Mark Fitton Dec. 12, 2014, 11:08am

Illinois businesses with 25 or more workers may soon be compelled to offer employees access to an IRA retirement savings plans if they aren’t offering 401(k) plans.

The Illinois Secure Choice Saving Program, now awaiting the signature of Gov. Pat Quinn, would require employers to withhold 3 percent from each employee’s paycheck.
The money would go into an IRA for each employee.

The employers wouldn’t have to select individual IRA products and managers themselves. Instead, a firm selected by a state board would handle those tasks.

The oversight board would include the state treasurer, state comptroller, the head of the state’s nonpartisan budget office and four gubernatorial appointees.

While employees will be presented investment choices and may opt out, each employee who wants to keep the 3 percent in his or her paycheck would have to initiate that option.

The measure was sponsored by state Sen. Daniel Biss, D-Evanston and state Rep. Barbara Flynn Currie, D-Chicago, and passed largely along party line votes.

While the plan to boost retirement savings has many and significant backers, including AARP, not everyone thinks the state belongs in the retirement savings business.

Proponents say the “automatic” or “all-in” nature of the program is tied to the reason for its need. Americans – Illinoisans being no exception – generally do not save enough for retirement. Those falling short then turn to taxpayer-funded government assistance.
While acknowledging the good intentions of the plan and the need for more saving, detractors say Secure Choice has faults.

They say an automatic retirement savings plan is another mandate on businesses, an intrusion into private sector markets and an unwelcomed injection of government into the employer-employee relationship.

And they say Illinois government – notorious for underfunding its public-sector pensions and driving the state into a billions-deep budget hole – is hardly the best choice to handle private retirement finances.

“We believe there are currently ample opportunities in the private market to purchase retirement products,” said Kim Maisch, Illinois director for the National Federation of Independent Business.

Further, she said, all businesses are hardly the same. The restaurant industry, for instance, faces very high turnover and will be more stressed than most by an additional mandate.

Maisch also said it’s ironic that many of the same legislators who argued a dire need for an increase in the minimum wage now want 3 percent taken from the front end of paychecks.

“Do they now think that 3 percent wasn’t going for food for the table or gas for the car?” Maisch asked.

Sate Sen. Kyle McCarter, R-Lebanon, said implementing the plan would be a problem for small businesses.

McCarter, a business owner who operates Custom Product Innovations and Custom Coating Innovations in Lebanon, said that if one of his partners was not a public accountant, he would have to hire someone to administer the 401(k) options his firm offers.

Additionally, he wondered how the state would go about choosing a single fund manager for such a massive program.

“And, given our record for handling our own employees' pension funds, what in the world would make anyone think the state is the best choice to manage theirs?” McCarter said.

Sen. Biss argues the need for greater retirement savings is among the country’s most pressing issues. The national shortfall between actual savings and realistic retirement need is estimated between $6 trillion and $14 trillion, he said.

The bill, Biss has said, will give an estimated 2.5 million Illinoisans — nearly half the workforce — access to retirement savings through the workplace for the first time.

Supporters say the difficulty and cost of administering the program is overstated, especially given the adaptability of modern software for business managers. Businesses of 25 or more employees are large enough that they are already using automated or electronic payroll programs, proponents say.

Biss said the money put into the program would not be the property of the state and literally no more accessible to the government than a person’s savings account.

If signed by the governor, Secure Choice will be the first program of its kind in the country. A two-year phase-in would make the plan operational in 2017.

Mark Fitton reports for Illinois News Network, an affiliate of the Illinois Policy Institute.

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State Senator Kyle McCarter
310 W Gallatin St
Vandalia, IL 62471-2821

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