More than half of Illinois’ private sector employees do not have access to a retirement savings plan through their jobs, according to a new study released by the Woodstock Institute.
The Chicago-based nonprofit, a research and policy organization focused on fair lending, wealth creation, and financial systems reform, analyzed data from the Bureau of Labor Statistics, the Census Bureau, and the Employee Benefits Research Institute.
The study, called “Coming Up Short: The Scope of Retirement Insecurity Among Illinois Workers,” found that 2.2 million private sector workers in the state, or 46.6 percent, had access to a retirement plan at their employers in 2010, while 2.5 million, or 53.4 percent, did not.
The study researched every Illinois county, Senate and House district, Chicago neighborhood and Chicago suburb, and found private-sector workers with access to employment-based retirement savings plans were the minority. Lower-wage workers are the least likely to have access to such a plan, with nearly 60 percent lacking access.
“If we don’t do something about improving our retirement savings, there are going to be millions of older Americans living in poverty,” said Spencer Cowan, vice president of the Woodstock Institute and author of the report.
On average, retirement savings comprise of one-fifth of retirement income, second only to Social Security.
But, because of changes in the age limit for receiving full benefits, Social Security now replaces a smaller percentage of pre-retirement income than it did in previous decades. The current age limit for receiving full benefits is 66, and 67 for people born after 1959. As people retire before reaching the increasing age for receiving full benefits, the amount they receive is reduced, putting more emphasis on the need for a retirement savings plan.
“Essentially, older Americans are getting squeezed,” said Cowan. “We’re hoping Illinois will do something to help people get tax advantage retirement savings to accumulate additional funds to support themselves when they retire—people shouldn’t have to greatly reduce their standard of living, work until their 80, or depend on their children.”
The report’s policy recommendation poses the need for a statewide automatic IRA program that would maximize participation while allowing workers to opt out if they choose. It suggests the savings plan should not impose long vesting periods, so workers may take their savings with them when they move from job to job, and should receive the same favorable tax treatment as individual retirement savings options, such as IRAs or Roth IRAs.
A version of that program is currently sitting in legislative-limbo in Springfield. Sponsored by State Rep. Deborah Mell (D-Chicago), HB 4497, called the Illinois Automatic IRA Program Act, would allow employees of employers that have not offered a qualified retirement plan for 2 years to set aside a percentage of their wages to be deposited into an IRA trust fund administered by the State Treasurer's office. The bill was referred to the Rules Committee in March.
“Without access to employment-based retirement savings accounts, workers in Illinois do not have access to a vital tool they need to build a financially-secure retirement. We need to create a structure in our state in which workers, who do not have access to an employer-sponsored retirement plan, can save,” said Lucy Mullany, coordinator of the Illinois Asset Building Group and a senior policy associate at the Heartland Alliance, in an email. “An automatic IRA program is a cost effective, innovative, program that can bridge the retirement savings gap, and especially help low to moderate income workers save.”
Representatives of the American Association of Retired Persons (AARP) testified on behalf of the Illinois Automatic IRA Program Act earlier this year, and the organization supports and advocates the recommendation to automatically enroll workers into a retirement savings plan.
“Ideally, people will live a long life and be able to take care of themselves throughout that period, but the fact is that most people aren’t that lucky and they need to have financial security in place, just in case they’re forced into retirement—you never know what’s going to come up,” said Ryan Gruenenfelder, associate state director of advocacy and outreach for the AARP Illinois.
A nationwide survey conducted in 2012 by AARP found that 72 percent of non-retired 50 to 64-year-olds believe they will probably be forced to delay retirement, 50 percent have little confidence that they will ever be able to retire and 65 percent have little confidence that they will have the means to live comfortably in retirement. AARP polled 1,852 registered voters, including 1,331 aged 50 and older.
“When people don’t have access to that retirement savings plan, they don’t start thinking about what they need to stock away for retirement until its too late,” said Gruenenfelder. “There will be a small amount of purchasing power among those folks—they’re going to be less likely to spend money and spur an economy that needs to be spurred. Plus, savings is what allows investment, and unless people are saving, banks don’t have money to lend or invest, this is going to have a negative effect on our whole economy.”