In written testimony submitted to the Legislative Committee on Financial Services of the National Conference of Insurance Legislators, Hank Kim, the executive director and counsel for the NCPERS, says the SAFE Act is ill conceived, unworkable and is directing policymakers’ attention away from other retirement issues.
The Secure Annuities for Employee (SAFE) Retirement Act, introduced by U.S. Senator Orrin Hatch (R-Utah) in July, would overhaul the existing public pension system through public and private pension reform, as well as by granting access to professional investment advice (see “Bill Would Overhaul Public Pension System”).
In his testimony, Kim questions how effective the proposed law would actually be, saying, “The bill is designed to address the ‘public pension debt crisis,’ but there is no public pension debt crisis. Like all institutional investors, [public pension plans] took a beating from the Great Recession. But they have rebounded impressively. Continuing strong investment returns and new efficiencies from procedural and operational reforms have led public pension plans to a robust recovery.”
Kim adds, “Public pension plans are well funded, financially healthy and sustainable for the long term.”
He also points to data from the “2013 NCPERS Public Retirement System Study,” which shows that despite market declines in recent years, public pension plans’ returns on long-term investments continue to rise, while the overall average expense for administration and investment manager fees is just 57.3 basis points. This is compared with 77 basis points for most equity and hybrid mutual funds (see “Pension Administrators Confident About Their Funds”).
Kim also cautions that transferring responsibility for pension liabilities to a private insurance company would put pension benefits at unnecessary risk, since private insurance companies sometimes fail and insurance guarantee associations offer only limited protection.
“During the more than 150 years of public pension history, no public pension plan has ever asked for a federal bailout,” says Kim. “But life insurance companies have failed—170 of them between 1975 and 1990, according to the Government Accountability Office.”
Kim advises that efforts should be redirected to figuring out how to address inadequate retirement savings by many employees. He cites initiatives by states such as Massachusetts, California, Maryland and Oregon, who are pursuing public-private partnerships to create retirement savings programs for private sector workers. He also mentions that NCPERS is working with legislators in several states to help achieve such a goal.
“The vast majority of public pension plans are financially sound and sustainable for the long term. It is not necessary—and would be extremely costly—to employ Senator Hatch’s formula to fix something that is not broken, but that’s working well,” concludes Kim.
The National Conference on Public Employee Retirement Systems is a trade association for public sector pension funds, representing more than 550 funds throughout the United States and Canada.