By Bob Susnjara, Daily Herald
About 1.2 million Illinois residents will have money automatically deducted from their paychecks for a retirement savings plan through a new state program being phased in 3½ years after becoming law — a move the state treasurer says could reduce use of food stamps, Medicaid and other publicly funded resources.
Illinois Secure Choice works with businesses that have been operating for at least two years with 25 or more employees and don’t offer automatic retirement savings plans, such as a 401(k) or pension. They will be linked to a financial firm that will provide ways for workers to build a nest egg with after-tax cash deducted from each paycheck for a Roth IRA. Illinois is the second state in the country with such an initiative.
Not everyone is sold on the effort. The U.S. Chamber of Commerce has issued a report saying such programs are a “poor substitute” for typical employer-provided retirement plans.
Illinois Treasurer Michael Frerichs said eight businesses have volunteered to be in the Secure Choice pilot program that started in the last week. By November 2019, all companies with 25 or more workers must be part of the program or contract directly with firms that handle employee retirement accounts.
Frerichs said having more residents with retirement savings will benefit everyone in Illinois. Former Gov. Pat Quinn signed Illinois Secure Choice into law in January 2015
“I think we’ve set up a program here that is going to provide a better retirement for a million Illinoisans,” he said. “People will say, ‘Why is the state involved in it? Why do I care?’ Well, you may not care about that individual, but you’ll care when that individual shows up for food stamps. You’ll care if that individual goes on Medicaid sooner, because that’s going to cost you. If we don’t help them save their own money, we’re all going to contribute to their delinquency.”
Frerichs said while he believes all employers want workers to save for retirement, some can’t afford to create 401(k) programs or offer pensions. He said some businesses also are concerned about the federal Employee Retirement Income Security Act, which would open them to legal liability and financial risk if something goes wrong with a plan.
“With Secure Choice, no risk to the employers,” he said.
Employers don’t have to pay to join Secure Choice. After a company registers during the phased-in process, the state will link it to Pennsylvania-based Ascensus, which administers IRAs and health savings accounts.
An estimated 1.2 million workers will be eligible for automatic enrollment in Secure Choice, with 5 percent of gross pay being deducted and placed in a default target-date retirement fund. Employees will be able to switch savings rates and retirement funds or may opt out of the program.
Ascensus will offer workers four investments with differing risk levels and an annual cost of about 75 cents for every $100 in an account. In addition to the Black Rock target fund, there will be bond and Standard & Poor’s 500 index funds operated by Charles Schwab Corp. and State Street’s institutional liquid reserve fund.
Roughly 2.5 million private sector workers in Illinois did not have access to an employment-based retirement plan in 2010, according to a report by the Chicago-based nonprofit Woodstock Institute. Woodstock studies income and housing issues.