The recently enacted federal budget deal displays the warped view of Washington in managing money for retirement benefits. To wit:
* The administration calls for saving the budget surplus to protect Social Security; while
* It calls for spending $2.4 billion in assets of the District of Columbia Retirement Board pension fund on nonretirement federal programs .
In short, the administration wants to put aside money for a fund that doesn't exist, while at the same time spending the money in the fund that does exist.
That's the Washington-skewed logic of the budget deal, passed with the complicity of Congress.
Neither idea makes sense.
Social Security has no investment fund. It is a pay-as-you-go scheme backed by the federal government's promise. Yet, proponents, in and out of Washington, often persist in referring to Social Security's trust fund. Money saved from the budget surplus will not and cannot be set aside for long-term future Social Security benefit payments, even though some political rhetoric suggests otherwise.
On the D.C. pension fund, a provision in the new budget calls for the federal government to spend the retirement assets on federal programs.
What will happen to the pension fund's beneficiaries -- police, firefighters, judges, teachers -- for which the fund was established? Their benefits will be financed by the promise of the federal government, a costly guarantee as the troubled Social Security program has proven.
The pension fund already is invested in a sensible asset allocation -- long-term investments backing long-term liabilities.
The fund has been in the process of being turned over to the Department of Treasury in an unusual arrangement to assist the D.C. government in meeting its underfunded pension obligations.
Rep. John L. Mica, chairman of the House civil service subcommittee, wrote Speaker Newt Gingrich last month, decrying the budget provision, calling it a "raid" on the D.C. pension fund. The deal "blatantly misrepresent(s) a disinvestment of equity assets as some sort of budgetary savings," Mr. Mica's letter said.
A Segal Corp. actuarial study, cited by Mr. Mica, said assets of the district's plan, though underfunded, could last until 2013 to pay benefits "if sound investment policies continue to govern the management of these funds."
Mr. Mica's appeal was to no avail.
Once the district fund's assets are liquidated, the Treasury Department will have to rely on taxpayers to pay the retirement benefits.
Washington already has a huge cash influx from the immense federal surplus: $71 billion for the fiscal year ended Sept. 30 and projected at a cumulative $1.55 trillion through 2008.
The "raid" shows two unfortunate things:
* Washington never has enough money to sate its fiscal appetite; and
* Pension funds are vulnerable to raids.
States and municipalities have financed budgets by raiding their public employee pension funds. Corporations raided the assets of their pension plans, too, until the late 1980s.
The difference was, however, corporate plans were overfunded. What was Congress's reaction to those corporate raids? It shut them down. Who will stop the government's raid now?
