Ill. Sen. Daniel Biss spoke to members of the Sun-Times editorial board about a bill to get private companies to help workers set up IRAs. | Rich Hein/Sun-Times
Updated: March 18, 2014 6:02AM
Have you saved enough for your retirement?
Have you saved at all?
For Americans in great numbers, especially low-income workers, the answer to both questions is a resounding no. Far too many workers, the numbers show, are locked out of the heart of America’s retirement system: employment-based savings plans.
In 2013, 64 percent of private-sector workers had access to an employer-based retirement plan, according to the U.S. Bureau of Labor Statistics. That’s not bad. But it’s a much darker picture when you dig deeper. Among small employers, only 49 percent of workers were offered access and just 37 percent of part-time workers could enroll. For the lowest 10 percent of earners, just 28 percent could tap into a retirement plan through their private sector jobs.
This comes as the national savings rate is on the decline and Social Security benefits are replacing a smaller percentage of pre-retirement income.
One simple yet profoundly powerful solution is before the Illinois Legislature, and we urge legislators to support it. The bill holds tremendous promise for bolstering retirement savings, particularly for low-wage workers.
It would give all Illinois workers access to an automatic Individual Retirement Account (IRA) through their employer if a 401(k) isn’t offered, an idea that’s been championed by conservatives and liberals. It was first proposed by the conservative Heritage Foundation, along with the centrist Brookings Institution. President Barack Obama and Sen. John McCain supported the concept during their presidential campaigns, and Obama continues to support it.
Unless an employee opted out, 3 percent of each paycheck would be automatically deducted. Employers would be responsible only for setting up the payroll deduction and, to avoid running afoul of the federal tax code, could not contribute to the IRA. New businesses and those with fewer than 10 employees would be exempt, and strong provisions would be included to discourage businesses from dumping 401(k) plans in favor of the IRA. The funds would be managed by an investment firm and overseen by a state-appointed board.
The expectation is that costs to employers would be minimal and the fund would be self-sustaining, meaning no taxpayer expense.
Illinois Sen. Daniel Biss, who is spearheading this effort along with Rep. Barbara Flynn Currie, considers the bill the most impactful, and least objectionable, of all attempts in Springfield to deal with income inequality, including raising the minimum wage and mandating paid sick days.
We agree, even if the bill has drawbacks. 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.
In the meantime, Illinois can lead the way, showing the nation that Illinois legislators and business owners are willing to do what it takes to help ensure a livable retirement for its workers.