July 09, 2013
Sen. Hatch Pushes Pension Overhaul
WASHINGTON–Utah Sen. Orrin Hatch, the top Republican on the Senate Finance Committee, will outline a plan Tuesday to ease financial strains on state and local governments by revamping public-pension rules.
States and local governments nationwide have targeted public pensions for cost-cutting after funds struggled through the recession, which brought budget cuts and a backlash against public-employee compensation.
Mr. Hatch plans to introduce a bill that would allow governments to invest in annuity contracts with state-licensed insurance companies. The annuities would pay a guaranteed benefit, but the risk would be borne by insurers, rather than governments.
That’s a shift away from defined-benefit plans–the standard for public pensions–where an employer pays its employee a specific benefit for life starting at retirement. Such plans have led to more than $4 trillion in public pension obligations, Mr. Hatch said.
A study by the Pew Center on the States earlier this year estimated that 61 of the most populous cities in the U.S. faced a gap of more than $217 billion between what they had promised their workers in pensions and retiree health care and what they had saved to pay that bill. The gap for states topped $1 trillion, according to an earlier Pew study.
Stockton, Calif., became the biggest U.S. city to file for bankruptcy last year after the recession, pension obligations and other mounting costs caused its finances to crumble.
“America cannot continue sleepwalking into the financial disaster that awaits us if we do not get the public-pension debt crisis under control,” Mr. Hatch is set to say in prepared remarks on the Senate floor Tuesday. “The problem is getting more serious every day and cannot be remedied merely by fine-tuning the existing pension structures available to public employers.”
Mr. Hatch said his proposal, which would not be mandatory for governments, offers cost certainty for state and local governments and steady retirement income for their employees.
MetLife Inc. and other insurers, which could gain significant business, and major business groups including the U.S. Chamber of Commerce have written letters endorsing Mr. Hatch’s concept.
It’s less clear if the bill will catch on with unions or their allies in a Democratic-controlled Senate. Mr. Hatch plans to introduce the bill and then work to gather congressional supporters.
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