A bill that’s spend the last year gathering dust in Congress has been given new life this week after the Urban Institute gave the bill it’s top grade, saying the proposal “really addresses the retirement security issue”.
The bill, authored by Sen. Orrin Hatch (R-Utah), would let local governments turn over the assets of their pension plans to insurance companies. The insurance companies would then make payments to retirees. More details from Wonkblog:
On Wednesday, Hatch’s proposal, aimed at getting local governments and states off the hook for future pension liabilities, got a big thumbs-up from the non-partisan Urban Institute.
After reviewing the plan, the research organization gave the idea its top grade, saying it eliminates a troublesome financial risk for state and local governments, protects workers who change jobs frequently, and rewards young workers–all while providing a steady stream of income for retirees.
“Unlike any other plan I have seen, it really addresses the retirement security issue, the funding problem, and it provides incentives to allow employers to attract and retain a productive workforce,” said Richard Johnson, director of the Urban Institute’s Retirement Policy Center. “It is hard to balance those three objectives.”
The Hatch bill is similar to a financial maneuver taken by several big corporations, from General Motors and Ford to Heinz and Verizon, which have moved to shed pension liabilities in recent years. For local governments and states, the unfunded liabilities are huge, ranging anywhere from $1.4 trillion to more than $4 trillion, depending on the assumptions plugged in by actuaries.
As it stands, a study of 150 plans by the Center for Retirement Research at Boston College found that the plans have just 72 percent of the assets on hand needed to cover future liabilities, a figure that drops to just under 65 percent if new accounting standards are used.
Insurance companies love the bill. But not everyone thinks it’s a good idea, writes Michael Fletcher:
It has been panned by municipal employee unions and their allies, who worry that payments will not be as generous as current pension schemes, particularly for long-tenured workers. Johnson noted, however, that many pension plans tend to shortchange workers who stay on the job fewer than 20 years, and he said Hatch’s plan would address that, although workers who stayed on the job longer would get smaller payments than their predecessors.
Still, some critics have called it “a solution in search of a problem,” a characterization that has left Hatch incredulous.
“My bill is not a solution in search of a problem, and it is certainly not meant to be an attack on anyone or anything,” Hatch said during a Capitol Hill event Wednesday. “It is meant to offer and alternative path to employers who want to continue delivering lifetime retirement income for their workers in a world where that is becoming increasingly difficult.”
The bill wouldn’t force the hand of state and local funds; governments would have the choice of handing over their assets to insurance companies, but it would be voluntary.
Photo by: “US Capitol dome Jan 2006″ by Diliff. Licensed under Creative Commons Attribution 2.5 via Wikimedia Commons