Illinois is piloting a “mostly mandatory” Individual Retirement Account (IRA) savings program for private sector workers. Though not a DC in that it doesn’t require employer payments, it requires businesses with 25 or more employees without a retirement program to enroll their workers into an IRA that automatically deducts 3 percent from each paycheck. Workers may increase the contribution or opt out entirely.
The Illinois IRA program could encourage poorer families to save more and help with wealth accumulation. Stan Veuger, resident scholar at the American Enterprise Institute (AEI), explains:
“I think it’s a great initiative, actually, for a variety of reasons. Tax-preferred saving vehicles like this reduce capital taxation, increasing the returns to investment and growing the capital stock; they are a move away from income taxation toward consumption taxation (if there were no contribution limits we would basically have a pure consumption tax immediately); they are a (small) supplementary step toward fundamental Social Security reform; they demonstrate a way to avoid state- and federal-level pension crises; and they help the non-wealthy build up wealth.”