In what is a first for the nation, the State of Illinois this month passed into law a requirement that most employers must offer automatic retirement savings programs. The legislation was signed by Illinois Gov. Pat Quinn at the beginning of the month, and could be a model for other states or even a national effort at some point.
Known as Secure Choice, the program goes into effect on June 1, 2017, and it affects all employers with at least 25 employees and which have been in business for at least two years. Companies that already offer a retirement savings plan of some type would be exempt.
The new law, which was at least three years in the making, was hard-fought victories to help citizens better prepare for retirement, notes the legislation’s key sponsor, State Senator Daniel Biss.
“It’s been very interesting because during the course of the time that I was working on the legislation, which is to say reasonably hard for two years and extremely hard for one year , the overwhelming majority of commentary I heard from anybody was negative,” Biss said.
“Those who opposed the bill were able to successfully mobilize various entities to speak against it to my colleagues,” Biss said. “But now that it’s passed there’s been much more positive attention and interest and, in fact, the only consistent criticism I’ve heard since the bill passed was that it didn’t go far enough.”
Biss offers the following examples of questions he has since heard:
• “The default employee contribution is 3 percent – how come it’s not higher?”
• “How come there’s an automatic escalation provision?
• “How come it only applies to employers that have 25 or more employees – why not smaller ones as well?”
“Once the discussion became a news item and was away from the confines of interest groups inside the state capitol, the response has been really encouragingly positive,” Biss said.
The Plan’s Details
As to the Secure Choice program itself, participation by individuals is voluntary. Their employer must offer a plan, but the employee may opt out if desired. The hope is that most won’t, since research has shown that employees that are automatically enrolled in a retirement plan tend to stay with it.
Employers may also offer a retirement plan at any time prior to the June 1, 2017 start date and be entirely exempt from the whole bill.
“So if an employer offers a 401(k) or pension or various other types of plan, whether it’s opt in or opt out, they are entirely out of this bill,” Biss said. And while there are certainly plenty of employees that are under-saving at this point, “this bill doesn’t address that problem. What the bill does say is that for those employers that are not in that category, their employees will be automatically enrolled in a Roth IRA unless the employees opt out.”
That the various states, and his state in particular, need some sort of required retirement savings program is a no-brainer, he said.
“What is so interesting to me about this issue is that you don’t have to go very far down the socio-economic ladder before you are into territory where people are seeing significant un-readiness for retirement,” Biss said.
Raising the Retirement Crisis Profile
While the country is addressing the access gap in healthcare insurance, Biss wishes the same were true for retirement savings.
“I’m certainly very passionate about expanding healthcare coverage, but there are not that many people making $70,000 a year on a full time salary without having access to health insurance,” Biss said. “Most people in that category at least have access to some health insurance through their employer.