Senator Hatch Outlines Plans for Retirement Reform

In a recent speech before the U.S. Chamber of Commerce, Senator Orrin Hatch, R-Utah, said his goal in directing the Senate’s Finance Committee over the next two years will be to “strike away at Obamacare” while addressing entitlement programs and pension reform. 

The influential senator’s speech was made in anticipation of President Obama’s annual State of the Union address and covered a wide range of topics, from international trade to defense. Both retirement and health benefits figured directly into the presentation made to U.S. business leaders, during which Hatch repeatedly called American businesses and citizens overtaxed and overburdened by government regulations. 

Though he reiterated his distaste for Obamacare and a perceived lack of common ground with the president, Hatch pledged to work with both Republicans and Democrats to improve the financial outlook of the U.S. He also expressed willingness to work with the president on important policy issues—and said it will be critical for the health of the U.S. economy to maintain the bipartisan and cooperative character of the Finance Committee.  

“Right now, our tax code, in many ways, discourages people from saving and investing,” he noted, “which harms growth, hinders financial independence and reduces the quality of life for future generations. That needs to be changed in tax reform. … This is not an exercise. This is not theater, nor is it just for show. This is a very real undertaking.”  

Hatch’s speech approached retirement issues from a few different angles—first urging fellow senators and representatives to talk openly and honestly about Social Security, “a program with $25 trillion … in unfunded obligations.” He said recent estimates show that the Disability Insurance Trust Fund, part of the Social Security program, is projected to be exhausted sometime in 2016, “so there is an urgency to act in this area.”   

“That’s not anyone creating a false crisis,” Hatch said. “It is a fact, and even Social Security’s trustees, who include officials from President Obama’s administration, urge action and agree. In fact, in their words, not mine, ‘legislative action is needed as soon as possible.’”

To the end of improving Social Security’s long-term outlook, Hatch says he will be working to bring forward bicameral and bipartisan legislation to motivate dialogue and begin to confront Social Security’s financial challenges, “in this Congress.” 

“And that will require that my friends on the other side at the very least take up my offer to engage in dialogue, something that, thus far, they have been unwilling to do,” he said. “If we do not face the fact that our entitlement promises are unsustainable, and do nothing to place them on a sustainable path, then simple budget arithmetic means taxes will have to rise significantly over time.”

Beyond Social Security, Hatch suggested there are other pressing issues preventing greater financial success and independence for U.S. workers and retirees, especially in the private sector. 

As anticipated by many in the retirement industry, Hatch said his work to improve retirement readiness beyond Social Security and general tax reform will be focused through the reintroduction of the Secure Annuities for Employees (SAFE) Retirement Act. Many industry groups were particularly fond of Title II in the SAFE Retirement bill, which would expand the availability of qualified retirement plans among private-sector workers, especially for employees of small businesses. For example, the bill includes a new “Starter 401(k)” option to encourage businesses to establish retirement benefits, and would provide employers with additional time after the end of the year to set up a company retirement plan. 

The SAFE Retirement Act would also significantly reduce administrative burdens through provisions such as streamlined plan amendment and restatement processes, Hatch said, and by establishing rules for electronic disclosure to plan participants and beneficiaries.

“My legislation also tackles one of the most pressing retirement problems facing the country: the problem of poorly funded state and local defined benefit [DB] pension plans, which are bankrupting state and local governments,” Hatch said, noting that the Urban Institute gave the SAFE Retirement Act an “A” rating. “I am glad to say the SAFE Retirement Plan is the only plan in the country to receive “A” grades under all seven criteria [measured by the Urban Institute]. In other words, [it] gave my plan the highest grade in the country.” 

On the point of public pension reform, Hatch said the SAFE Retirement Act would create the SAFE Retirement Plan as a new pension plan option for state and local governments.” These governments could use the SAFE plan to eliminate pension plan underfunding prospectively, while delivering lifetime retirement income to employees, Hatch said. The SAFE plans “would be state-regulated, market-based, fixed-annuity solutions to the retirement income crisis in the states, with a consumer safety net, only minimal involvement by the federal government and no federal taxes,” Hatch said. 

Other key elements of the SAFE Retirement Act would “ensure that hardworking Americans will continue to have affordable access to professional investment advice by restoring jurisdiction over the IRA fiduciary duty rule to the Treasury Department and requiring Treasury to consult with the Securities and Exchange Commission when prescribing rules relating to the professional standard of care owed by brokers and investment advisors to IRA owners.” 

It only makes sense to give the Treasury the lead, Hatch said, because the fiduciary duty rule for IRAs is in the tax code, not employee benefit law. 

On the health care reform picture, Hatch said, “No one in this room should be surprised to learn that I oppose the Affordable Care Act and think it should be repealed. But I’m also realistic. With President Obama in the White House, we’ll never get a full repeal enacted into law. But that doesn’t mean we should do nothing. While we may not yet be able to repeal Obamacare, we’re going to continue to strike away at it, piece by piece if we have to.”  

To this end, Hatch noted that he has “reintroduced bipartisan legislation to repeal Obamacare’s job-killing medical device tax. I also plan to reintroduce a bill to repeal the employer mandate, one of Obamacare’s other anti-job provisions.”

Terrance P. Power, president of The Platinum 401k Inc., tells PLANADVISER that Senator Hatch appears to be bringing some much-needed energy and focus on retirement issues to the Senate Finance Committee. He says service providers and employers active in the multiple employer plan industry are particularly supportive of Hatch’s proposals and have been urging other lawmakers to get behind the SAFE Retirement Act. 

“I think the retirement planning industry is generally looking forward to seeing the legislation move ahead under the new Congress,” Power says. “That being said, there is also some nervousness about what will happen to the legislation as it makes its way forward. It’s always a risky proposition when you have major proposed legislation in a divided government, because a lot can happen to the bill on its way to the president’s desk.”

Power reiterated the importance of the Finance Committee’s bipartisan history—suggesting that the committee has long been looked to as a place for compromise between bitterly opposed political parties such as those currently sharing the helm. 

“The nice thing about the Finance Committee’s work right now is that many of the same points Senator Hatch is bringing up were part of Democrat-led proposals that were introduced under the former committee chair,” Power adds. “We’ve seen some encouraging support for the SAFE Act from Senator Bill Nelson [D-Florida], for example. And Senator Susan Collins, a Republican in Maine, has also emerged as a centrist voice on this issue.” 

Power says the real question for the SAFE Retirement Act will not be in generating enough support in the House and Senate to reach the president’s desk—the support already exists. 

“I think the proposal should sail pretty cleanly through the Finance Committee, so the real question is where the bill ends up,” Power says. “Will it be attached to an overall tax bill that could then be subject to the president’s veto? Or will it make its way to the president as something separate? At this point, it’s still too soon to say, but we’re seeing some encouraging moves from Congress.” 

The full text of Hatch’s address to the U.S. Chamber of Commerce is here.