With Republicans taking control of the Senate in Tuesday’s midterm election, Sen. Orrin Hatch of Utah will replace Sen. Ron Wyden as chairman of the Finance Committee, the powerful arm that oversees retirement policy in the Senate.
Hatch, the committee’s ranking member, has been a leading voice on retirement reform in both the public and private sectors. Last year, he unveiled his Secure Annuities for Employee Retirement Act.
The SAFE Retirement Act champions the extension of open multi-employer plans to small businesses in the private sector, and suggests underfunded public pensions purchase annual annuities to guarantee future benefits, among other things.
BenefitsPro, ThinkAdvisor’s sister site, asked Hatch about the prospects for his proposals to move forward and other items on the eve of the election.
1. Would a Republican victory in the Senate accelerate discussion on retirement reform? Or would it usher in a “small government,” hands-off temperament, reflecting the more conservative stance seen in the House?
Regardless of the outcome of the election, the Secure Annuities for Employee (SAFE) Retirement Act (S. 1270) will be a top legislative priority. Retirement income is a major concern for the middle class, and the challenge of providing lifetime income has never been greater. The SAFE Retirement Act’s Starter 401(k) will encourage employers that don’t have plans to set them up. And my public pension reform proposal, which was given the top grade in the country by the Urban Institute, is the only reform proposal that preserves lifetime income.
2. Improving the country’s retirement readiness would seem to be an area Republicans and Democrats could find common ground. Yet, in your opening remarks in a recent Finance Committee hearing on retirement, you suggested partisan interests threaten reform on retirement issues in ways they have not in the past. What needs to happen to overcome those interests?
Retirement policy has traditionally been an area where Republicans and Democrats work together to help people prepare for a secure retirement. I want it to stay that way, and I’ll certainly do my part to make sure that happens. Hopefully, once the election is over, slogans like “upside-down tax incentives,” “pension stripping” and “the system is rigged” will disappear and we’ll get back to work using facts to help workers save for retirement.
3. In that hearing, there was substantial dissent on the very question of whether or not the country is facing a retirement crisis. In your view, is there a crisis? What happens if we don’t act?
Workers need to save more. How much more they need to save is a question that the data must tell us. So first, we need data to tell us the facts that should inform our policy considerations. We need to know how much income Americans are projected to need in retirement, how much are they projected to have and, to the extent there is a shortfall, what policies Congress should enact to help Americans close the gap.
4. In the SAFE Retirement Act, you propose public pensions use annual annuity purchases to guarantee income in retirement. With respect to the private sector, Treasury and Labor have issued guidance favorable to incorporating annuities in target-date funds in defined contribution plans. Could annuitization of retirement benefits shift too much risk to insurance companies? Are you in favor of making this mandatory and why?
My proposal does not have a mandate for employers or workers. Rather, my bill promotes the use of fixed income annuities from state-regulated life insurance companies because lifetime income is very important for retirement security. Look, people are living longer, and that’s a good thing. But longer lifespans make lifetime income more expensive for employers to commit to. But the life insurance industry is the one industry designed from the ground up to manage longevity risk. So we should see what the life insurance industry can do to help us solve the lifetime income challenge.
Annuity contracts purchased through a SAFE Retirement Plan will be competitively bid on a group contract basis so that the workers receive the highest possible pension in retirement. Government finance officers will be involved in the bidding process to ensure best practices, and life insurance companies will be supervised by their respective state insurance departments. The life insurance industry is reliably solvent because state insurance regulations are strict, with stringent reserve requirements and conservative investment standards. In fact, state-licensed life insurance carriers survived the 2008 stock market meltdown in far better condition than any other part of the financial sector.
5. Multiemployer defined benefit plans are in pretty rough shape. An alliance of labor and business interests is calling on Congress to give multiemployer plan trustees the power to cut current benefits, to current retirees, by 10%. That would seem to be a generous concession from participants. Is there the political will in Congress to pass such an aggressive measure?
Chairman (Ron) Wyden (D-Ore.) and I both have committed to working together on multiemployer pension reform. The Finance Committee earlier this year laid the groundwork to address this issue in 2015. It’s not possible at this point to predict what the reform will entail, or whether or when the reform will occur.
6. In the private sector, advocates of multiple employer plans say they can deliver defined contribution plan access to small businesses. The DOL has resisted industry calls to make “open” multiple employer plans – which allow non-correlated businesses to pool participants – more accessible. What’s your thinking on this?
The SAFE Retirement Act includes a proposal to allow multiple unrelated employers to band together to obtain better 401(k) investment results and simpler, less expensive plan administration. This is an area of bipartisan interest in the Senate, and it makes a lot of sense.
— Related on ThinkAdvisor:
- New DOL Fiduciary Rule Before Obama Leaves Office? Maybe Not
- Lots of Testimony, Much Dissent on Retirement Fixes
- Treasury, IRS Issue New Guidance to Curb Corporate Tax Inversions
- Warren Buffett Talks to Senators Sometimes