Illinois Secure Choice program takes aim at 'retirement crisis'
SPRINGFIELD -- More than 24,000 private-sector workers in Illinois have collectively stashed away more than $5 million in retirement savings since January as part of a new state program that increases access to retirement accounts for individuals whose employers do not already offer them.
Illinois Secure Choice was created by state law in 2015, requiring businesses with 25 employees or more to offer retirement savings plans or take part in the new program, which automatically enrolls workers in a state-created but independently managed retirement plan.
Illinois Treasurer Mike Frerichs said in a phone interview the program, which will roll out its final phase in November, is the state's attempt at addressing a nationwide "retirement crisis."
"Half of working adults have a mean retirement account of zero dollars," Frerichs said. "It is in our best interest to make sure that people have saved their own money for their retirement. Not just so they can enjoy their golden years, … but also because it is bad for our economy when an entire generation of people reach retirement, and then dramatically decrease their spending because they're living on a much lower fixed income."
While the treasurer's office and an appointed, unpaid board of advisers oversee the program, the money invested by Illinois workers goes straight to an account managed by Ascensus, an independent Pennsylvania-based financial services company that won the bid to administer the program.
That means employees opening the retirement accounts remain in complete control of their money and the state cannot use the funds for any other purpose.
For those saving their money, the only restrictions on the retirement accounts are those that apply to any other privately held retirement account.
Frerichs said the goal of the program is to reduce the roadblocks to retirement savings, because workers often don't seek to start their own retirement account if not directly offered one by their employer.
"If you start someone saving automatically, most of them continue to save," he said. "If you make people take some sort of action to save, people put it off. A person with a workplace retirement savings option is 15 times more likely to be saving for their retirement. It's just simple human nature."
Businesses with 100 employees or more that do not already offer retirement plans have been enrolling in the program since January. Come November, more than 10,000 employers -- those employing between 25 and 99 full-time or part-time individuals -- are expected to join the program as part of the final tier of its rollout.
Once a business is enrolled, employees who do not opt out of the program will be automatically enrolled in a Roth IRA savings account, which is accessible at saver.ilsecurechoice.com, a state-run website with information on the program.
A default rate of 5 percent of the employee's income is withheld from each paycheck and deposited into the account, although the employee has the right to adjust or cancel that contribution at any time. They can also choose how aggressive the plan will be from a handful of options.
Employees enrolled in the program pay an annual fee of 0.75 percent of their invested money -- a rate capped at that amount by state law. Frerichs said that rate pays for the administration of the program and is on par with other private retirement plans which generally charge in the area of 1 percent.
There are no fees for employers to become part of the plan, and the law prohibits employer contributions to the plan.
Employers are required to register on ilsecurechoice.com, enter employee information and deduct and remit to the state the employee contributions from payroll. Frerichs said this process is similar to how employers handle income tax withholdings, although the investments that are collected are moved directly into the Ascensus accounts.
While state law does provide for fines of $250 per employee for businesses that fail to comply with the law, the treasurer's office said the goal is voluntary compliance and no fines have yet been levied.
Illinois, California and Oregon offer similar retirement savings plans, according to Chad Parks, who studies the U.S. retirement crisis, has worked with legislators on the issue and is the founder and CEO of California-based Ubiquity Retirement + Savings.
He said nationally, 68 percent of businesses with fewer than 100 employees do not offer retirement plans and the number is closer to 92 percent for companies with fewer than 20 employees.
"A lot of these different states have been hearing that message for a long time, and they start to look at these stats within their own borders," he said. "And they say, 'Hey, you know, if half of our population statistically doesn't have access to retirement savings plan, we know that that's going to become a big social challenge for ourselves, for our state government and our local county governments. … It's going to put a strain on social services in the future.'"
Parks said he prefers a flat fee structure for retirement accounts rather than percentage of savings, and the Illinois threshold for businesses with at least 25 employees leaves a lot of workers without access to the program.
Still, he said Illinois' action is part of a growing trend of states addressing the retirement crisis that could reach the national level.
"There's always challenges and obstacles, but the one we're trying to solve is just to get people access and get people in," he said. "Once you're in, then we can help you decide how much do you want to save. … We're trying to solve the lifetime income problem."