Working Illinoisans without retirement accounts could see a 3 percent deduction in their take-home pay next summer, as a new federal rule allows the state to auto-enroll them into an IRA pool.
A new rule change from the Labor Department allows Illinois to implement the Illinois Secure Choice Savings Program, which was signed into law by former Gov. Pat Quinn in January 2015. It forces employers with more than 25 employees that have been in business for more than two years and don't offer a retirement plan to either do so or deduct 3 percent from their employees’ paychecks and put it in state-directed plans. Employees who do not wish to be in the program may opt out.
Financial Services Institute Vice President David Bellaire said that, while retirement savings is a noble thought, some people should be using that money to pay down debt.
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"State-run plans like the one that passed in Illinois do not address the underlying causes that keep people from saving for retirement, like low incomes, bills, credit debt and the desire to fulfill short-term needs," Bellaire said.
Workers have no shortage of debt. Financial website Wallethub said the country is on track to surpass $1 trillion in credit debt by 2017.
Bellaire also said employers that previously offered a matching 401(k) could find it easier to drop their plans and instruct their employees to enroll in Secure Choice, cutting costs, but lessening retirement savings.
The Woodstock Institute said 2.5 million private-sector employees in Illinois aren't offered a retirement plan by their employers.
Illinois Treasurer Michael Frerichs, in a letter to newspapers around the state, said, "We are grateful to the Department of Labor for its recognition that the status quo was not adequately addressing the retirement needs of all workers, and for its swift and deliberate action to support state efforts to create retirement programs and address our country's fast-growing retirement crisis."
Implementation of the program is already underway and is expected to cost the state between $15 million and $20 million in the first couple of years. The program is expected to begin next summer.