The doubters have their doubts, but Sen. Orrin Hatch says he doesn’t introduce legislation just because.
He’s sponsored or co-sponsored more 700 bills that have become law, more than any other sitting senator.
“When I introduce legislation, I’m serious about enacting that legislation into law,” the Republican from Utah told our sister site, BenefitsPro, on the eve of the recent midterm election.
And he insisted the Secure Annuities for Employee Retirement Act, first introduced in 2013, will be a top legislative priority in 2015, “regardless of the outcome of the election.”
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We all now know what the outcome was. Republicans emerged with firm majorities in both chambers of Congress, meaning Hatch will likely be made chair of the powerful Senate Finance Committee next year.
Given his intent on seeing the SAFE Act become law, and the fact that Republican numbers now work in his favor, here’s a deeper look at just what aspects of the country’s retirement system Hatch is hoping to reform, and how.
Also read: Making sense of the pension gap
It’s safe to say that, if enacted, the SAFE Act would systemically change how public pension plans fund future obligations. It also would expand plan coverage in the private sector by incentivizing small businesses to sponsor savings plans, and simplify large sponsors’ regulatory obligations.
It would also address retirees’ longevity risk, re-write portions of ERISA, and transfer a good amount of oversight authority from the Department of Labor to the U.S. Treasury Department.
Whether all or even some of it gets done is, of course, uncertain. But Hatch is known for his bipartisanship.
“Sen. Hatch has been a major driver of a consensus in both chambers around certain common-sense enhancements to retirement plans,” Derek Dorn, a partner in the Washington, D.C., law firm Davis & Harman, recently told reporters. “His perch atop the Finance Committee certainly creates a significant likelihood that they will move forward.”
What follows are some of the details behind a few of the bigger provisions of the proposed law:
Public pension reform
In one proposal with some of the biggest implications, Hatch wants to give local and state governments the option of moving their pension liabilities to the books of private insurance companies. They, in turn, would deliver retirement income in the form of deferred, fixed-income lifetime annuities. This would require annual individual contributions by accountholders.
In Hatch’s way of thinking, that would remove governments’ temptation to underfund pension obligations, a problem that has plagued public pensions across the country.
If adopted, this component of the SAFE Act would be the latest boon to the life insurance industry. The Treasury and Labor department in October issued guidance that could make longevity annuities a more common sight in the target-date funds in 401(k) plans.
“We should see what they can do to help us solve the lifetime income challenge,” Hatch said of the insurers.
By design, the federal government would have limited involvement in the shift, a pitch sure to garner support in the Republican caucus.
Hatch said he has faith in state insurance departments’ ability to forecast insurer solvency. “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,” he said in an email interview.
Private pension reform
In the private sector, the SAFE Act would create incentives for the majority of small employers not offering some form of workplace plan. It also includes reforms for those larger employers with plans already in place.
The Starter 401(k) Wage Deferral Only Safe Harbor Plan addresses employers that want to help workers save but are not in a position to implement a plan, or contribute a match. It works like an IRA offered through the workplace, taking advantage of the power of payroll systems to automatically withdraw contributions, and lets participants save up to $8,000 a year, more than what’s allowed with IRAs.
As is, small employers that adopt a qualified plan get a tax credit, for three years, equal to the lesser of 50 percent of start-up costs or $500. Hatch’s law would bump the potential deduction up to $5,000.