[Congressional Record Volume 159, Number 97 (Tuesday, July 9, 2013)]
[Senate]
[Pages S5569-S5572]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
By Mr. HATCH:
S. 1270. A bill to amend the Internal Revenue Code of 1986 to provide
for reform of public and private pension plans, and for other purposes;
to the Committee on Finance.
Mr. HATCH. Mr. President, I rise to speak about the pension reform
legislation I am introducing today. I am taking this step for a simple
reason: America cannot continue sleepwalking into the financial
disaster that awaits us if we do not get the public pension debt crisis
under control.
The bill I introduce today is called The Secure Annuities for
Employee Retirement Act of 2013--the SAFE Retirement Act, for short. In
addition to public pension underfunding, the SAFE Retirement Act
addresses two other critically important aspects of retirement policy:
401(k) plan coverage and access to professional investment advice for
workers and retirees. I will briefly address each part in turn.
I have been working on the public pension underfunding problem, which
I call the pension debt crisis, for some time. Two years ago, I stood
before this Senate and described the financial challenge public pension
plans pose to Americans. I described how the gap between the pensions
that have been promised to workers by State and local governments and
the money set aside was as much as $4.4 trillion short by some
estimates, more than the total amount of municipal bond debt
nationwide.
I explained that the problem of public pension underfunding existed
before the 2008 recession and any attempt to lay blame for the problem
at the feet of Wall Street or big business or some other group was just
blame shifting.
I observed how the business world long ago recognized that
traditional pension plans--defined benefit plans--had become
unsustainable for most private companies and that most had moved toward
401(k)-style plans--or defined contribution plans--because costs are
lower and more predictable and they fit well within an increasingly
mobile and dynamic workforce. As usual, governments have been slow to
innovate, slow to adapt, and when they have acted, their actions have
been too limited to solve the problem.
I said at the time I had not settled on the best solution, but that I
was working hard and talking to the experts about the best way to
proceed. That is what we did.
Last year, after extensive study, I delivered a report about the
public pension debt problem titled ``State and Local Government Defined
Benefit Plans: The Pension Debt Crisis that Threatens America.'' The
study showed that public pension underfunding is a longstanding problem
and that thecurrent pension debt crisis goes back more than a decade,
if not further. The report explained why public pension debt is a
Federal concern, reviewed previous Federal attempts at legislation and
more recent State legislative measures focused almost exclusively on
new employees and the attempt by the Government Accounting Standards
Board to restore a level of discipline to public pension accounting.
At the end of the report, I laid out four essential goals for public
pension reform. First, public pension plans must be affordable for
public employers and taxpayers. Second, plans must be structured so
taxpayers in the future have no liability for past years of employee
service. Third, public plans should provide retirement income security
for employees. Finally, fourth, a Federal bailout of the States must he
avoided at all costs.
As you will see, I listened to people on all sides of the public
pension debate, including employee groups who want public plans to
provide lifetime income. I could have merely recommended that State and
local governments move to a 401(k)-style plan, but I settled instead on
a policy of trying to achieve retirement income security as well.
Despite numerous legislative initiatives enacted at the State and
local level, the public pension debt crisis has gotten worse, not
better. In my report, I warned that examples such as Prichard, AL,
Vallejo, CA, and Central Falls, RI, were only the beginning. Sadly, I
was right. Since that time, we have witnessed the pension debt crisis
descend on much larger cities such as San Jose, CA, Stockton, CA, San
Bernardino, CA, and Detroit, MI. Does anyone doubt that a State could
be next? How many times does the credit rating of Illinois have to be
downgraded before we act? How long can Rhode Island hold out when it is
expected to save its struggling cities while it struggles with its own
State pension crisis?
The problem is getting more serious every day, and the four goals I
outlined in my report cannot be reached merely by fine-tuning the
existing pension structures available to public employers. 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 does not include an explicit or implicit government
guarantee.
I am pleased to say I believe I have designed such a plan. Title I of
the SAFE Retirement Act creates a new pension plan called an annuity
accumulation retirement plan. I call it the SAFE Retirement Plan.
