Dear Committee: Main Street Says Look at Pensions
By GRETCHEN
MORGENSON November 12, 2011
THE so-called supercommittee in
Congress has until Nov. 23 to find more than a trillion dollars of new savings
in the federal
budget.
Times Topic: Gretchen Morgenson
Here’s one idea: Stop reimbursing the costs of pensions and
other retirement benefits at huge, and hugely profitable, defense contractors.
Over 10 years, such a move could save an estimated $30 billion — the amount by
which these pensions are collectively underfunded.
(That figure could change, depending on pension performance.)
True, that might seem like a drop in the bucket, given that
the committee’s 12 members are trying to save $1.2 trillion over all. But
examining this longstanding practice seems worthy in lean times.
The government also promises
to help defense companies shore up their pension funds when they become underfunded. Many of these funds have lost money in recent
years in declining financial markets or on bad investments, so the bill for
taxpayers has been growing.
Considering how much
ordinary Americans have lost in their own retirement accounts — losses that the
government does not cover — reimbursing contractors looks like classic
corporate welfare.
These reimbursements are
considered a cost of performing work under the terms of the contracts the
companies sign with Uncle Sam. The expenses that the companies recover are
allocated to the business units that do the contracting work and are determined
each year based on actuarial assumptions.
The Federal
Acquisition Regulation determines
which costs — like those related to pensions — are allowable under the
reimbursement programs. For example, advertising costs are generally not
covered. Neither is excess severance paid to employees in the event that their
companies are acquired.
Defense contractors are not
the only companies that get such reimbursements.
According to a recent report
by the Government Accountability Office, the Department of Energy had 46
contracts with private companies and nonprofit organizations as of September
2010. These contracts covered nearly 200,000 current and former employees and
their beneficiaries, the report said, for such expenses as pensions, dental
care and life insurance.
In the 2009 fiscal year, the G.A.O. said, the Department of Energy reimbursed $750 million in contractor pension costs, “more
than double the amount it had reimbursed the previous year and significantly
more than it had budgeted for.” The G.A.O. has not issued a report on the
Department of Defense’s pension obligations recently. But some members of
Congress have asked the office to look into them and the G.A.O. has just begun
its work.
http://www.nytimes.com/2011/11/13/business/dear-committee-main-st-says-look-at-pensions.html?pagewanted=1