* I watched the debate on Sen. Biss’ retirement savings bill in the Senate Executive Committee not long ago. The NFIB and the Republicans spoke against the proposal, despite claims by Biss that this was actually a creation of the Heritage Foundation and the Brookings Institute in 2006. It was, he says, supported by both John McCain and Barack Obama in 2008.
The Tribune looked beyond the partisan politics of the moment today and wholeheartedly endorsed the bill…
Americans have longer life spans than their ancestors dreamed possible. The private-sector pension, by contrast, flirts with extinction. Federal trustees warn that Medicare’s hospital insurance trust fund goes insolvent in a mere 12 years — followed seven years later by the main Social Security trust fund. And many among us save so little for the future that they risk a retirement diet of Meow Mix.
Sum those perils and the money math looms menacing for today’s workforce. Fitting, then, that the Illinois Senate’s sole research mathematician, Evanston Democrat Daniel Biss, proposes a clever savings plan for some 2.5 million private-sector Illinoisans whose employers don’t offer retirement plans. […]
Workers at companies with 25 or more employees but no retirement plan would be automatically enrolled, with the choice to opt out at any time. Smaller companies could join voluntarily. The workers could choose how much to invest in a selection of mutual funds managed not by the state, but by a low-cost provider (think Vanguard or T. Rowe Price). Individuals who make no choices would have 3 percent of their wages go, via payroll deduction, into diversified target-date retirement funds. Many companies that offer 401(k) plans do the same, automatically enrolling employees in default target-date funds.
Administrative costs for the investment provider and the state could total no more than 0.75 percent of invested assets. An unpaid, seven-member board including the state treasurer, comptroller and governor’s top budget officer would choose the provider and perform risk management and oversight duties. The best protection against corruption, theft or pinstripe patronage: Illinois never would touch the investments. State government instead would wave at the payroll deductions as they travel to employees’ accounts. Those accounts would be portable from job to job; workers with more than one employer would have a single account.
* The Sun-Times looked closely at the opposition…
Business groups, including the Illinois Chamber of Commerce and the National Federation of Independent Business are opposed, saying it will burden small businesses, financially and administratively, forcing employers to act as a go-between on a program many don’t want to offer. Insurance and financial advisers also are opposed, but we suspect that’s mostly because the automatic IRA would cut into their business.
The business concerns are legitimate, but given the careful design of the Illinois program, we think the burdens would be minimal. In a country that’s reliant on employer-based retirement systems, it’s inevitable that business will face burdens. The question is how much is too much? This bill does not tip the scales.
Jeffrey Brown, a University of Illinois finance professor and expert on retirement security, is one of many supporters of automatic IRAs, citing research on the power of automatic deductions in increasing participation rates. Brown tell us he likes Biss’ idea, particularly since it avoids the pitfalls of automatic IRA proposals in other states, including ill-advised attempts to guarantee a rate of return. He worries, though, that the state board, as currently envisioned, may become politicized, something we’d like the bill sponsors to address.
Brown, to whom we were referred by the bill’s opponents, the American Council of Life Insurers, said he would prefer a federal automatic IRA program, as would we. But the odds of that passing Congress aren’t good.
Opposition by the insurance industry is probably more important here than anything else. We’ve got a lot of big insurance companies in this state, so that may explain much of the GOP opposition in committee.
The slow economic recovery has contributed to the problem. More Americans have found themselves chronically unemployed or underemployed. Companies have cut back on wages and benefits, including retirement plans, for workers.
Low-wage workers aren’t just high school lifeguards or college students selling jeans at the mall on weekends. They include manufacturing workers, retail staff, salespeople, cashiers, restaurant cooks and wait staff, small-business owners and employees and more.
Dreams of a comfortable, carefree retirement are considered out of reach for many Americans. Sen. Daniel Biss, D-Evanston, calls it “a straight path to poverty in old age.”
“There is no example in America or elsewhere now in history of a system that just kind of hopes for the best and educates people and leaves 25-, 30- and 40-year-olds making the kind of decisions necessary for a dignified retirement,” he said. “I know that sounds paternalistic, but I think there is a giant wealth of overwhelming research that makes that clear. So you have to do something.”