The concept of the SAFE Retirement Plan is simple: take advantage of
the lifetime income that fixed annuities can provide while mitigating
the volatile effect of interest rates on pension levels by purchasing
an annuity contract for each worker every year during their career so a
worker builds a solid pension year by year during their entire working
life.
With a SAFE Retirement Plan, employees receive a secure pension at
retirement for life that is 100-percent vested, fully portable, and
cannot be underfunded. Employers and taxpayers receive stable,
predictable, and affordable pension costs. Underfunding is not
possible. The life insurance industry pays the pensions and bears all
of the investment risk. Unlike current public pension plans, the SAFE
Retirement Plan will be protected by a robust and multi-faceted State
insurance regulatory system built to ensure financial strength and
solvency and backed by a State law-based consumer safety net. Rather
than repairing their pension plans, States that adopt the SAFE
Retirement Plan will be upgrading their pension plans.
Remember, there is no Pension Benefit Guaranty Corporation backing
State and local pension plans, and there never will be. Corporations
that sponsor pension plans pay premiums to the PBGC, and their workers
and retirees receive a level of insurance in the event the plan does
not have assets sufficient to pay promised benefits.
State and local workers enjoy no such protection, so another solution
is
[[Page S5570]]
needed. The SAFE Retirement Plan, in my opinion, is the answer. It is
supported by a well-regulated, highly solvent State insurance system
and has a built-in financial backstop that does not rely on State or
Federal taxes. Honestly, regardless of which side of the debate
Senators have been on to date, they must acknowledge that from a
solvency perspective, this is a big improvement over the current public
pension system.
I know some will argue my bill will give too much new business to the
life insurance industry. That is not how I look at it. The way I see
it, my bill takes advantage of the life insurance industry to help
Americans solve a serious pension problem. After all, the life
insurance industry is the only industry in the world designed from the
ground up to manage longevity risk.
Annuity contracts purchased through a SAFE Retirement Plan will be
competitively bid upon, on a group contract basis, so 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.
The status quo is no longer acceptable. In fact, maintaining the
status quo comes with a very high cost. In 2011, S&P downgraded the
United States in part because of the enormous debt represented by
underfunded State and local pension plans. The credit rating agencies
have downgraded Illinois multiple times, and Moody's has begun
scrutinizing State and local pension obligations more closely. What
will happen when the credit rating agencies see that most State and
local governments have no serious plan to address the crisis?
A pension is insurance against outliving the money you have available
to pay your monthly bills. It cannot be denied that people are living
longer. As wonderful as that is, it also means we need to find new ways
to stretch our monthly pension dollars over longer lifetimes. The SAFE
Retirement Plan can meet the test.
In addition to public pension reform, title II of the legislation I
introduce today has several important private pension reforms. The
centerpiece is the Starter 401(k), a new type of 401(k) plan that
allows employees to save for retirement while placing minimal burdens
on employers. Starter 401(k) plans allow employees to save up to $8,000
each year but do not require employer contributions. This plan will be
especially useful to small companies that do not have a retirement plan
and startup companies that must devote all of their resources to
building their business in the early years.
The Finance Committee has received evidence in hearings that access
to a retirement plan at work is the best way to ensure that individuals
save for retirement. The policy goal of Congress, therefore, should be
to encourage employers to establish and maintain a workplace retirement
plan. The corollary is that Congress should not adopt policies that
discourage employers from maintaining a retirement plan.
The Starter 401(k) is a winner on all counts. It is targeted at
businesses that do not already have a plan for their employees, it
allows employers to help employees save their own money in amounts
greater than they could on their own, and it has none of the expensive
and burdensome testing and contribution obligations for employers
associated with other retirement plans. As one of the many supporters
of this bill told me: `` [T]he Starter 401(k) is an idea whose time has
come.''
In addition to the Starter 401(k), the private pension reforms I
introduce today will help employers by simplifying reporting rules,
easing discrimination testing safe harbor rules, allowing modernized
electronic disclosure options, and encouraging the provision of
lifetime income options for employees. These are commonsense and long-
overdue reforms to our Nation' s retirement savings laws, especially
with regard to small-and mid-sized employers.
