as revenue to the United States Treasury and used to offset unrelated Federal spending. Sound budget policy dictates that crediting PBGC premium revenues to the revolving funds of the PBGC and as receipts to the United States Treasury constitutes double-counting; double-counting revenue is inconsistent with sound budgetary policy and good governance ….

What it means about our governing process that this proposal is, in the cynical confines of Capitol Hill, likely to go nowhere?

This sort of thinking is hopelessly out of date.

More than once over the last several years, PBGC premium increases have been used—and double-counted—to pay for highway spending. This chronic use of PBGC premiums to pay for popular but costly jobs programs is a micro version of the much more serious problem we have with the budget treatment of Social Security: in 1968 Social Security, and (most importantly for lawmakers and President Lyndon Johnson) the Baby-Boomer-driven flood of Social Security tax revenues, were included in the budget as a way to pay for both the Vietnam war and the Great Society. Now all those Social Security tax revenues are gone—spent on wars and highways—and we are told that there is a Social Security funding crisis.

NEXT: Targeting retirement savings

Curious that in both these instances the target of abusive budget practice is retirement savings—the preferred way for lawmakers to fund today by beggaring tomorrow. We see a similar strategy at the state level, where underfunding state-provided retirement benefits functions, for some states with balanced budget mandates, as a way to engage in disguised deficit spending.

And since we’re talking about the budget, let’s also note that, as nearly everyone agrees, budget scoring of the cost of (“tax expenditure” for) tax incentives for defined benefit (DB) and defined contribution (DC) plans significantly overestimates its value. To repeat: nearly everyone agrees that this system does not accurately reflect the actual cost of these tax provisions. But no one has done anything to fix that process.

Moreover, and in my humble opinion, we can’t accurately account for the cost of these tax benefits, because as currently designed they are hopelessly non-transparent. The taxpayer-participant generally gets an exclusion-from-income on the front-end that is taken away (that is, taxed) on the back-end. The real value of this savings incentive (ignoring possible income shifting) is and is only that, while the savings are in a plan, investment earnings are not taxed. When I’ve discussed this with fellow wonks, even they don’t fully understand the significance of this tax treatment. Moreover, we have no way of accounting for the effect of the social policy these tax benefits are supposed to be paying for: benefits for low paid employees that employers provide to comply with Tax Code nondiscrimination rules.

And, of course and notoriously, Congress’s budget “window” only goes out 10 years (at most), which, when you’re talking about retirement savings—by definition a very long-term proposition—is kind of ridiculous. In this regard, and returning to PBGC premiums, last October we were treated to the spectacle of Congress accelerating by one month the 2025 PBGC premium so that it could be included in the 2015 funding legislation’s budget-scoring window. So that Congress could pretend that it was being fiscally responsible.

NEXT: Transparency from policymakers

A couple of weeks ago, in a column praising the Department of Labor’s (DOL’s) new Conflict of Interest regulation, I said that transparency is eating the world. If we can insist on transparency from providers and the mutual fund industry, why can’t we insist on transparency—and integrity—from policymakers?

Is that too much to ask? That is, if you’re going to pass a fiscally irresponsible highway-spending bill because politicians need it to get re-elected, then admit you’re being irresponsible, instead of punishing the (in this case at least) totally innocent DB retirement system with uncalled for and double-counted PBGC premiums. While you’re at it, make some obvious and simple reforms to make clear where federal tax money for retirement savings is actually being spent. And finally, craft legislation the financial consequences of which can be clearly measured. In other words: be transparent.

To the cynics who say that it is naïve to ask for transparency from legislators, I would say—not in the Internet age. The truth is out there. If you consistently lie to people, they are going to bust you. Just ask Jonathon Gruber.

This way of making policy—with budget “gimmicks” and nice-sounding but impenetrably obscure legislation—is totally last-century.

For the last year and a half, the Administration has made a very big deal about the lack of transparency in our world and has just published a monster regulation to correct it. Congress clearly has a similar problem. If greater transparency is so good for us, then it’s good for them too.


Michael Barry is president of the Plan Advisory Services Group, a consulting group that helps financial services­ corporations with the regulatory issues facing their plan sponsor clients. He has 40 years’ experience in the benefits field, in law and consulting firms, and blogs regularly about retirement plan and policy issues.                 

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Asset International or its affiliates.