SAFE RETIREMENT ACT
• This legislation does not guarantee a retirement benefit. Contrary to claims, the new and voluntary insurance annuity plan would not provide any sort of guaranteed benefit upon retirement. The employer would decide each year whether to purchase an annuity contract and how much to spend – it could be zero. The retiree’s benefit would be wholly dependent on these year-to-year decisions.
• The SAFE Act irresponsibly assumes generous employer contributions. Claims that insurance annuities will provide a secure retirement are based on the assumption that employers will voluntarily contribute a large percentage of payroll each year towards retirement. History demonstrates that employers often underfund retirement plans, and shifting from defined benefit pensions to insurance annuities will make it even easier for employers to avoid making their annual contributions.
• Even under the most generous assumptions, the insurance annuities created under the SAFE Act will not provide a retirement benefit equal to the amount typically paid by defined benefit pensions. Under more realistic assumptions, the benefits paid by insurance annuities will not be sufficient for a fire fighter to retire on.
• Insurance annuities don’t include death or disability benefits. Under current defined benefit pension plans a fire fighter who suffers a career ending injury early in their career will be eligible for retirement benefits. Under the SAFE Retirement Act, the injured worker’s disability benefit will be to the small number of annuity contracts purchased on their behalf. Similarly, widows and dependent children of fallen fire fighters would lose their eligibility for benefits under the misnamed SAFE Retirement Act.
• The legislation is based on the erroneous assumption that current state and local defined benefit pensions are underfunded. The overwhelming majority of such systems are adequately funded, and the few that are facing challenges are moving aggressively to change their structure. Claims that unfunded pension liabilities contributed to the Detroit bankruptcy are false. The Detroit pension system is 97 percent fully funded.
• If enacted, the legislation would impose large transition costs to the employer as it does not address the large legacy costs associated with converting defined benefit plans to insurance annuities. Employers would be responsible for funding the new annuity plan as well as the old defined benefit plan, without the added benefit of continued contributions from workers.
• It is not clear if there is a legal reason why this legislation is even needed. Employers already can purchase insurance annuities for their employees, but very few have ever opted to do so. Why should the federal government encourage use of a retirement vehicle that employers have previously rejected?