Last but not least, title III of the legislation I introduce today
will ensure that retirees continue to have affordable access to
professional investment advice.
The Acting Secretary of Labor is set to rewrite a 1975 regulation and
dramatically expand the ERISA fiduciary duty and prohibited transaction
rules applicable to 401(k) plans. The Acting Secretary also intends to
apply the new and restrictive rules to IRAs, which will cause
investment advisers to stop providing advice to many IRA owners.
I have written to the Secretary of Labor in the past about the issue,
but my concerns have not been addressed. In fact, there have been a
number of letters from Members in both Houses of Congress and on both
sides of the aisle imploring the Department of Labor to reconsider the
issuance of the expansive and burdensome regulations. Forty Members of
Congress have written the Labor Secretary on this issue just since
February, to no avail. In light of the DOL's--the Department of
Labor's--intransigence, my bill includes a legislative solution to the
problem.
The IRA prohibited transaction rules are codified solely in the
Internal Revenue Code and address transactions that involve self-
dealing and conflicts of interest. Prior to the issuance of a 1978
Executive Order, Treasury had jurisdiction over the IRA prohibited
transaction rules governing investment advice. The 1978 order
transferred Treasury' s jurisdiction to the DOL.
The SAFE Retirement Act restores jurisdiction for IRA prohibited
transaction rules to the Treasury Department. In addition, Treasury
will be required to consult with the Securities and Exchange Commission
when prescribing rules relating to the professional standard of care
owed by brokers and investment advisers to IRA owners.
The 1978 Executive Order also transferred to the DOL some of the
Treasury Department's joint jurisdiction over the prohibited
transaction rules applicable to retirement plans. The bill I introduce
today restores joint jurisdiction to Treasury and the DOL.
Joint jurisdiction makes sense in light of the DOL proposal to expand
the 1975 regulation because Treasury must enforce prohibited
transaction violations through the assessment of excise taxes. Treasury
should have a role to play in any expansion of the rules because
expanded rules will mean more excise tax cases for the IRS to process.
If the Acting Secretary of Labor believes that the 1975 fiduciary
regulation that has governed retirement investment advice for nearly
four decades should be revisited, then the 1978 decision to grant the
Secretary of Labor additional ERISA regulatory authority also should be
revisited.
After all, we do not know that the DOL would have been granted
additional authority in 1978 if the sensible 1975 regulations had not
been issued.
Make no mistake, the position I take today regarding IRA investment
advice is not a partisan position. In the last Congress, 124 Members
from both sides of the aisle and from both Chambers--including 75
Democrats, I might add--wrote to the Labor Secretary asking her not to
take this course of action. The Secretary finally withdrew the proposal
last year. But now that the Acting Secretary is again threatening to
introduce this ill-conceived rule, dozens of Members of Congress have
again written the Acting Secretary asking that IRAs be protected.
I ask unanimous consent that I be able to complete my remarks.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. HATCH. I would like to submit for the Record two letters written
in March and June of this year by a total of 40 Members of the House
Democrat caucus once again asking the DOL to avoid the mistake it is
about to make.
There being no objection, the material was ordered to be printed in
the Record, as follows:
Congress of the United States,
Washington, DC, March 15, 2013.
Hon. Seth D. Harris,
Acting Secretary, U.S. Department of Labor, Washington, DC.
Dear Secretary Harris: As Members of the Congressional
Black Caucus and the House Financial Services Committee, we
are following-up on the Department of Labor's
[[Page S5571]]
progress on a re-proposal defining the term ``fiduciary''
under the Employment Retirement Income Security Act of 1974
(ERISA). We appreciate the Department's efforts to examine
this issue and protect investors from misleading investment
advice. However, we maintain concerns that if the re-proposal
reflects the Department's initial fiduciary proposal it could
disparately impact retirement savers and investment
representatives in the African American community.
