The private sector has been bailing on providing pensions for employees over the last few decades. Now, it appears legislation to “radically change” public sector pension plans may also be in the works.
In Illinois, we are aware of how much strife a public pension battle can impact both the fiscal health of the state and that of those employees who were promised lifetime retirement benefits. The proposed legislation would provide for private insurance carriers to manage the public sector retirement income pension systems. Historically, many individuals enjoyed the benefits of defined benefit plans. Yet, now with benefits being cut and lump sum buyouts being offered, many employees are weighting the option of defined benefits versus a pension styled annuity plan.
The Annuity Guys® discuss why insurance companies – with proven track records in managing investment and longevity risk successfully – may be better choices for overseeing your retirement income than both private and public sector pension managers.
**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.
If you (and your spouse, if you have one) could have a pension styled income for life and still pass on any unspent retirement dollars to heirs, would you do it? This is the reason many individuals are converting lump sum buyouts, 401ks and IRAs into annuity portfolios that provide lifetime income, safe and consistent growth with preservation of their lump sum principal from their retirement savings.
Here’s the news from MSN that generated the inspiration for this weeks blog.
By Lisa Lambert
WASHINGTON (Reuters) – A top Republican senator unveiled legislation on Tuesday that would radically change public pensions by having life insurance companies pay benefits through annuity contracts, helping to alleviate the underfunding that has engulfed many plans.
The bill introduced by Utah Senator Orrin Hatch, the highest-ranking Republican on the Finance Committee, would have the government pay a premium each year to a state-licensed insurer in an amount equal to a set percentage of salary. Employees would then receive fixed income annuity contracts from the insurance company.
“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,” Hatch said in a speech to the Senate.
Annuities function similarly to pension plans by paying set amounts in regular installments. The accumulation of annuity contracts would even out interest-rate fluctuations, according to Hatch, who would have insurers competitively bid for them.
Underfunding is “not possible,” he added.
The bill would not cover past pension liabilities, but allow state and local governments “to stop digging the hole with their existing defined benefit plans,” said Julia Lawless, a spokeswoman for Hatch. [… Read more at MSN]