WASHINGTON, D.C. – On Tuesday, Sen. Orrin Hatch, in an effort to address the public pension debt crisis and better secure retirement savings for millions of Americans, unveiled the “Secure Annuities for Employees (SAFE) Retirement Act of 2013,” legislation to strengthen and reform much of the nation’s public and private pension benefit system.
“America cannot continue sleepwalking into the financial disaster that awaits us if we do not get the public pension debt crisis under control,” Hatch said in a speech on the Senate floor. “The problem is getting more serious every day and cannot be remedied merely by fine-tuning the existing pension structures available to public employers. A new public pension design is needed; one that provides cost certainty for state and local taxpayers, retirement income security for state and local employees and does not include an explicit or implicit federal government guarantee.”
Dangerously high unfunded pension liabilities of state and local governments have threatened the fiscal solvency of states and municipalities as well as the nation’s long-term fiscal health, including its credit rating. Currently, public pension debt remains as high as $4.4 trillion and outstanding state and local municipal bond debt adds another $3.7 trillion. Hatch issued a report last year that served as the foundation for the legislation outlining the financial risks of the public pension debt crisis and its negative impact on the American economy.
Even more, with a national savings rate of only 2.5 percent, longer life expectancies and far fewer workers covered by defined-benefit pension plans, people across the country are struggling to adequately prepare for their retirement. The Senate Finance Committee has received evidence in hearings that access to a retirement plan at work is the best way to ensure that individuals save for retirement.
“A pension is insurance against outliving the money you have available to pay your monthly bills,” Hatch said. “It cannot be denied that people are living longer. And as wonderful as that is, it also means we need find new ways to stretch our monthly pension dollars over longer lifetimes. The SAFE retirement plan can meet the test.”
The proposed SAFE Retirement Act of 2013 streamlines current pension programs by providing states, employers and American workers with stronger tools for providing pensions and better secure retirement savings. Specifically, the plan takes a three-prong approach to pension reform:
- Public pension reform. This legislation creates a new pension plan, called the SAFE Retirement Plan, with stable, predictable costs that state and local governments may use to deliver secure pension benefits. This new tool eliminates pension plan underfunding prospectively while delivering lifetime retirement income to employees. SAFE Retirement Plans are state-regulated, market-based, fixed-annuity solutions to the retirement income crisis in the states, with a consumer safety net, only minimal involvement by the federal government and no federal taxes.
- Private pension reform. The SAFE Retirement Act includes a host of common sense and long-overdue reforms that will especially help small and mid-sized employers establish and maintain retirement savings plans for their employees. The SAFE Retirement Act also creates an innovative new plan called the Starter 401(k), a retirement savings plan that allows employees to save up to $8,000 per year – more than in an IRA – but does not involve the administrative burden or expense of a traditional 401(k) plan. The Starter 401(k) is perfect for a small or start-up business that is not in a position to contribute to a plan but wants to help its employees save.
- Access to professional investment advice. The SAFE Retirement Act also takes action to stop the Department of Labor from unilaterally over-regulating 401(k) plans and IRAs. The legislation restores jurisdiction over the fiduciary rules in the tax code to the Treasury Department. In addition, the Treasury will consult with the Securities and Exchange Commission in prescribing rules relating to the professional standard of care owed by brokers and investment advisors to IRA investors. This legislation is consistent with the bipartisan and bicameral effort to convince the labor secretary to preserve access to professional investment advice for middle class investors.
The Senate Finance Committee has jurisdiction over tax-qualified pension issues. The SAFE Retirement Act of 2013 has garnered the support of a variety of organizations, including the U.S. Chamber of Commerce, Americans for Tax Reform, MetLife, the Small Business Council of America, American Council of Life Insurers, National Association for Fixed Annuities, National Association of Insurance Commissioners and the National Organization of Life and Health Insurance Guaranty Associations, among others.
A summary of the legislation can be found here, and Hatch’s full remarks on the Senate floor here.
Submitted by: The Office of Sen. Orrin Hatch
Email: [email protected]
Let’s call it HatchCare and maybe Senator Lee won’t try to defund it in the next spending bill.
It is all smoke and mirrors anyway. You can call it anything you want, but as long as lawmakers and corporations can get into pension funds and rob them, they will do it. Social Security is a perfect example of this, as are many public retirement programs.
No matter what you do to set the money aside, someone is going to be their to steal it.
What never ceases to amaze me in proposals like this is either (a) the lack of full understanding of the implications of their proposal, or (b) the full disclosure of its consequences.
Being very well versed on pension funding, here’s how this proposal shakes out …
(1) the Annuity-writers will “price” their products very
conservatively to minimize the risk that they will be assuming. In
other words, the cost to Taxpayers to fund the SAME level of pensions currently promised will skyrocket. Essentially the 7%-8% assumptions for earnings growth (currently used by all Public Sector Pensions Plans)will drop to the 2.5%-4% level used by the annuity-writers. These rates are even considerably below the (roughly 5%) rates Moody will use in evaluating such Public Sector Plans for the Credit worthiness of their sponsors, and below the rates Private Sector Plans are REQUIRED to
use in their pension valuations. Did Senator Hatch think that
off-loading that significant risk would be cheap ?
(2) While the Unions would love the strong “guarantees” AAA or AA-rated annuity writers would bring to the table, there isn’t a snowballs chance in hell they will accept the significantly lower pensions that could be bought with today’s Taxpayer contribution levels. Of course they would gladly let the Taxpayers pay 50-100% MORE for the SAME pension levels promised today. If Senator Hatch thinks this proposal is
(even remotely) a “solution” to this problem, clearly the Utah Citizens have elected someone incompetent to do the job.
(3) The ROOT CAUSE of the pension-generated financial mess many States and Cities are in today is BECAUSE the promised pensions are simply FAR TOO GENEROUS, and THEREFORE very very costly to fully fund without SIGNIFICANT Tax increases and/or completely unacceptable reductions in govt-provided services. And when I say FAR TOO GENEROUS,
mean pensions for which the Taxpayer paid-for share is ROUTINELY 2-4 times (4-6 times for safety workers) greater than the pensions typically afforded Private Sector workers retiring at the SAME age, with the SAME years of service, and with the SAME Age at retirement.
(4) REAL pension reform MUST include either (a) or (b) below, with (a) being the MUCH better choice. Unfortunately, we have yet to find a politician with the guts to confront the very Greedy Public Sector Unions, and Senator Hatch’s proposal certainly does NOT put him in that category:
(a) hard freeze the ALL current Public Sector Defined Benefit (DB) Plans (meaning ZERO future growth) for all CURRENT workers, and replace them for FUTURE Service with 401k-style Defined Contribution Plans with a Taxpayer “match” of 3%-5% of pay which is what Private Sector workers typically get from their employers …. and with all Gov’t workers participating in Social Security, or
(b) IF (a) above simply CANNOT be accomplished (and only AFTER exploring all avenues to do so), then continue the DB Plans, but reduce the pension accrual rate for future service by A MINIMUM of 50% (66% for Safety workers with the richest pensions).