"America cannot continue sleepwalking in the financial disaster that awaits us if we do not get the public pension crisis under control," Hatch said in a Senate floor speech on the legislation last week.

The Pew Center on the States has estimated that 61 of the most populous cities in the U.S. faced a gap of more than $217 billion between what they had promised their workers in pensions and retiree health care and what they had saved to pay that bill. The gap for states topped $1 trillion, according to an earlier Pew study.

Stockton, Calif., became the biggest U.S. city to file for bankruptcy last year after the recession, pension obligations and other mounting costs caused its finances to crumble.

It's not the first time that Hatch, the ranking member on the Senate Finance Committee, has tried to address the issue; he released a report in 2012 detailing the financial risks of the public pension debt crisis and its negative impact — current and future — on the U.S. economy.

The proposed legislation is receiving support from the insurance industry, but consumer advocates and union reps are already voicing concern.

The SAFE Retirement Act proposes a three-pronged approach to pension reform.

• Development of a new public pension plan: the SAFE Retirement Plan, a state-regulated, fixed annuity product. Hatch describes this as a market-based, fixed annuity solution with a consumer safety net. It would not be subject to federal taxes and would receive only minimal involvement from the feds. The plan would be voluntary.
   
• The bill would create a separate private plan, the Starter 401(k), a retirement savings plan allowing workers to save $8,000 annually. The Starter 401(k) would allow account holders to save more than in a traditional IRA but wouldn't require the employer to shoulder the administrative burdens of a traditional 401(k).
   
• Remove Department of Labor oversight of investment products under ERISA and move jurisdiction of fiduciary rules to the Treasury Department. This provision is Hatch's response to what he considers overreaching by the DOL in issuing a new, tougher fiduciary standard.

Here's how Hatch expects the pension proposal to work:

Every year, state governments would hold competitive bidding wars for worker contracts. The winning insurer would offer each employee a contract guaranteeing a retirement-to-death annuity amount for one year of work. Negotiations from public employee unions would shift from the size of worker pensions to the amount the local government would pay the insurer up front. Ostensibly, at the end of a 40-year career, a worker could hold 40 different annuity contracts. Hatch proposes a government entity that would aggregate those contracts and deliver a single, monthly check to the retiree.

When it comes to the inherent risk of the stock market, the insurance companies would bear that burden, not the local governments. In turn, by taking on the pension fund the insurance companies would reap the tax benefits of managing the plan currently enjoyed by the local governments.

The notion of transferring public pension plans to private insurance companies is not new. The insurance industry has lobbied for more than a decade for the ability to serve retirees with annuities. It's no surprise that insurance companies including MetLife have come out to voice their support.

Given the expectation of a strong fiduciary standard later this year, the element of this legislation that transfers oversight is sure to raise controversy. Not only would DOL lose ERISA oversight, but the bill also requires the Treasury Department to consult with the Securities and Exchange Commission. The SEC is expected to write its own fiduciary standards in the coming months.

In favor of the bill is the National Association of Insurance and Financial Advisors.

"Main Street Americans cannot rely solely on the government or employers to provide for their retirement years," Rob Smith, president of NAIFA, told reporters. 

Also in support of the bill are the American Association of Pension Professionals and Actuaries and the American Council of Life Insurers.

However, SAFE is getting pushback from retirement groups and consumer advocates. It's expected the police unions will come out against the proposed legislation, since getting rid of defined-benefit pensions is a non-starter for these groups.

Finding fault with both the annuity option and the potential ERISA shift, the National Conference on Public Employee Retirement Systems released its own statement.

"Sen. Orrin Hatch's legislative proposal to turn public employee pensions over to private insurance companies is not only ill-conceived and unworkable, it completely misses the point," said Hank Kim, NCPERS executive director and counsel. "His legislation is nothing more than a solution in search of a problem — and his proposal deftly directs public attention away from the real problem."

The real problem being the lack of private-sector savings. Pension programs, countered Kim, are not the problem.

However, funding them is. Hatch's bill addresses the funding shortfall facing local governments and the fiscal implications therein. With the annuity program, any funding shortfalls are the problems of the insurance company.

Washington appears ready to face the country's myriad retirement issues on many fronts. This bill was introduced just a week before a planned hearing by the Senate Committee on Health, Education, Labor and Pensions, "Pooled Retirement Plans: Closing the Retirement Plan Coverage Gap for Small Businesses." Also expected later this summer is the bipartisan USA Retirement Funds bill, sponsored by Sen. Tom Harkin, D-Iowa.