Dear Committee: Main Street Says Look at Pensions

Via Tom

THE so-called supercommittee in Congress has until Nov. 23 to find more than a trillion dollars of new savings in the federal budget.

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.

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