The African American community has been hurt to a larger
degree by the economic crisis and the challenge of day-to-day
expenses is making long-term saving difficult. The service
that an investment representative provides to these
traditionally underserved families is critical for them to
feel confident to understand and invest in the long-term
retirement vehicles intended by Congress to help them. In
fact, a Prudential study finds that for those African
Americans who use a financial advisor, ``product ownership
and detailed financial planning increase, and confidence in
meeting key financial goals typically doubles.''
We are particularly concerned about the effects these
regulations will have on savers in individual retirement
accounts (IRAs). If brokers who serve these accounts are
subject to ERISA's strict prohibitions on third-party
compensation, they may choose to exit the market rather than
risk the potentially severe penalties under ERISA for
violations. If that occurs, it could cause IRA services to be
unattainable by many retirement savers in the African
American community.
Due to these concerns, we urge the Department to take full
consideration of the rule's impact on African American
communities in its economic impact study. Also, it is
critical that the Department continue to work together with
appropriate agencies and stakeholders on a balanced approach
to both protect investors and maintain affordable access to
retirement savings products during this time of economic
uncertainty.
Thank you for your consideration of our concerns. We look
forward to continue working with you on this critical issue.
Sincerely,
Gregory W. Meeks; Gwen Moore; Emanuel Cleaver; Al Green;
Maxine Waters; Wm. Lacy Clay; Terri Sewell; David
Scott.
____
Congress of the United States,
Washington, DC, June 14, 2013.
Hon. Seth Harris,
Acting Secretary, U.S. Department of Labor, Washington, DC.
Dear Secretary Harris: We are writing to discuss the
Department of Labor's proposed rule to amend the definition
of ``fiduciary'' for purposes of the Employee Retirement
Income Security Act of 1974 (ER1SA). We applaud the
Department's efforts to engage on this important subject, but
we arc concerned that the re-proposal will disadvantage those
it aims to help.
One of our goals as Members of Congress is to work together
on issues that affect the minority communities we represent.
We write this letter because of our joint concern the re-
proposed fiduciary definition could restrict our
constituents' access to professional financial advisors.
At a time when many Americans arc struggling to ensure a
secure retirement, we have concerns that the Department's re-
proposal could severely limit access to low cost investment
advice. After years of hard work, often for long hours and at
low wages, many of our constituents face the challenge of
planning for their retirement without access to professional
investment advice and services. We are concerned that a new,
more restrictive definition of fiduciary would add yet
another barrier to accessing qualified retirement planning
services. As you know, studies have shown that even savers
with small IRA and 401k balances benefit greatly from the
ability to sit with a trusted adviser to help plan for their
future. We believe the Department should adopt policies that
expand access to advice, particularly in light of the racial
and gender disparities that currently exist in retirement
savings.
We cannot overstate our desire to ensure that this re-
proposed rule enhances investor protection without reducing
investor access to affordable retirement advice, products and
services. As many of us have expressed to the Department, any
attempt to change the existing regulatory structure governing
the fiduciary standard should be executed carefully,
prudently, and in conjunction with the SEC to avoid
uncertainty and disruption in the marketplace. We encourage
the Department to learn from its earlier experience by
ensuring that the reproposal addresses the concerns raised by
a bipartisan, bicameral Congress that caused the Department
to withdraw the original proposal in September 2011.
Thank you for consideration of our concerns, and we look
forward to closely working with you on this issue.
Sincerely,
Frederica S. Wilson; Corrine Brown; Barbara Lee; Wm. Lacy
Clay; Danny K. Davis; Donna M. Christensen; Cedric L.
Richmond; Emanuel Cleaver; James E. Clyburn; Bobby L.
Rush; Hakeem Jeffries; Gregory W. Meeks; Scott
DesJarlais; Maxine Waters; Sanford D. Bishop, Jr.;
Bennie G. Thompson.
Hank Johnson; Robin L. Kelly; Marcia L. Fudge; Karen
Bass; Joyce Beatty; Jim Costa; Elijah E. Cummings;
David Scott; G.K. Butterfield; Yvette D. Clarke;
Charles B. Rangel; Eleanor H. Norton; Pedro R.
Pierluisi; Ed Pastor; Terri Sewell; Tulsi Gabbard.
