Automatic (IRA) for the People
When it comes to building a financially secure retirement, Americans are facing a crisis.
A 2013 study by the National Institute on Retirement Security found that working Americans between the ages of 25 and 64 have between $6.8 and $14 trillion less than they would need to retire at age 67 without incurring a significant lifestyle change.
With households facing such stark shortfalls, it is unsurprising that adequate retirement is one of our biggest national economic concerns. According to Gallup, 59 percent are anxious about having enough money for retirement.
This means that as a nation, we have three choices: abandon all hope of future generations retiring in our 60s, expect to absorb a drastic financial upheaval upon retirement, or dramatically improve our retirement security mechanisms.
Many jobs are physically or emotionally demanding enough to make working well past the age of 70 simply unreasonable. "Drastic lifestyle change" can, for many, literally mean being forced to choose between medication and food. This crisis is a genuinely terrifying situation, and one that clearly calls for us to explore options behind door number three.
How can we effectively improve our retirement security mechanisms? One way is to address the lack of access to workplace plans. Barely half of private sector workers have access to an employer-based retirement plan, and the data are very clear that workers without access to a plan at work are enormously unlikely to save for retirement.
In Illinois, we recently passed the Secure Choice Retirement Savings Program. Under the new law, workers whose employers don't offer any plan (and have at least 25 employees and have existed for at least two years) will be automatically enrolled with a 3% payroll deduction in a Roth Individual Retirement Account (IRA). They can opt out if they don't want to participate, or change their contribution rate if they like. The funds will be pooled together and a private firm will manage the assets with oversight from a board chaired by the state treasurer (and also includes the state comptroller and four gubernatorial appointees who must also be approved by the state Senate).
This program accomplishes three critical goals. First, it creates a workplace-based savings program for many workers who currently lack access. Second, it enrolls employees by default, which means that participation rates and consumer satisfaction will be higher. Finally, it creates a large pool of savers, with a competitive bid process to ensure that fees will be kept low.
All this plan asks of employers is to give employees the opportunity to opt out and to conduct the payroll deduction. In other words, it costs businesses — not to mention government — nothing.
That's why this concept has received plaudits from economists and policy wonks from across the ideological spectrum. Illinois' plan is modeled on a proposal that was supported in the 2008 presidential campaign by both our then-Senator Barack Obama and Senator John McCain.
Given the depth of the problem, the high level of public concern, and the broad support for the Secure Choice concept, one might assume that passing this law was easy. But it wasn't — and states across the country looking to follow Illinois' lead are facing battles of their own.
In Illinois, we fought this battle for years before finally succeeding by the skin of our teeth. Other states have tried, and while many (including California, Oregon, Massachusetts, West Virginia, and others) have made significant progress, none has yet passed a law that actually creates a Secure Choice program. And notwithstanding President Obama's continued support for retirement savings initiatives, through legislative proposals and the executive action creating the myRA initiative, Congress doesn't seem any closer to passing major legislation on the problem of access to workplace savings plans than they did six years ago.
Why all this resistance to a bipartisan effort to help Americans save for retirement? Advocates and public officials (myself included) still have work to do to make stronger connections for the public between our legislative efforts and citizens' concerns about retirement. We also need to continue to build a more politically powerful and diverse coalition of partners in this process, because we face some strong opposition. Many in the financial sector view the creation of a new savings program (even one whose assets are privately managed) as competition, while some employer groups object to being responsible for deducting an IRA contribution from an employee's paycheck and forwarding it to the fund manager.
In spite of these difficulties, the path Illinois took offers a few instructive lessons for success in other states. Persistence in making Secure Choice a priority is one. During the summer and fall of an election year, when most people who participate in the political process were focused on campaigns, other advocates and I drove across the state multiple times, meeting with any legislator who would see us. We were also willing to listen to the opinions and concerns of anyone who was willing to speak with us, and, in many cases, to amend the bill so as to address those concerns. The bill was amended 17 times before it passed, and each of those amendments responded to a point that someone raised in these conversations.
Many of those discussions also brought on board a new legislator or interest group. We were also able to grow our coalition strategically by persuading some previously neutral or nominally supportive entities to be more engaged and start devoting time to meeting with legislators. Simultaneously, we were able to convince some opponents to take a neutral position.
Finally, we benefited from a tremendous amount of that most important of qualities: luck. The Senate had to vote on the legislation twice, and in each instance we had no votes to spare. While we were still working to pass Secure Choice, a statewide advisory referendum recommending an increase in the minimum wage passed overwhelmingly in November 2014. Because of a complex interplay between discussions happening at the state level and in the City of Chicago, it became clear that we'd be unable to pass a state-level minimum wage increase, but support for the measure gave us a clear mandate to pursue other pathways to economic opportunity for low-wage workers — like Secure Choice.
This context gave Secure Choice significant momentum and helped facilitate its passage in the month following the election. This was wonderful news for the millions of Illinois workers who currently lack access to workplace-based retirement plans — certainly cause for celebration. At the same time, we can't lose sight of the role of good fortune in this outcome or ignore the concessions required to build consensus (remember the 17 amendments?).
In order to parlay this very meaningful Illinois success into national action that can truly repair our country's broken retirement security system, we're going to need to establish a game plan that relies less on luck. In fact, we're going to need to establish a game plan that makes success inevitable.
I think the ingredient we're missing right now is a strong political discourse that connects policy interventions to the deep anxiety Americans feel about retirement. When the majority of citizens have a deep and abiding concern about an economic issue, that issue is like tinder waiting to be ignited. And once ignited, it will necessarily be a part of a national agenda, and hopefully on the path to national resolution.
For instance, health care has been on the agenda of national political leaders for the better part of a century, and during much of that time opinion surveys have demonstrated that Americans strongly supported reform. However, it wasn't until the 1991 U.S. Senate election of Harris Wofford that elected leaders, media elites, and the public were all speaking about the issue in the same language with the same sense of urgency. This sudden — indeed, abrupt — transformation had a huge impact on the political and policy dialogue for years to come.
All the ingredients are in place for retirement security to undergo the same rapid transformation — and once it does so, there is no limit to the amount of good we can do for our fellow citizens. Access to a dignified retirement is a core component of a middle-class life, and right now we're falling between $6.8 trillion and $14 trillion short. It's time to create the conditions to solve this problem once and for all.
Daniel Biss represents the 9th district in the Illinois State Senate. He was the lead sponsor of the Secure Choice Retirement Savings Program. This piece originally appeared in the New America Foundation's Weekly Wonk.