Bill Would Overhaul Public Pension System

July 10, 2013 (PLANSPONSOR.com) – U.S. Senator Orrin Hatch, R-Utah, introduced a bill that would overhaul the existing public pension system.

The Secure Annuities for Employee (SAFE) Retirement Act of 2013 would streamline current pension programs by providing states, employers, and American workers with tools for providing pensions and better securing retirement savings. It would address pension reform in three ways:

  • Public Pension Reform: The legislation would create a new pension plan, called the SAFE Retirement Plan, with stable and predictable costs, according to Hatch, that state and local governments could use to deliver secure pension benefits. It would eliminate pension plan underfunding prospectively, while delivering lifetime retirement income to employees. These SAFE Retirement Plans would be 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 bill includes a host of reforms designed to help small- and mid-sized employers establish and maintain retirement savings plans for their employees. The bill would also create a 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.
  • Access to Professional Investment Advice: The bill would also take action to curb over-regulating of 401(k) plans and IRAs, restoring jurisdiction over the fiduciary rules in the U.S. Tax Code to the Treasury Department. The Treasury Department would also have to consult with the Securities and Exchange Commission in prescribing rules relating to the professional standard of care owed by brokers and investment advisers to IRA investors.

In a statement, American Society of Pension Professionals & Actuaries (ASPPA) Executive Director and CEO Brian H. Graff said, "ASPPA applauds Senator Hatch for introducing The SAFE Retirement Act of 2013, with meaningful proposals to build on the success of the employer-based private retirement system."

Graff said the private retirement system provisions in the bill would expand the availability of qualified retirement plans, especially for small businesses. "For example, the Act includes a new 'Starter 401(k)' option, and would provide employers with additional time after the end of the year to set up a company retirement plan. Reducing administrative burdens will also improve access, and the SAFE Retirement Act would significantly reduce administrative burdens through provisions such as streamlined plan amendment and restatement processes, and common sense rules for electronic disclosure to plan participants and beneficiaries."

However, not everyone is in favor of the reforms proposed in the bill. Hank Kim, executive director and counsel of the National Conference on Public Employee Retirement Systems (NCPERS) said, "America's private sector is facing a retirement security crisis of unprecedented proportions. Public pension plans, on the other hand, are alive and well. Their investment returns have rebounded robustly since taking a hit, like all other institutional investors, during the Great Recession. Those investment returns, along with widespread procedural and operational reforms, have left public pension plans well-funded, financially healthy and sustainable for the long term."

Kim added that the focus of reform should be private sector pensions. "In the wake of the Great Recession and its powerful, negative impact on 401(k) account balances, American workers have said in survey after survey that they want protection from the stock market's vagaries and from unexpected economic downturns. Senator Hatch and his colleagues would be performing a far greater service if they were to turn their attention to those proposals and the private sector's dilemma."

A summary of the bill can be found here.

«