Senator Hatch from Utah believes that insurers could hold the key to easing the struggle that will be faced.
On Tuesday, one of the top Republican senators proposed legislation that would considerably alter the way that public pensions function by having the life insurance industry pay benefits by way of annuity contracts.
The purpose of this newly unveiled legislation would be to assist in alleviating the underfunding from which many plans suffer.
Senator Orrin Hatch of Utah is the highest ranking Republican on the Finance Committee. He introduced a bill that would require the government to pay an annual premium to the insurance industry through a state licensed insurer in an amount that is the same as a certain predetermined percentage of salary. This would make it possible for employees to be able to obtain fixed income annuity contracts by way of their life insurer.
Hatch gave a speech outlining the way in which the insurance industry can play an important role in public pension.
He spoke before the senate, saying that “A new public pension design is needed, one that provides cost certainty for state and local taxpayers, retirement income security for state and local employees and one that does not include an explicit or implicit government guarantee.”
Annuities are a type of financial payment made in regular, set installments in the same amount, making them quite similar to the way that pensions function. By being able to accumulate annuity contracts, Hatch feels that the insurance industry would be able to help to even out the fluctuations in interest rates. He also feels that insurers should have to make competitive bids for those contracts. He explained that underfunding is “not possible”.
At the same time, this insurance industry bill would not cover past liabilities for pensions. Instead, it would give local and state governments the ability to “stop digging the hole with their existing defined benefit plans”, said a Hatch spokesperson named Julia Lawless. Many states have been short changing their retirement systems for several years now, and the recent recession has slashed contributions even further. This, and bad investment earnings, have ravaged pension funding.
