Hatch outlines pension reform, retirement savings

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WASHINGTON, D.C. — U.S. Sen. Orrin Hatch, ranking member of the Senate Finance Committee, delivered the following remarks Monday on pension reform and retirement savings at the Financial Services Roundtable:

I want to thank the Financial Services Roundtable for holding this important conference on retirement security and savings policy and for having me here today.

This is an important conference.  Retirement policy has never been more challenging or more important.

But, before I address those issues, I want to touch briefly on what the Senate Finance Committee will focus on in 2015.  As you know, I am honored and privileged to serve on this important committee.

I’ve been in the Senate for a long time and I can assure you, there’s just no other committee like it.  The Finance Committee has, by far, the broadest jurisdiction of all Senate committees.

As we turn to the future, there are a number of challenges before us.

We have an economy that, despite recent upticks, is still struggling.

We have total public debt that, despite recent reductions in the deficit, is just eclipsing $18 trillion and is headed toward even more astronomical levels.

And, we have a pending crisis with our entitlement programs that threatens to swallow up our government and take our economy down with it.

I believe we can fix these problems, but it’s not going to be easy.

One of the first challenges the committee must tackle in 2015 is updating our trade policy.

Right now, the U.S. is engaged in two of the most ambitious trade negotiations in our nation’s history.  But, unless we renew Trade Promotion Authority, or TPA, these efforts to expand market access will not succeed.

Renewing TPA and advancing other parts of our trade agenda also represents an opportunity for a fully Republican Congress to work with the administration.  So, trade will almost certainly take up much of the Finance Committee’s agenda as next year gets underway.

Of course, we’ll also have to continually be pushing for reforms to our nation’s tax code.

Over the last few years, I’ve spoken many times about the need to fix our broken tax code.  In my opinion, tax reform is no longer optional – it’s essential if we’re going to get our economy moving again.  And promoting growth in jobs and the economy must be our first and most important goal.

Last week, I released a report drafted by my staff on the Senate Finance Committee, titled “Comprehensive Tax Reform for 2015 and Beyond.”  This report – I’ve been calling it a book as it is 340 pages long – outlines the major issues policymakers will have to confront as we undertake tax reform.

It describes where we are with our current tax code, where we’ve been, and, most importantly, it gives some direction as to where we should go with our reform efforts in the future.

You are an impressive group of decision makers, and I hope all of you will consider taking some time to read the book and give us your feedback.

But I need to be clear: This book is not a tax reform plan.  It is a discussion of ideas and principles that I hope will be the first step in a renewed bipartisan effort to reform our nation’s tax code in the very near future.

As outlined in the book, tax reform, in my view, should be undertaken with a set of simple principles in mind.

The most important principles are the three set out by President Reagan the last time Congress was able to pass a major tax overhaul, nearly three decades ago.  The first was economic growth.

The second principle was fairness.  The third was simplicity.

These three principles will be vital to our tax reform efforts.  But, it’s been nearly 30 years since Congress did tax reform and much has changed in that time.  So, as important as those three principles are, there are some new ones as well.

One of those is permanence.

The tax code needs certainty.  Lack of certainty in our tax laws hinders job creation and stifles economic growth.  We need a tax system that no longer threatens to change from year to year.

Another important principle is competiveness.

The combination of a high corporate tax rate, worldwide taxation, and the temporary nature of some tax incentives make U.S. companies less competitive when compared to their foreign counterparts.  Tax reform should reduce the high tax rates on businesses and also achieve neutrality through a competitive international tax system, thereby placing worldwide American companies on a level playing field with their foreign competitors.

Promoting savings and investment is another important principle.

Many aspects of the U.S. income tax system discourage savings and investment by individuals, thereby hindering long-term growth. Tax reform should result in a tax system that actually encourages people to save and invest.

Last, but certainly not least, there is the principle of revenue neutrality.

