Dec. 09--What an easy lob to Republican state legislators! A Democratic senator, Daniel Biss of Evanston, was tossing them a chance to be on the right side of history. Biss asked them to support a clever savings plan to help as many as 2.5 million Illinoisans -- mostly working- and middle-class -- whose employers don't offer them retirement plans. What's more, the Biss bill is built on three Republican principles: It would encourage personal responsibility for retirement savings, it would cost taxpayers next to nothing and it would enable a private-sector solution.
Yet when Biss' bill came to a vote in the House and Senate last week, it received only one Republican vote. Only ... one. "I'm proud of my vote," state Rep. David McSweeney, R-Barrington Hills, tells us. "I came in skeptical, and (Biss) spent a lot of time answering my questions and making changes, and I think this could save state government a lot of money over the next 50 years."
Every other Republican -- remember, this is the party supposedly eager to broaden its appeal -- got scared off. Gov.-elect Bruce Rauner had asked Republicans to vote down any sweeping proposals before he is sworn in (this bill doesn't affect his agenda). Small-business groups characterized the bill as a monster mandate (that's just dishonest). Financial services firms feared that it could cost them potential customers (these are the firms always urging all of us to save for retirement!). Yet those weak winds were enough to persuade every Republican but McSweeney to chicken out.
Shrewder Democrats pushed the bill through both chambers. We urge Gov. Pat Quinn to sign it; his office tells us he intends to. It's a good bill and it should be, as Quinn likes to say, the law of the land.
Here's how it would work: Biss, a research mathematician, wanted to confront three trend lines whose intersection spells doom for millions of American workers. They're living longer. They're saving little or nothing for retirement. Yet Medicare, Social Security and other entitlement programs are so overpromised that their future benefits could contract. Under this bill, though, workers at companies with 25 or more employees but no retirement plan would be enrolled in one automatically, although individual workers could opt out at any time. And smaller companies could join voluntarily.
Employers who now send workers' income tax payments to Springfield also would send 3 percent of each worker's after-tax income, although workers could choose to save more. The state wouldn't manage the money. Instead, a seven-member board including the state treasurer, comptroller and governor's top budget officer would choose a low-cost provider such as Vanguard, Schwab or T. Rowe Price to accept the payroll deductions and deposit them in each worker's Roth IRA. Those accounts would be portable from employer to employer. And in retirement the withdrawals would, as from any Roth, be tax-free. Oh, and by law all administrative, investment and fund fees couldn't total more than 0.75 percent of invested assets.
Yes, this sounds like company 401(k) plans that automatically enroll new workers and funnel their savings into diversified, target-date mutual funds. The big difference: Illinois companies would be forbidden to match these contributions. Repeating for employers who were fed lies to the contrary: You won't -- you can't -- match these contributions. You want that feature? Then start a 401(k) plan for your workers. Your only real expense here is a software tweak to your existing payroll system. After that, this would be as automated and mindless as other payroll deductions. And by law you'll have no fiduciary responsibility for this money.
Supporting this bill should have been a no-brainer for any lawmaker who devoted some time to understanding it.
Workers should be cheering for a low-effort opportunity to avoid a retirement diet of Meow Mix.
And if employers play it smart, they'll be big winners too. We said in April that those with imagination and pluck should support Biss' bill as a big plus for their workers and then, when it's law, explain to them: "Look, folks, at our new retirement plan. Thank me now and thank me 40 years from now. Why, you're welcome!"
We added that Biss probably wouldn't mind if business owners cross their fingers and hog all the credit. We just checked with him. He'll have your back.
And all those legislators too scared to support this bill? Don't worry about their retirements. Most of them are piling up state pension points. They'll be fine.
