Illinois Adopts the Nation’s First Automatic Retirement Fund
January 13, 2015
On January 4, 2015, the Governor of Illinois approved an innovative approach for residents to save for retirement. The legislation (S.B. 2758, Act 98-1150) will require employers that currently do not offer qualified retirement plans to withhold a percentage of an employee’s wages and contribute those amounts to the new Illinois Secure Choice Savings Program Fund. The required withholding will begin in 2017 and will be mandatory for employers with at least 25 employees.
Employees that do not affirmatively opt out of the program will be automatically be enrolled. The employee’s accounts will be invested into a fund, which shifts investments from stocks to bonds overtime. Employers that do participate in the program will be fined $250 per employee per year.
The program is similar to the federal “MyRA” retirement accounts, with the important exception that the Illinois plan requires employers to withhold or risk being fined. One of the criticisms of the plan is that the mandate does not include employers that are least likely to offer retirement plans of their employees. Other critics have concerns about the required withholding percentage, which is currently set at 3%, not being high enough.
The Illinois plan will surely be monitored by other states that are considering similar programs. While Illinois’ plan will likely be the first to go live, a number of other forerunner states (e.g., California and Massachusetts) have shown interest in similar plans. With about half of U.S. private-sector employees having no access to retirement savings plans at work, the success of the program being implemented in Illinois could be central to reducing that amount on a nation scale.
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