If we’re scouring the tax code looking for ways to squeeze out more revenue to fuel government spending, we’re not reforming the tax code, we’re raising taxes.  It’s as simple as that.

Tax reform should not be used as an excuse to raise taxes on the American people or on U.S. businesses.

With all of those principles of tax reform in mind, let me now turn back to promoting savings.  Today’s conference will explore a critical aspect of that topic: retirement savings.

The good news is that the private employer-based retirement savings system in the United States – particularly 401(k) plans and Individual Retirement Accounts, or IRAs – has become the greatest wealth creator for the middle class in history and represents truly shared prosperity.

The bad news is that the retirement of the baby boom generation is putting enormous pressure on public programs like Social Security and Medicare.

And, as part of the unending effort on Capitol Hill to find more revenue to pay for increased spending, some have proposed reducing the allowed contributions to 401(k) plans and IRAs.

That, in my view, would be both short-sighted and foolish.

Some in Congress seem to have forgotten that this is well-covered territory.  Indeed, Congress has already examined this issue and made the policy call decidedly against contribution reductions.

In 2001, Congress increased the limits for contributions to 401(k) plans and IRAs.

Congress also added a catch-up contribution feature that allows workers to contribute several thousand dollars more per year beginning in their 50s, an age when many workers finally get serious about saving.

One thing we have learned over the years is that the key to successful retirement savings is participation by employees in a plan at work, and the key to convincing employers to sponsor a plan at work is a healthy contribution limit.

Since 2000, the year before Congress raised the contribution limits, retirement assets in defined contribution plans have grown from around $3 trillion to nearly $6 trillion, despite the market downturn in 2008.  Assets in IRAs have grown from $2.6 trillion to $6.5 trillion.

In fact, increased contribution limits worked so well that, in 2006, Congress made those provisions permanent, and the vote to make them permanent was overwhelming:  in the Senate, the vote was 93 to 5.

We have spent a lot of time in recent years defending the gains we have achieved in the 401(k) system.  But in 2015 we can, and in my opinion should, go on offense.

Toward that end, we must encourage employers who don’t sponsor plans to set them up.

That’s why last year I introduced legislation to create the Starter 401(k), a plan designed for small or start-up businesses that are not in a position to contribute to a plan but still want to help their employees save.

A Starter 401(k) is a new kind of plan that does not come with all the administrative burdens or expenses of a traditional 401(k) plan.  The plan allows employees to contribute between $8,000 and $10,000 per year, which is a little bit less than what would be allowed under a traditional 401(k), but much more than an IRA.

I believe the Starter 401(k) plan in my legislation could help to revolutionize retirement savings for employees of small businesses throughout the country.

My bill also allows unrelated small employers to pool their assets in a single 401(k) plan to achieve better investment outcomes, lower costs, and easier administration.  This idea, which is called an “Open MEP” is one that many on both sides of the aisle in Congress support.  It’s an idea whose time has come.

Of course, we cannot talk about retirement savings without discussing the importance of lifetime income.

We have fought for years to enact policies that will encourage greater savings and investment.  But, I don’t think our efforts will provide much to comfort those whose retirement assets run out before the end of their lives.

That’s why the legislation I introduced last year encourages the purchase of fixed annuity contracts for retirement.

In fact, the bill is called the Secure Annuities for Employee Retirement Act, or the SAFE Retirement Act.

Why life insurance annuity contracts?  Well, lifetime income is a form of life insurance.

Most people tend to think of life insurance as insurance against the risk of living an unexpectedly short life.  And that is certainly true.  But life insurance also includes insurance for the possibility that someone might live an unexpectedly long life.

We call that form of life insurance a life annuity and it only makes sense to encourage the use of annuities to provide retirement security.

My legislation encourages the use of annuities in 401(k) plans.  First, we remove obstacles to adding annuity-purchase options to 401(k) plans and, second, we provide employers a liability safe-harbor.  That way, employers are encouraged to add annuity options to their plans and employees are encouraged to use them.

