Illinois was facing a looming retirement security crisis: 2.5 million Illinois workers lack access to employer-sponsored retirement plans. Illinois legislature feels the need to act now to help give Illinois residents the tools to save, or else the number of retirees living in poverty will continue to grow.
According to data from the Bureau of Labor Statistics, 85 percent of Americans work full time at employers with 100 or more employees have access to a retirement plan at work; just half of full-time workers at smaller organizations do. Lack of access to employer-based plans is one the reasons middle-income Americans tend to have not saved enough for retirement.
Just 52 percent of households headed by a worker aged 55 to 64 had a 401(k) account in 2013, according to the Center for Retirement Research at Boston College: the median balance among households nearing retirement that had accounts was just $111,000.
Often small employers don’t offer retirement plans because doing so is a significant administrative and cost burden.
What was the problem?
What is the solution?
In the Secure Choice Plan, participation is mandatory for employers with at least 25 employees, but the employer's administrative burden is limited to taking a payroll deduction, similar to the ones they already take for taxes. A vendor chosen by the state does the work of administering the retirement plans.
Employees select how much to contribute, though their contributions cannot exceed the current maximum annual contribution limits for Roth IRAs ($5,500 for workers under age 50 and $6,500 for those older). Employees pick their investment options from a menu of choices established by a seven-member board, which will oversee the program. Employees in the program who fail to select investments will be automatically enrolled at a contribution rate of three percent of pay, and their contributions will be invested in a life-cycle fund that automatically becomes more conservatively invested as they age. Workers must pay income tax on any money contributed to Roth IRAs , but, once the worker retires, he or she can withdraw money from the account tax-free. Employees are allowed to opt out at any time.