“We are the first in the nation to adopt this approach,” said Spencer Cowan, senior vice president of research at the Chicago-based Woodstock Institute nonprofit, “and the state's working very hard to make sure that it's successful.”
A standalone opportunity (separate from underfunded public pensions), ISCSP will enroll workers and deduct an adjustable percentage per paycheck for their Individual Retirement Accounts. Workers can opt out, but Illinois businesses that have operated for at least two years and employ 25 or more workers will be required to participate if they offer no retirement savings plan. Instead of typical retirement management fees of up to 3 percent, ISCSP will charge just 0.75 percent.
Former Gov. Pat Quinn signed the measure on Jan. 5, 2015, days before Rauner’s inauguration, and it technically took effect June 1.
Such a program is important because few people are ready for retirement; some 30 million Americans have no access to such plans. Nationally, less than half of Americans save for retirement, according to the Census Bureau (and of those who don’t save, 84 percent can’t working for employers that don’t even offer a retirement savings vehicle). Further, 60 percent of private-sector workers earning less than $40,000 a year have to access to retirement savings programs, and for those making less than $25,000, it’s 32 percent.
AARP, which estimates 2.5 million Illinois workers have no access to work-based retirement savings plans, was part of a coalition of more than 45 organizations supporting ISCSP, including the Woodstock Institute, Heartland Alliance, and the Service Employees union.
“Secure Choice offers a much-needed retirement savings option for millions of Illinois workers,” said AARP’s Kaitlin Lounsberry. “This is about ensuring a more secure financial future for Illinois workers and their families, by providing a safe, effective way to save for retirement automatically, and in a way that is least burdensome for employers and the state.”
“In Illinois, nearly 1.2 million workers are poised to benefit from our Secure Choice Retirement Savings Program,” said Illinois Treasurer Michael Frerichs.
Frerichs’ spokesman Greg Rivara said, “One of the things that may get lost is that this isn’t ‘another mandate on business.’ It’s for companies with no retirement plan. And the dollars will be separate from General Revenues.
“Also, we heard [opposition] that it’s unnecessary, that people should ‘just talk to an investment broker,’ but if they could they’d already be doing that,” he continued. “People aren’t saving [but] are relying on Social Security, and the average [Social Security benefit] is about $1,200 a month, close to the poverty level. This is smart legislation – and not giving folks this tool will come back on the social-service end.”
Economist Dean Baker of the Center for Economic and Policy Research agreed, saying, “This is a really good idea. I know the argument is that everyone should invest in an IRA, but this is the real world, and everyone doesn't.”
Meanwhile, the budget impasse hasn’t slowed the launch, Rivara said, because Treasury was given the funds authorizing its implementation. However, federal rules had to change to enable states to sponsor retirement savings initiatives without running afoul of pension regulations.
“Now, employers won’t be permitted to contribute,” he said. “They just have to set up the enrollment and payroll deduction.”
Frerichs chairs ISCSP’s seven-member board – state Comptroller Leslie Munger and Tim Nuding, director of the Governor's Office of Management and Budget, plus four people Rauner appointed: Miriam Martinez, chief investment officer at the Chicago Treasurer's Office; Dave Marzahl, president of the Center for Economic Progress; financial adviser and investment manager David Rappaport of Rappaport Reiches Capital; and John Rauschenberger of the Rauschenberger Partners lobbying group.
The board will hire an assets manager and set up an investment pool.
“We hope to have it going so people can start participating in 2017,” Rivara said.
[PICTURED: Graphic from AARP.]
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