The SAFE Retirement Act also tackles one of the most pressing retirement problems facing the country: the problem of poorly funded state and local defined benefit pension plans.

We are all aware of the fate that befell the retirees in Detroit.

And Detroit is not alone.

From Rhode Island to Illinois to California, the pension crisis is getting worse every day.   As I have said before, America cannot continue to ignore the financial disaster coming our way if we do not get the public pension debt crisis under control.

The operators of some of these poorly run and underfunded pension plans at the state and local level seem to think that a federal bailout is on the horizon.  How else can you explain the continued lack of meaningful reform in so many of these plans?

A federal bailout of state and local governments is, in my view, a non-starter.  It sets up bad incentives and puts innocent taxpayers across the country on the hook for the poor decisions and plan failures in a few specific locales.

A federal bailout of these failing plans should not be considered under any circumstances.

But, that doesn’t mean that Congress should do nothing.

Congress can, and in my opinion should, enact policies that will help cities and towns help themselves get back to fiscal health, or avoid becoming unhealthy in the first place.

The SAFE Retirement Act provides such a policy.

In a SAFE Retirement Plan, employers purchase annuity contracts for their employees each year.  Pension costs are stable and affordable, and employees receive annuity contracts for lifetime pensions that are fully portable, 100 percent vested, and can never be underfunded.

Life insurance annuity contracts also have a financial backstop, unlike state and local government pensions.

And one more thing: the SAFE Retirement Act creates a pension that is not subject to reduction by a federal bankruptcy court.

That’s right.

State-based life insurance contacts are not subject to federal bankruptcy proceedings.  That fact alone warrants Congress taking a new look at this tried and true method of securing lifetime pensions.  I intend to make sure we do just that.

A SAFE Retirement Plan can be a first step that governments can take as they begin the process of stopping the bleeding, righting the ship, and beginning the journey back to solvency and sustainability.

I’m not just tooting my own horn on this legislation.

As some of you may know, the Urban Institute has established a comprehensive system for evaluating pension plans across the country.  The system grades various plans using seven separate criteria.

Recently, the Urban Institute announced that, to date, the SAFE Retirement Plan is the only plan in the country to receive “A” grades under all seven criteria.  In other words, they gave my plan the highest grade in the country.

I’m very proud of this distinction.  Retirement policy has always been an especially important topic to the Finance Committee and it also has always been bipartisan.

I believe this tradition of bipartisanship should continue.

Lately, however, I’ve become concerned that there is a political strategy by some in Congress to turn pension policy into just another partisan battleground.

Rather than continuing the traditions of bipartisanship we’ve seen in this area, there are some who would prefer to turn retirement policy into yet another front in the political gamesmanship that consumes so much energy in Congress.

That would be unfortunate.

Before I close, I’d like to take a moment and comment on the multiemployer pension legislation that is included in the so-called CROmnibus that the Senate passed over the weekend.  If there are still those who doubt the existence of a serious pension problem in America, this event is a wake-up call to say the least.

At the request of multiemployer pension plan managers, employers who contribute to multiemployer pension plans, as well as many unions representing employees, the CROmnibus included a provision that gives pension plan trustees the power, in extreme cases, to cut earned pensions in order to avoid plan insolvency and larger cuts later.

This is a sobering moment for the pension community.  And beyond the hardship some retirees inevitably will experience, it highlights both the challenge of delivering on the promise of lifetime retirement income and the stakes for retirees if the system fails.

So as you can see, on the Finance Committee we have our work cut out for us, and I hope that you continue to support good policies that will serve the American people.

Let me close by once again thanking the Financial Services Roundtable for convening this event.

Thank you and God bless you all.

