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Half of US Workforce Has No Retirement Plan – but Illinois Has a Fix

Economists see the Illinois Secure Choice Savings Program, designed for private-sector workers, as an innovative complement to Social Security.

The Illinois Secure Choice Savings Program will automatically enroll workers and will deduct an adjustable percentage per paycheck to set aside in an individual retirement account. (Photo: Retirement savings via Shutterstock)

For Illinois workers anxious about their retirement prospects, relief may be on the way.

In a matter of months, the state will roll out a retirement program for more than 2.5 million private-sector workers, run by a government-appointed board.

The plan, called the Illinois Secure Choice Savings Program, will automatically enroll workers and will deduct an adjustable percentage per paycheck to set aside in an individual retirement account.

While workers will have the ability to opt out of the plan, all businesses within the state that have existed for at least two years and employ 25 people or more will be required to participate if they currently offer no savings plan. Should businesses not comply, they will be fined $250 per unenrolled employee.

“This is a really good idea,” says Dean Baker, an economist with the Center for Economic and Policy Research. “Half of America’s workforce has no retirement plan whatsoever. I know the argument is that everyone should invest in an IRA, but this is the real world, and everyone doesn’t.”

The primary reason, Baker says, is that most people who don’t invest in retirement plans can’t afford to. Not only do they have little disposable income, but retirement accounts can involve service fees of up to 3 percent.

The percentage might sound small, but extended over the course of a career, it can add up to tens of thousands of dollars.

Illinois plans to charge only a minimal service fee. The pooled money from the state’s workers will be managed by a professional investment firm.

“This is to help people with lower incomes who might not have a great deal of extra money to save in their paychecks,” says Barbara Flynn Currie, who represents Illinois’ 25th District. A Democrat, she co-sponsored the bill that created the program.

Currie notes that the bill’s main opposition came from the Financial Services Institute, a financial-industry lobbying group, which contended that the state-run plan might eliminate business opportunities for professionals in the industry. But it passed, despite scant Republican support (only one in the Illinois Statehouse voted in favor of it).

One of those to vote against it was Republican state representative Barbara Wheeler of Illinois’ 64th district.

“It shouldn’t be the government’s duty to mandate employers save for their employees,” she says.

Wheeler says she is not against employers providing retirement plans for their employees, noting that many in the state had offered plans prior to the state’s program, but the decision should ultimately rest with the business itself.

She doubts the state’s ability to provide a decent program. Illinois lawmakers have been roundly criticized for mismanaging the state’s existing pension fund for public employees, which is currently the most underfunded in the nation and has a shortfall of more than $100 billion.

Other critics claim that, were the Illinois Secure Choice Savings Program adopted nationally, it could be used as a tool to eventually get rid of Social Security.

Roughly nine in 10 Americans agree that Social Security is more important than ever to ensure that retirees have a dependable income. The program remains popular despite recent attempts by both Democrats and Republicans to reform it, including suggestions to raise the retirement age or to phase it out altogether.

Baker sees the Illinois retirement program as a complement to Social Security, not a competitor.

“I think we’ll cross that bridge when we come to it, but for right now this is responding to a need,” he says.

Currie shares this assessment, noting that the program makes sound economic sense for people who have no other savings alternative.

A 2014 report found that 60 percent of Illinois’ private-sector workers who make less than $40,000 a year have no access to a retirement plan at their jobs.

Currie is hopeful that the program will be adopted in other states, so workers will be able to transfer their retirement accounts with them should they leave Illinois; workers’ retirement accounts will travel with them should they change jobs within the state, something a traditional 401(k) cannot do.

Several states will be watching how the Illinois program works, including California, which has rekindled its interest in a similar state-run program.

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