Mr. HATCH. These letters are proof positive that opposition to the
Labor Department's fiduciary regulation continues to be both bipartisan
and bicameral.
As I close, I also wish to have printed in the Record copies of the
many letters I have received in support of the SAFE Retirement Act of
2013.
There being no objection, the material was ordered to be printed in
the Record, as follows:
American Benefits Council,
July 8, 2013.
Re SAFE Retirement Act of 2013.
Hon. Orrin G. Hatch,
Hart Senate Office Building,
Washington, DC.
Dear Senator Hatch: On behalf of the American Benefits
Council, I am writing to thank you for your leadership
regarding the critical challenges facing our private
employer-sponsored retirement plan system. Your bill, the
SAFE Retirement Act of 2013, includes many provisions that
would address important private retirement plan issues and
builds on the success of the current system.
Your bill contains provisions that would broaden coverage,
increase retirement adequacy, and make plan delivery of
information more effective. In particular, the bill provision
facilitating electronic communication would allow employers
to use forms of disclosure that are far more effective in
communicating with participants. Your bill would also
facilitate greater use of automatic enrollment, which is
critical to increasing the level of retirement savings. There
are also many provisions that would broaden plan coverage
among small employers, including an enhanced credit for
establishing a plan. We believe these proposals are important
to further strengthening the private employer-sponsored
retirement system and helping workers obtain personal
financial security.
We applaud your leadership and we look forward to the
opportunity to work with you on this bill.
Sincerely,
Lynn D. Dudley,
Senior Vice President, Retirement
and International Benefits Policy.
____
Alliance Benefit Group--
Rocky Mountain,
June 24, 2013.
Hon. Orrin Hatch,
Senate Finance Committee,
Washington, DC.
Dear Senator Hatch: On behalf of the Alliance Benefit Group
(ABG), Alliance Benefit Group--Rocky Mountain (ABGRM), and
our affiliates, we hereby would like to offer our sincere
support of the SAFE Pension Act of 2013.
ABG is a national association of record keepers, third
party administrators, and financial advisors dedicated to the
goal of helping Americans securely retire through a strong
system of public and private retirement programs. Alliance
Benefit Group works with over 14,000 Defined Contribution and
Defined Benefit plans across the country representing over
$51 Billion in retirement savings and 1 million plan
participants. We have been serving retirement and welfare
plan participants in Utah since our foundation locally in
1980.
As a trusted service provider we deal firsthand with the
challenges facing plan sponsors, plan fiduciaries, and plan
participants across a wide spectrum. Many of these concerns
are addressed by your legislation. We are especially
encouraged by the provisions of the Act designed to increase
auto enrollment and auto escalation, allow for new timing
allowances designed to increased adoption of qualified plans,
increase portability, address longevity risks, and provide
for a more flexible safe harbor 401k environment.
Thank you for supporting the retirement system that all
Americans depend on for their future to come.
Sincerely,
W. Jeffrey Zobell, QPA, QKA,
Chief Executive Officer,
Alliance Benefit Group--Rocky Mountain.
____
ACLI,
July 3, 2013.
Re Safer Pension Act of 2013.
Hon. Orrin G. Hatch,
U.S. Senate, Hart Senate Office Building, Washington, DC.
Dear Senator Hatch: We want to express our appreciation for
your leadership on retirement security issues. ACLI member
companies offer insurance contracts and other investment
products and services to qualified retirement plans,
including defined benefit pension, 401(k) and 403(b)
arrangements, and to individuals through individual
retirement arrangements (IRAs) or on a non-qualified basis.
For many years our members and their products have helped
Americans accumulate retirement savings and turn those
savings into guaranteed lifetime income.
Our members will be eager to study the provisions of the
Safer Pension Act of 2013. We support enhancements to the
current employer sponsored system with the goal of increasing
simplification, coverage, and facilitating lifetime income
options. We look forward to working with you on a number of
enhancements including:
[[Page S5572]]
Facilitating electronic delivery of participant statements;
Expanding the ability of employers to offer annuities in
defined contribution plans;
Encouraging multiple employer defined contribution plans;
and
Expanding autoenrollment/autoescalation opportunities for
workers.
