Illinois starts program to help private-sector workers save for retirement

Three years ago, Illinois became the nation’s first U.S. state with a law to help private-sector workers save for retirement via a state-facilitated savings plan. This summer, the treasurer’s office began its rollout of this potentially groundbreaking initiative, known as Secure Choice.
The program launched with a small set of voluntary employers in Illinois who agreed to automatically enroll workers through their payroll systems. But participation soon will be mandatory for many Illinois businesses — namely, those with 25 or more employees that don’t offer a 401(k) or other qualified savings plan of their own.
“By the fall of 2019, all of the employers who are required to participate in Secure Choice will be registered and enrolled and have their employees ready to go,” says Courtney Eccles, director of the program for the Illinois treasurer’s office.

Part of Eccles’ work to date has involved outreach to businesses — alerting them not only of what they have to do under Secure Choice, but of what’s not required.
“There are a lot of questions when they see it on first glance,” she says. “But after a few minutes of explaining that they don’t have to administer it, they don’t contribute to it, and they don’t have to track employees once they leave, a lot of the employers I’ve talked to say it makes sense.”
Once Secure Choice is fully implemented, the treasurer’s office estimates that 1.2 million people in Illinois will gain access to a workplace-based retirement-savings option. Under the program’s rules, these workers will have 5 percent of their pay automatically deducted into a target-date Roth IRA.
Program participants can change their fund option or the amount deducted into these individual, portable accounts. Individuals also can decide to opt out entirely. The goal of the Illinois law (and others like it that have been passed in a handful of other U.S. states) is to address concerns about a looming “retirement crisis.”
“The way people think about saving and getting benefits hasn’t caught up with changes in the economy, and that is driving up the number of people without retirement [savings],” says Jim Malatras, president of the Rockefeller Institute of Government. “You can’t talk about these state initiatives without talking about the larger shift in our economy, from employer-based benefits to more independent-contracting rules. Yes, it’s being fueled by the Ubers of the world, but even blue-chip companies are doing more subcontracting. It’s a much different environment.”
In a Rockefeller Institute study issued earlier this year, Malatras and his two co-authors highlighted three types of policy approaches now being tried by states. The first is “Auto-IRA”: requiring employers to enroll workers in these savings plans via their payroll systems (the businesses don’t contribute money, and individual workers can opt out). This is the model being used in Illinois.
A second option is to make employer participation voluntary, and a third is establishing online marketplaces that connect workers and businesses to retirement-plan options.
In some ways, Eccles says, Secure Choice is similar in structure to the college-savings plans already being offered in Illinois and states across the country. Led by the Illinois treasurer, a seven-member board oversees Secure Choice, but day-to-day operations and investment management will be handled by private entities.
Illinois and other states have moved ahead with their plans despite some uncertainty at the federal level, including questions about whether these new retirement plans are exempt from or must comply with the U.S. Employment Retirement Income Security Act.
“We saw some changes [in federal policy] that were unfortunate, but they haven’t changed our feelings about the program and its ability to move forward,” Eccles says.
In the years ahead, Malatras expects more states to follow Illinois’ lead. “By offering exchanges for retirement plans, or having them offered through an employer, you simplify the process, make it easier to understand and give people confidence that they’re choosing something that comes from a governmental entity,” he says.
Stateline Midwest: June/July 20182.11 MB