Sean Higgins reports for the Washington Examiner that a new Republican-led U.S. Senate could instigate changes for state and local public pension programs.
The incoming Republican majority in the Senate plans to pass laws that allow state and local governments to turn over their pension plans to the private sector.
Sen. Orrin Hatch, who will take command of the Senate Finance Committee, intends to adopt a “free market” approach to public employee pensions when Congress returns next year.
The basic plan would be for pension trustees to purchase a deferred fixed-income life annuity contract each year for each employee rather than the current practice of putting the funds into a public pension plan. That would ensure a guaranteed contribution rate, Hatch argues, rather than the variable payments made by trustees. State and local governments have sometimes opted to cut back or even stop paying into funds when they are financially squeezed — a situation that has contributed to shortfalls.
“Why life insurance annuity contracts? Well, lifetime income is a form of life insurance,” the Utah Republican said in a speech to the Financial Services Roundtable, a trade association that represents banks, insurance companies and others in the financial sector. “It only makes sense to encourage the use of annuities to provide retirement security.”
Hatch has been pushing the idea for years. But now, as Finance Committee chairman, he will have the platform to build momentum for it, his office says. He has dubbed it the Secure Annuities for Employee (SAFE) Retirement Act.
“It is important to note that the SAFE Act would not take over state and local plans. The SAFE Act is a new plan that covers future service only. No plan will be taken over and no assets in an existing pension plan will be transferred to an insurance company,” said Aaron Fobes, a spokesman for Hatch.
A June study by the Pew Center on the States estimated that state and local public employees had earned $4 trillion in owed payments but the funds had only $3 trillion in assets to meet those obligations.
Diana Furchtgott-Roth, a senior fellow at the free-market think tank Manhattan Institute, said the changes would mean pension recipients would receive less than they are currently owed but more than they would get in reality than if they stuck with their existing plans.
