Private Pension Plans

The federal government invests billions of dollars each year in the nation's infrastructure--highways, mass transit, rail, aviation, water resources, and wastewater treatment facilities. However, concern about the state of this infrastructure and the need for additional expenditures in the face of federal budget deficit has led to proposals encouraging the nation's pension plans to invest in infrastructure projects. Congress passed legislation in 1991 creating a commission to study ways to promote infrastructure investment, particularly by pension plans. The commission issued recommendations in 1993. This report (1) identifies the role that current federal policies play in providing incentives for private pension plans to invest in infrastructure projects and (2) analyzes the commission's proposals on pension plan investment to determine how pension plans might respond.

GAO found that: (1) pension plans have not been investing in domestic public infrastructure because of the combined effects of federal law, which requires plans to seek the highest rate of return on investments and encourages growth by exempting earnings from taxation; (2) to encourage public investment in infrastructure, federal law provides a tax exemption on interest income to those who invest in municipal bonds; (3) pension plans have no incentive to invest in lower-interest municipal bonds, since plan earnings are already tax exempt; (4) although the Infrastructure Commission recommended creating two federal financing entities to attract pension plans to invest, the share of plan assets that might go to infrastructure would likely be small; and (5) the federal capitalization of state revolving funds may be an option to expand infrastructure investment without relying on pension plans.