Public defined benefit pension systems could purchase private annuities under a legislative proposal introduced Tuesday by Sen. Orrin Hatch, R-Utah. The legislation would also create a “Starter 401(k) plan” for small private-sector employers, and shift fiduciary oversight of 401(k) plans.
Mr. Hatch, the ranking member of the Senate Finance Committee, is the sole sponsor of “The Secure Annuities for Employee (SAFE) Retirement Act of 2013,” which was designed to address a $4.4 trillion public pension underfunding crisis that is beyond fine-tuning, he said in a statement.
“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,” Mr. Hatch said in the statement.
In the public sector, the SAFE Retirement proposal would seek to avoid future underfunding by calling for market-based fixed annuity solutions overseen by state insurance regulators.
In the private sector, Mr. Hatch's proposed reforms include a Starter 401(k) that sidesteps the administrative burden of setting up a traditional 401(k) plan, and broader access to financial advisers by transferring fiduciary oversight of 401(k) plans from the Labor Department to Treasury Department. It also would reduce administrative burdens and barriers to offering defined contribution plans and purchasing annuities.
The legislation has the backing of several insurance and business trade groups, but it is opposed by public pension advocates.
“Shifting to annuities is an unnecessarily expensive approach,” said Steven Kreisberg, director of collective bargaining at the American Federation of State, County and Municipal Employees. “Experience demonstrates that public pension funds manage risk quite well. Underfunding of pensions is almost entirely due to failures to adequately contribute.”
“We disagree with the whole premise,” said Hank Kim, executive director and counsel of the National Conference on Public Employee Retirement Systems. “I have a lot of problems with asking the private insurer market to take over public pensions. Our participants are smart enough to know that there is no free lunch.”
Julia Lawless, a spokeswoman for Mr. Hatch, said he will “aggressively seek” co-sponsors for the legislation.