U.S. Sen. Orrin Hatch, R-Utah, on Tuesday introduced a bill that would allow states to offer public employees a deferred fixed-income life annuity by turning their retirement money over to private insurers. "America cannot continue sleepwalking into the financial disaster that awaits us if we do not get the public pension debt crisis under control," said the ranking GOP member of the Senate Finance Committee.
"The life insurance industry invests the assets, pays the retirement benefits and bears the risks," a summary provided by Hatch's office says. "Involvement by the federal government will be limited to certifying the tax-qualified status of the plan."
Under this proposal, government employers would pay a premium each year to a state-licensed insurer, selected by competitive bidding. Each covered employee would be guaranteed an annuity payment for every year he or she was employed. Anyone who left a government job would take the promise of payments with them.
The plans would be regulated by state insurance offices, but there would be no federal government guarantee and no tax dollars spent. Money for the annuities would come from employee contributions. This plan would eliminate underfunding of public pensions -- at least going forward. Currently, research by The Pew Charitable Trusts' Center on the States estimates that retiree pensions and other benefits promised by state governments add up to $2.73 trillion over the next few decades.
"The problem is getting more serious every day and cannot be remedied merely by fine-tuning the existing pension structures available to public employers," Hatch said in a speech delivered on the Senate floor.
Skeptics point out that this plan would simply add another layer of costs and that private insurers can and do fail.
How do you feel about this idea? If you are a public employee, would the adoption of this bill make your retirement planning feel more secure?