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Home Publications Blogs Beat the Press Orrin Hatch Wants AIG to Provide Pensions for Public Sector Workers

Orrin Hatch Wants AIG to Provide Pensions for Public Sector Workers

Tuesday, 09 July 2013 04:50

No, I am not kidding. The NYT reported that Hatch is introducing a bill that would allow states to turn over the management and responsibility for pension plans to insurance companies. The NYT presented this sort of switch as good news for both workers and taxpayers, noting regulatory requirements for insurers:

"Perhaps more important, state insurance regulators provide a kind of oversight unknown in the world of public pensions. They require insurance companies to meet capital requirements, taking into account the riskiness of their investments. Insurers are also required to hold more assets than they estimate they will need, and if they burn through their surpluses, state regulators can close them down.'

It would have been helpful to include the views of someone old enough to remember AIG's collapse. The pattern of regulation of insurance varies hugely across states. In many cases the quality of regulation would not provide taxpayers and workers with much confidence. Furthermore, in the event of a systemic crisis that sank insurers responsible for public pensions, like what we saw in 2008, it is virtually inconceivable that governments would not feel the need to step in and back up their workers' pensions.

It is also worth noting that, contrary to the position implied in this article, the vast majority of state and local pensions are well-funded and will be able to pay full benefits with few changes going forward. The main reason for reported shortfalls was the sharp downturn in the stock market at the start of the crisis. Since most pensions use averaging in assessing their asset positions, the depressed market of the crisis years is still reflected in their current reporting, but that will change in the next couple of years if the market stays near current levels. At that point, their funding situation will be appear considerably stronger.

Note: Orrin Hatch's name has been corrected in the title.

Comments (9)Add Comment
written by Kat, July 09, 2013 5:08
I think you meant Orrin Hatch. Now I'll read the eof the post.
written by Kat, July 09, 2013 5:29
That article starts with the howler "Pension proposal aims to ease burden on states and cities" and does not let up. Then we are to believe that the insurance industry had no say in this proposal. And then we are to believe that Hatch suddenly is worried about risk and capital requirements. And--even if they do manage to take on too much risk-- no worries. Life insurers will shoulder the burden.
On the other hand, Mr. Hatch looks very serious in his photo so that counts for something.
I would like to congratulate Mary Williams Walsh in transforming this press release from the insurance industry into a reasonable approximation of a news story.
written by xteeth, July 09, 2013 6:28
Now wait a minute. We are trying to get more jobs back and I think that there are still some of the people from Enron that arranged their pension plan that don't have jobs yet. They did probably the best pension planning in the entire private sector. Why not give them a chance?
written by Kat, July 09, 2013 7:17
When pointing out an error in a comment it is always useful to include a typo of your own.
written by Chris Engel, July 09, 2013 7:40

Hatch's top industrial campaign contributor is Securities/Investment (pension management falls under this category).

No mystery what dynamics are at work here.

And given the way Democrats have found common ground with Republicans in servicing the special interest needs of Wall Street, this bill is unfortunately not DOA just because it's got a Republican behind it.
On Purpose Freudian Slip
written by Jeffrey Stewart, July 09, 2013 8:59
To the extent the US government is captured by capital and politicians are the minions of the capitalist class, then blending the names Warren Buffet and Orrin Hatch seems entirely appropriate.
First they came for the public pension system
written by Bernie Makeoff, July 09, 2013 9:38
Next, it'll be Social Security.
more takers want in on the public purse
written by watermelonpunch, July 09, 2013 9:40
It would have been helpful to include the views of someone old enough to remember AIG's collapse.

I think this thought about once a week.
written by Daniel Treadway, July 13, 2013 9:00
First, someone other than PricewaterhouseCoopers should calculate the amount of damage inflicted directly and indirectly ($2 Trillion ?) by AIG on public and private pensions. AIG should then have to compensate the pensions. Next, the justice department should prosecute individuals of the firm who have committed fraud and other high crimes and misdemeanors and obtain jail sentences. AIG personnel who have given merely an impression of impropriety would have to be dismissed. Lastly, AIG should have to purchase insurance to cover its recidivist future damages. Then and only then would I consider Orrin Hatch's proposal.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.