• Vitaly Novok

Illinois Secure Choice or How to Fix a Retirement Savings Gap for Employees of Small Businesses



In 2016 more than 40% of full-time private sector workers said they lacked access to either a pension or an employer-based retirement savings plan such as a 401(k), according to a Pew Charitable Trust brief. People without retirement savings put immense pressure on government services such as the Supplemental Nutrition Assistance Program (SNAP). And who pays for those services? We all do.


Part of the retirement savings gap has happened because high costs, administrative hassles, and general complacency keep many employers from setting up such plans. To help people save more for retirement and to reduce pressure on the state’s financial well-being, Illinois is rolling out Illinois Secure Choice.


How Illinois Secure Choice Works


Illinois Secure Choice guarantees a retirement savings plan for employees of businesses with at least 25 employees who have been in business at least two years and that don’t currently offer a retirement savings plan. It will be the second state, after Oregon, to have such an initiative and it will go into effect by November 2019.


Each business that participates will work with a financial firm that will help it find ways for workers to build a Roth IRA from after-tax money deducted from each paycheck. With that saved money, people should be able to postpone or avoid applying for programs such as Medicaid and SNAP.


Possible Problems


The U.S. Chamber of Commerce issued a report that asserts that state auto-IRAs -- as it calls programs like Illinois Secure Choice – will cause employers to stop offering their own retirement plans and will reduce employer encouragement to employees to contribute to their IRAs. The report also says state auto-IRAs do not offer employees as many plan choices, restrict how much employees can contribute to their plans and keep employers from contributing at all.


There is always the “law of unintended consequences,” but the Chamber’s stated risks do not outweigh the chances that Illinois Secure Choice will give thousands more people a chance to save for retirement. While the Chamber of Commerce might envision giving businesses ever more incentives to provide retirement savings plans, there are business owners who may never understand how providing such plans can benefit them. This legislation will take the action that we cannot wait for any longer.


Benefits


Small businesses will particularly be affected by Illinois Secure Choice, especially since it will be an opt-out program. “Opt-out” means all employees are enrolled, unless they take action to be excluded. Saving money for retirement will become much easier to do for employees as well as employers. And the more people save for retirement, the less strain on government assistance programs. This change will affect everyone who pays taxes.


Besides the complicated administrative requirements and expenses, businesses small and large have also been held back by concerns about the Employee Retirement Income Security Act (ERISA). ERISA holds businesses liable when there are problems with a plan. With Secure Choice, businesses will be free of those risks since Secure Choice will be state-run and state secured.


Early Days


Oregon began its OregonSaves pilot program in July 2017. So far it has had a few challenges that might be overcome with a more stringent mandate and making the enrollment process faster. Illinois Secure Choice began its pilot at the beginning of this month with eight businesses. As we get farther from the pension model of retirement plans, it will become more and more critical for individuals to have retirement savings accounts. Illinois Secure Choice will help many people start saving who currently have nothing put aside for retirement. It remains to be seen if the pros outweigh the cons, but such an attempt to get more people to save is past due. If you have a business in Illinois with at least 25 employees, and you will have been in business for at least two years in November 2019, and you do not currently have a retirement savings plan in place, visit the Illinois Secure Choice website. It shows the timeline for implementation.

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