Woodstock’s 2012 research report entitled Coming Up Short illustrated that over 2.5 million private-sector workers in Illinois, in every corner of the state, lack access to a retirement savings plan through their place of employment. Most of these workers are in smaller companies and in industries such as retail and food service that pay low wages and offer few, if any, benefits. We know that this situation holds true in the rest of the country, as well.

Working in collaboration with champions in the Illinois General Assembly, including Senator Daniel Biss, then-Senator/now Illinois Treasurer Michael Frerichs, and Representative Barbara Flynn-Currie, industry leaders such as John Rogers and Ariel Investments, and a broad coalition of Illinois Asset Building Group members, AARP, SEIU Healthcare, community-based organizations, and the Illinois Black Chamber of Commerce, we used Coming Up Short to educate the public and policymakers about the need to help workers save money to supplement Social Security benefits, which were never intended to be workers’ sole source of retirement  income.

After three years of efforts, the Illinois General Assembly passed a law creating the Illinois Secure Choice retirement savings program—the first of its kind in the country—under which employers of 25 or more year-round workers will automatically enroll workers in a payroll deduction Roth IRA program, and workers will save their own money in an account managed by an investment firm under the supervision of a Board of Trustees and the Illinois Treasurer. The default option is a three-percent payroll deduction into a target-date investment fund. Workers are able to opt out entirely, change the percentage deducted, and select among a few other investment options. The account is “portable,“ meaning it remains with the worker even if the worker changes jobs or has more than one job.

The program is based on findings from the field of behavioral economics and the understanding that even though workers who lack access to retirement plans at work could, theoretically, go purchase IRAs in the private market on their own, the reality is that few workers do so. Therefore, the Illinois Secure Choice program is designed to increase the likelihood that workers will participate and save for retirement. “Research shows that workers who are automatically enrolled in retirement plans are 15 times more likely to participate and save than other workers,” Secretary Perez said.

Structuring Illinois Secure Choice to avoid burdening affected small businesses with costs of compliance with federal ERISA law was critical to gaining broad support and passage. We are very pleased that President Obama requested, and Department of Labor Secretary Perez issued today, a proposed rule which clarifies that businesses required to automatically enroll workers into programs such as Illinois Secure Choice will, in fact, have a safe harbor from ERISA. This rule not only helps Illinois businesses and over a million Illinois workers who will benefit from saving through Illinois Secure Choice, but also helps businesses and millions of workers in at least 20 others states that are considering adopting similar programs.

Woodstock Institute will help stakeholders submit comments or sign on to Woodstock’s comments on the proposed rule.

Related Article: New rules would make it easier for small-business workers to save for retirement