Submitted by the offices of Sen. Orrin Hatch

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6 Comments

  • Joe Smith December 15, 2014 at 12:06 pm

    “Hatch outlines pension reform, retirement savings”

    When I read “hatch outlines retirement” my eyes lit up a little only to be let down again. Don’t think it’s ever going to happen 🙁

  • Al Moncrief December 15, 2014 at 12:10 pm

    THE COLORADO SUPREME COURT . . . “POLITICIANS IN BLACK ROBES.” (AS IT TURNS OUT.)
    “Truth is the daughter of time, not of authority,” Bacon.
    For decades I refused to believe it, but it is now incontrovertibly established. The Colorado Supreme Court is indisputably a political actor. Our Colorado Supreme Court exists to serve Colorado political parties. At present, the Colorado Supreme Court is more rightly considered an adjunct of the Colorado Legislative Branch, than a check on the Colorado Legislative Branch. Rather than “truth-seeking,” the Colorado Supreme Court now sees its role as “political-outcome seeking.” Litigants successfully use the Colorado Supreme Court to achieve political purposes. In the Ralph Carr Justice Center, rather than meeting impartial guardians of the law, litigants meet their political allies on the bench. The Colorado Supreme Court has accepted its role as a political and partisan tool, and recognizes no constitutional limits on the authority of the Colorado Legislative and Executive branches. We have no “Rule of Law” in Colorado, we simply have shifting political power. That is all.
    “I think there are many who think of judges as politicians in robes. In many states, that’s what they are.” “They seem to think judges should be a reflex of the popular will.”
    Sandra Day O’Connor
    At present, popular will in the United States insists on the demonization of public employees. In particular, an angry mob demands that government discard the constitutional and contractual rights of retired public employees. Colorado Supreme Court justices, as politicians reacting to the popular will, are happy to oblige.
    In this article, I provide an example of the political and partisan role of the Colorado Supreme Court. I describe a case in which the Colorado Supreme Court summarily erases billions of dollars of debt owed by Colorado state and local governments. That is, one branch of Colorado state government relieves another branch of Colorado government of its legal debts. The case involves Colorado statutory contracts that create financial obligations on the part of Colorado governments. Over decades, political considerations induced the Colorado Legislature to mismanage the financial obligations. In recent years, the terms of these statutory contracts were deemed politically inconvenient and politically unpopular. The Colorado Legislative Branch asked the Colorado Supreme Court to discard the contracts.
    In 2010, the Colorado Legislative Branch requested that the Colorado Supreme Court grant this political favor by ignoring the Contract Clause of the US Constitution, ignoring the history of legislative mismanagement of these state financial obligations, and relieving Colorado governments of their accrued legal debts. No trial, no discovery, billions of dollars seized by the state.
    In granting this political favor, sanctioning the breach of Colorado PERA pension contracts, the Colorado Supreme Court was forced to ignore its own long-standing case law precedent, the court failed to conduct a “contract analysis,” the court ignored evidence of Colorado PERA’s attorneys stating that the pension benefit was indeed a Colorado PERA contractual obligation, the court ignored the bill (SB10-001) sponsor’s testimony that the pension benefit was in fact a Colorado PERA contractual obligation, the court ignored recorded legislative history of the contractual nature of the public pension benefit, the court failed to engage in the “heightened scrutiny” of the abandonment of state financial obligations required under federal case law (US Trust) and finally, the court embraced a discredited Denver District Court decision that did not bother to mention Colorado’s on-point public pension case law. In the United States, political connections can be used to summarily erase billions of dollars of government debt.
