A retirement savings nest will soon become a reality for many Illinoisans who currently lack access to a workplace plan thanks to a bill signed into law last January. Progress Illinois takes a look at the Illinois Secure Choice Savings Program, set to be implemented by summer 2017.
Saving for retirement could get much easier for more than a million private-sector Illinois workers next year under a first-in-the-nation state program that is in the works.
The initiative is called the Illinois Secure Choice Savings Program. Through the program, signed into law (SB 2758) by former Illinois Gov. Pat Quinn in January 2015, workers at businesses in operation for at least two years with 25 or more employees must have access to an individual retirement savings account through their employer by June 2017.
Such eligible workers can participate in the state's Secure Choice program and build retirement savings through a 3 percent payroll deduction. Workers covered by the measure are allowed to opt out of the program or reduce their payroll deductions if they choose.
"We are the first in the nation to adopt this approach, and the state's working very hard to make sure that it's successful," said Spencer Cowan, senior vice president of research at the Chicago-based Woodstock Institute, a nonprofit research and policy group focused on "fair lending, wealth creation and financial systems reform."
The Woodstock Institute is among the groups involved with the Illinois Asset Building Group*, which advocated for the Secure Choice program.
An estimated 1.2 million private-sector workers who currently lack access to an employer-provided retirement plan could benefit from the Secure Choice program once it is implemented, according to Illinois State Treasurer Michael Frerichs, who chairs the seven-member board administering the program.
Among other duties, the board is responsible for picking an asset manager to handle Secure Choice funds. Secure Choice board members include Illinois Comptroller Leslie Munger; Tim Nuding, director of the Governor's Office of Management and Budget; and four individuals appointed by Gov. Bruce Rauner. The four gubernatorial appointments are Miriam Martinez, chief investment officer at the Chicago Treasurer's Office; Dave Marzahl, president and CEO of the Center for Economic Progress; financial adviser and investment manager David Rappaport of Rappaport Reiches Capital Management, LLC; and John Rauschenberger of the Technology and Manufacturing Association and Rauschenberger Partners, LLC. Rauschenberger's expertise includes insurance, sales and operations management.
The Secure Choice program comes at a time when working-aged U.S. adults have a median retirement account balance of $3,000 and when 1 in 3 retirees depend on Social Security for 90 percent of their income, according to the Illinois Asset Building Group. In Illinois, the average monthly Social Security benefit is just over $1,200.
"Workers are not saving enough for retirement. That's pretty generally accepted knowledge," Cowan said, adding that the Secure Choice program "is one of a number of different approaches that have been considered" to address the issue.
Cowan said the Secure Choice program -- spearheaded in the Illinois legislature by State Sen. Daniel Biss (D-Evanston) and Illinois House Majority Leader Barbara Flynn Currie (D-Chicago) -- could be a model for other states wanting to help workers save for retirement.
"It's still at a very early stage, because this is brand new. It's not as if we can look to another state and copy what they've done," he said. "I think the people are trying to be very conscientious about doing it in a way that they're most likely to succeed so that other states can look at us and use us as a model and learn from us."
But the program's implementation faces at least one key hurdle.
State law prohibits the Secure Choice program from being implemented if it is found to be covered under the Employee Retirement Income Security Act (ERISA) of 1974, which regulates most private-sector employee pension and health care plans.
That provision was worked into the law to ensure employers would not be forced "into a position where they had to enroll employees, and then comply with all these burdensome ERISA requirements," Cowan said, explaining that "a lot of paperwork" and "legal requirements" are required for ERISA-covered plans.
New regulations proposed by the U.S. Labor Department in November, however, would let state savings arrangements like the Secure Choice program move forward without being subject to ERISA. Specifically, employers required to enroll employees as part of Secure Choice and similar state programs would be exempt from ERISA's requirements under the Labor Department's proposal, which still needs to be finalized.
The program's startup costs, meanwhile, were estimated between $15 million to $20 million in a fiscal note from the treasurer's office that accompanied the Secure Choice legislation.
"I think those startup numbers came from a previous treasurer, and I think they were overly inflated," Frerichs said, adding that he thinks the $15 million to $20 million estimate came "from a previous administration that did not want to implement this and threw out an exaggerated number to scare people away."
Frerichs said his office is providing staff and resources to facilitate the Secure Choice program's administration and implementation. In the current fiscal year, state appropriations totaling $2.1 million were provided for Secure Choice's startup costs, Frerichs said.
"It was appropriated because this is brand new," he said. "We don't know exactly what we're gonna need, but we feel pretty confident that we can do this, and my office is working diligently with the Secure Choice board to move forward with the implementation of the program."
Under the law, the board could delay the program's implementation if adequate startup funds are not obtained by June 2017.
Lucy Mullany, with the Heartland Alliance and the Illinois Asset Building Group, said both private and public funding, including from state and federal sources, can be used for the program's rollout.
Mullany said the program essentially "pays for itself" through administrative fees, which are capped at .75 percent of all assets.
"The program is structured in a way that once it gets rolling, any money that the state puts in will be paid back," she said. "Basically, there's a very small admin fee on the program, and the board is instructed to over time pay back the state with a portion of those admin fees."
Leading up to the program's planned start date, Mullany said the Illinois Asset Building Group will engage in community outreach to inform workers about the Secure Choice initiative. As part of that effort, the group plans to connect Illinois workers who lack retirement savings accounts with financial training coaches working at state-based social service agencies. The goal is to also reach out to workers whose employers would not be subject to the Secure Choice program.
"If a worker who maybe is at a very small business wants to participate, we want to make sure that they still can and that it's easy for them to participate," she said.
A report released this month by The Pew Charitable Trusts provided a snapshot of employer-based retirement plan access and participation in Illinois.
Over 1 million full-time, year-round Illinois workers in the private sector lack access to an employer-provided retirement plan. Nationwide, that figure is more than 30 million.
At the national level, 58 percent of full-time, private-sector workers have access to a plan, while the participation rate is 49 percent. In Illinois, 62 percent of full-time workers in the private sector have access to a work-provided pension or retirement savings plan, and 53 percent are participating in one.
"For those employees who currently have a pension or a 401(k) through their workplace, we encourage them to put money aside, be prepared for their retirement," Frerichs said. "For those who don't, if they work for an employer with 25 or more employees that has been doing business in the state for two years, help is on the way. But there is no time like the present to begin preparing for the future."
*SEIU Healthcare Illinois is a partner to the Illinois Asset Building Group. The SEIU Illinois Council sponsors this website.