Nearly half of all working-age families in America have less than $ 5,000 to retire. And by 2035, as many as 30 million retirees are expected to live in or near poverty.
We have written about this upcoming pension crisis before, including three years ago we supported an automatic retirement savings program run by Illinois Treasurer Michael Frerichs. Since then, unfortunately, almost nothing has improved, except that the Frerichs program has achieved modest success – and it definitely deserves to be expanded.
The Frerichs program, called the Illinois Secure Choice, is a completely voluntary retirement plan that encourages people whose employers do not offer pensions or $ 401,000 to save for retirement themselves. The key to the program’s success is its ability to “disable” rather than “turn on,” meaning workers who have not already been offered retirement savings opportunities through their employers are automatically included in the state retirement program unless they choose not to participate.
Since the Illinois Secure Choice took effect in May 2018, more than 85,000 Illinois employees have joined, saving more than $ 55 million for retirement. They are automatically enrolled over some 6,100 employers – because companies are required to do or pay a fine – and have simply decided not to give up. It’s an easy way to do the right thing.
We strongly support laws breaking through Springfield, Senate Bill 208, which would extend the Illinois Secure Choice to cover many more workers who are saving little or no retirement at the moment. Current law requires companies with 25 or more employees to automatically enroll their employees in the Illinois Secure Choice. The SB208 would lower that threshold to companies with only five employees.
We feel the need to emphasize this once again: companies that offer their own retirement plans do not have to participate in the Illinois Secure Choice. And the only cost for companies that do that is administrative.
The Illinois Secure Choice automatically reduces 5% of the income of retired Roth IRA workers through payroll deductions. The program is run by a private financial services firm – just like 401,000 – and costs about 75 cents a year for every $ 100 in a workers’ IRA.
Another safe choice revision in Illinois required by the SB208 is the addition of an “automatic escalation” feature. This would mean that at the beginning of the new year, for each worker enrolled in the program for at least a year, the contribution will be increased by 1% – unless they decide to decline again. So someone who joins the program at a set rate of 5%, for example, would start hitting 6% next year.
These automatic increases cannot exceed a total contribution of 10%, but workers could save more than 10% if they wish.
“The pension crisis in our country is not resolved,” Frerichs told us. “But the solution we are proposing is broader and, we believe, more important than ever.”
It’s hard to save money. Especially if you work at a job where working hours can be erratic and the boss can be slow to offer any benefits. About a third of the employees enrolled in the Illinois Secure Choice are those who work in the hospitality industry, such as bartenders, waiters and the like.
Expanding the Illinois Secure Choice program, Frerichs estimates, would result in at least another million Illinois workers finally saving for retirement.
Doing a smart thing is much easier when all you need to do is not log out.
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