"I could have merely recommended that state and local governments move to a 401(k)-style plan," Hatch said. "But I settled instead on a policy of trying to achieve retirement income security as well."
His legislation changes federal tax laws to allow states to contract with life insurance companies to provide workers with an annual annuity for retirement. Employees would collect these annuities and combine them into one monthly payment upon retirement.
State insurance regulators would make sure the life insurance companies remained financially stable.
Hatch believes states would consider his plan because many have pension systems that are unfunded by billions of dollars. That has occurred for cities, counties and states for three reasons:
• Some governments siphoned money away from the pensions in bad financial times.
• The funds are tied to the stock market and many lost value in the recent economic collapse.
• Retirees are living longer.
Utah had a $6.5 billion hole in its pension system that the Legislature decided to fill by lowering the amount it paid for employees and shifting to a 401(k) system, where employees decide where to invest the funds and the state contribution is guaranteed but not the benefit upon retirement.
That plan was championed by former state Sen. Dan Liljenquist, who left the Legislature to run against Hatch for the Republican nomination in 2012. Hatch easily defeated Liljenquist in a primary.
During their race, Liljenquist raised eyebrows when Hatch released a report on the state pension problem, but on Tuesday, he said, "Hatch should be applauded" for his new legislation.
While Liljenquist doubted that Utah would take the life insurance route, he said it's important for Congress to help states find ways to shore up their retirement systems.
Liljenquist said states would have to see what kind of return they could get on one-year annuities to see if it would be the best benefit to give employees.
"I'm just pleased he's looking at the issue. It's a big issue."
Hatch is the ranking Republican on the Finance Committee, which oversees taxes and government retirement programs. Employees of finance, health care and insurance companies gave heavily to his campaign, though the life-insurance sector was not near the top of the list.
MetLife, one of the nation's leading life insurance companies, gave him $7,750 for his last campaign. The company also supports his legislation, as do other insurers and business groups like the U.S. Chamber of Commerce. His plan doesn't have the support of any Democrats or workers' unions yet.
A Hatch aide said the senator isn't offering the legislation at the urging of any interest group though he did meet with many interested parties, including insurers, unions and small businesses, while developing the plan.
In an address on the Senate floor, he attempted to preemptively respond to potential criticism that the legislation would be a giveaway to insurance companies.
"Now I know that some will argue that my bill will give too much new business to the life insurance industry. Well, that's 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," he said. "After all, the life-insurance industry is the only industry in the world designed from the ground up to manage longevity risk."