    Colorado politicians’ premeditated scheme to claw back accrued Colorado PERA pension benefits, from its inception in 2009, was to take Colorado PERA retiree’ assets outside of bankruptcy. (State governments cannot declare bankruptcy under federal law.) The only means by which the Colorado Supreme Court (in concert with the Colorado Legislative Branch) could achieve this goal was by ignoring on-point Colorado public pension case law, and all evidence in the Colorado PERA retiree lawsuit, Justus v. State. In its October 2014 decision in the case, the Colorado Supreme Court ignored the testimony of Colorado PERA’s own lawyers (in 2009) stating, on the record, that the Colorado PERA COLA benefit was a contractual obligation of Colorado-PERA affiliated employers. The Colorado Supreme Court embraced the original Denver District Court decision in this case, which failed to mention Colorado’s public pension case law, (Bills and McPhail.) Is it possible that Denver District Court Judge Hyatt and his staff (in 2011) just happened to be such bad legal researchers that they were unaware of Colorado’s on-point public pension case law that was being read by Colorado’s relatively unsophisticated PERA retirees? Not likely. This case law was indeed recognized by the forthright members of the Colorado Court of Appeals (in 2012) who found the case law to be “dispositive” in establishing the contractual right of PERA retirees to their accrued PERA COLA (ABI) benefits.
    In this article, I address the Colorado Supreme Court’s lack of independence, integrity, and impartiality. I provide a brief history of the efforts of the Colorado Legislature and the Colorado Supreme Court to escape Colorado governmental financial obligations. I comment on the recent (October, 2014) Colorado Supreme Court Decision itself, which summarily erased these billions of dollars of Colorado public sector debt. I highlight some of the numerous factual and logical errors that exist in the Colorado Supreme Court’s Decision in the case. I express incredulity at the Colorado Supreme Court’s willful ignorance of public pension administration, knowledge that was necessary to any court claiming to “seek truth” in the case.
    The Colorado Judiciary had an obligation to ensure that all evidence in the case, Justus v. State, was examined prior to breaking Colorado PERA pension contracts. They ruled in ignorance. This ignorance may have been willful. Rather than honoring their debts, Colorado PERA-affiliated governments will now inflate away that debt courtesy of the Colorado Supreme Court.
    My intent in writing this article is to enhance the public record of, and further document, what I consider to be one of the greatest “crimes” in Colorado history.
    Verba volant, scripta manent.
    On October 20, 2014, the Colorado Supreme Court ruled that Colorado PERA pensioners have no contractual right to their accrued public pension COLA benefits. Yet, here we have documentation of Colorado PERA’s own lawyers acknowledging, in legislative testimony, Colorado PERA’s contractual obligation to pay the PERA COLA as recently as 2009.
    http://saveperacola.com/
    December 16, 2009
    Colorado PERA officials in written testimony to the Joint Budget Committee: “The General Assembly cannot decrease the COLA (absent actuarial necessity) because it is part of the contractual obligations that accrue under a pension plan protected under the Colorado Constitution Article II, Section 11 and the United States Constitution Article 1, Section 10 for vested contractual rights.”
    http://www.kentlambert.com/Files/PERA_JBC_Hearing_Responses-12-16-2009_Final.pdf
    Discover the true nature of Colorado state government at saveperacola.com.
    Read the complete article at http://coloradopols.com/diary/64487/the-colorado-supreme-court-politicians-in-black-robes-as-it-turns-out

  • ladybugavenger December 15, 2014 at 1:28 pm

    Hatch should retire….politicians stay in politics way too long. Look at all the old people in the senate….they should all retire!

    • Meagan Leigh December 15, 2014 at 6:30 pm

      and collect their bid, fat, retirement entitlements and health care. But for the rest of us who worked for years and are looking forward to well-deserved retirement well I guess we don’t deserve the same consideration.

  • SG Vet December 15, 2014 at 9:24 pm

    20 Hypocritical Republican Senators Voted to Fund Obama’s Executive Amnesty
    December 15, 2014 4:20 pm.
    And guess who’s name is on the list? Our own RINO orrin hatch. Continuing to be the sad excuse of a conservative. Always voting to support and help obama. orrin enjoy the ride Utah is on to you. We will NOT send you to represent us again. YOU ARE PART OF THE PROBLEM.

    • Herd December 15, 2014 at 10:25 pm

      High approval ratings by the Obama haters, too. Ironic

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