As Congress considers tax reform, we appreciate your
continued support of the current retirement security system.
ACLI and its member companies look forward to working with
you and your staff to improve retirement security for all
Americans.
Sincerely,
Walter C. Welsh.
____
ASPPA--WORKING FOR
AMERICA'S RETIREMENT,
June 24, 2013.
Re Letter of Support for the SAFE Retirement Act of 2013
Hon. Orrin Hatch,
Ranking Member, Senate Finance Committee,
Washington, DC.
Dear Ranking Member Hatch: On behalf of the American
Society of Pension Professionals & Actuaries (ASPPA) and its
affiliates, we hereby express our strong support for the SAFE
Retirement Act of 2013.
ASPPA is a national organization of more than 15,000
retirement plan professionals who provide consulting and
administrative services for qualified retirement plans
covering millions of American workers. ASPPA members are
retirement professionals of all disciplines including
consultants, investment advisors, administrators, actuaries,
accountants, and attorneys. The large and broad-based ASPPA
membership gives it unusual insight into current practical
problems with the Employee Retirement Income Security Act and
qualified retirement plans with a particular focus on the
issues faced by small- to medium-sized employers. ASPPA
membership is diverse and united by a common dedication to
the private retirement plan system.
The private retirement system provisions in Title II of the
SAFE Act will dramatically simplify the operation of
qualified retirement plans by eliminating unnecessary
paperwork and traps for the unwary, as well as providing new
approaches to expanding the availability of workplace savings
through qualified retirement plans, especially small business
retirement plans. These common sense proposals will go a long
way toward improving the retirement security of millions of
working Americans.
ASPPA commends your offering of these proposals, and
applauds your commitment to enhancing the private retirement
system and the retirement security of our nation's workers.
Sincerely,
Brian H. Graff, Esq., APM,
ASPPA Executive Director/CEO.
____
AMERICANS for TAX REFORMS,
June 26, 2013.
Hon. Orrin Hatch,
United States Senate,
Washington, DC.
Dear Senator Hatch: On behalf of Americans for Tax Reform,
I write today in support of your new bill, the ``Secure
Annuities for Employees (SAFE) Retirement Act of 2013.'' I
would urge all senators to support this common-sense, job-
creating legislation.
The SAFE Retirement Act provides net tax relief for
retirement savings. Title II of the legislation spells out a
host of common-sense and long-overdue reforms to our nation's
retirement savings laws, especially with regard to small- and
mid-sized employers. Pending a final score from the Joint
Committee on Taxation, it seems self-evident that this
section alone makes the SAFE Retirement Act a net tax cut for
American families and employers.
The SAFE Retirement Act is good public policy for state and
local taxpayers. Title I of the bill allows states to opt
into an annuity-based alternative (a ``SAFE Retirement
Plan'') to today's under-funded legacy defined benefit
pension regime. A state wisely choosing to do so would give
taxpayers the assurance that government employees won't
strain state government funding obligations into perpetuity--
the harsh reality facing many states today as they struggle
with meeting the pension promises of an earlier era.
The SAFE Retirement Act builds upon the modernization
efforts of the Pension Protection Act of 2006. This bill
gives ordinary employers what they've been looking for--a
cost-effective, easy to administer, and lower-hassle
retirement planning structure they can work with. Common
sense reforms like extending elective dates, providing safe
harbors, and simplifying paperwork should be able to get
broad support. In particular, the ``Starter 401(k)'' is an
idea whose time has come.
The ``Secure Annuities for Employees (SAFE) Retirement Act
of 2013'' is a great example of good, solid legislative
blocking and tackling. I look forward to working with you on
this legislation as it winds its way through the lawmaking
process.
Sincerely,
Grover Norquist.
Mr. HATCH. These letters come from businesses and organizations
representing employers, life insurance companies, State insurance
commissioners, State guarantee associations, and tax policy groups.
These letters demonstrate that the SAFE Retirement Act is good policy
and will make good law. America's retirement system deserves no less.
____________________