Illinois' Gov. Quinn signs first of its kind law requiring employers to offer employment based individual retirement accounts

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In one of his last acts, outgoing Gov. Quinn signed the Illinois Secure Choice Savings Program (Secure Choice) into law on Jan. 4, 2015, effective June 1, 2015.

According to the Illinois Asset Building Group, the law will give millions of private sector workers the opportunity to save their own money for retirement by expanding access to employment-based retirement savings accounts. Under the terms of the legislation, workers will automatically be enrolled in Secure Choice, which will allow them to save through individual retirement accounts by way of automatic payroll deductions. Those employees who prefer to opt-out can do so. As is common in employment-based programs, the accounts are pooled together and managed by professionals to ensure low fees and competitive investment performance.

The Chicago Tribune pointed out that the law requires employers without a work-based savings plan, that have been in business for at least two years, and that have at least 25 employees to offer the program. The legislation does not specify whether or not the employees must be full-time. The language provides for enrollees to select their own level of contribution, but if they do not take any affirmative action, the default contribution is three percent of wages. There is no mandate for an employer to match the employee’s contribution, nor will any public money be invested. It is estimated that approximately 2.5 million private sector workers currently do not have access to this kind of a savings plan.

The Upshot, The New York Times’ politics and policy blog, recognized that Illinois is a pioneer in this area. Although 85 percent of full-time workers at companies employing 100 or more people enjoy work-based retirement plans, only half of those at smaller firms do, in part because of the administrative burdens. Illinois’ plan limits the state’s involvement to taking the payroll deduction while an outside vendor handles the rest of the administration.

The Upshot suggests that the magic of the program is that individuals’ contributions are automatic. According to the lead sponsor, state Sen. Daniel Biss, the “data show that access to a plan that operates by payroll deduction enormously changes participation from basically zero to over 50 percent.”

So far, Secure Choice has been well received, though some quibble with the details. For example, The Upshot quoted Richard Thaler, a behavioral economist at the University of Chicago, who would have made the default deduction six percent, instead of three percent if he had written the law. Similarly, Andrew Biggs, a retirement policy expert at the American Enterprise Institute, expressed concern that the smallest employers, those with fewer than 25 employees, do not have to participate.

Even so, the Chicago Tribune reports that other states are likely to follow suit, like California, Connecticut, Maryland, Massachusetts, Minnesota, and Oregon. Chicago Tonight noted that Vermont is also evaluating the feasibility of such a program.

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