Savings program goes to governor
Thursday, Dec 4, 2014 - Posted by Rich Miller
* From AARP…
On a vote of 30-25-02 in the Senate and 67-45 in the House, the Illinois Secure Choice Savings Program (SB2758) was approved by the Illinois General Assembly today. The bill will give millions of private sector workers in Illinois the opportunity to save their own money for retirement by expanding access to employment-based retirement savings accounts.
SB2758, sponsored by Illinois Senator Daniel Biss and Representative Barbara Flynn Currie, will automatically enroll workers without access to an employment-based retirement plan into the Secure Choice program. While workers can opt-out of the program, those who do participate will be able to build savings in an Individual Retirement Account (IRA) through a payroll deduction. All accounts will be professionally managed; the large number of accounts expected to be under management will ensure that fees are low and investment performance is competitive. […]
More than 2.5 million workers do not have access to a retirement savings account through their employer, according to a report from the Woodstock Institute. The report found lack of access is most serious for low-wage workers, of whom 60 percent lack access, but even for workers making $40,000 or more, 49 percent do not have access to an employment-based retirement savings plan. In every Senate district in Illinois, over half of private-sector workers do not have access to this type of plan.
* Greg Hinz…
No American state now has anything quite like the program, which would apply to employees of firms with at least 25 workers who do not have access to an employer-provided retirement account. That may explain some of the opposition, especially from the insurance industry and Springfield Republicans, who say the measure was rushed through and should have been left for Gov.-elect Bruce Rauner to consider.
But Biss said a similar measure was endorsed both by President Barack Obama and GOP nominee Sen. John McCain in the 2008 election, and he expects great things from it. […]
Biss disputes charges that the plan will place a big new burden on business. Companies merely have to offer new hires a form to decline enrollment and then integrate withholding into their regular payroll software, he said. […]
Fees will be limited to a maximum of 75 basis points, or 0.75 percent, of the value of an individual’s savings account. The bill takes effect June 1, with a two-year setup period, so no savings accounts will be established until June 2017.
Some insurance folks who market “whole life” plans as retirement options were opposed.
* The SJ-R editorialized in favor…
Clearly, it’s easier to save money when it’s an automatic, hands-off process. Few people have the fiscal discipline to set aside a money from every pay check to deposit later for something fun, like a vacation or a car, let alone the long-term goal of retirement.
It’s an especially difficult prospect for those who barely make ends meet in the first place, a problem frequently exacerbated by unemployment or underemployment in this still-recovering economy.
What happens to all of these savings-challenged Americans when they no longer can work and have no money saved to pay for their health care, housing and food? They will be thrust into the nation’s social safety net, which taxpayers support whether they want to or not.
* From a Sen. Michael Frerichs press release…
“I applaud Senator Biss and Leader Currie for championing financial security, and we all thank the businesses, nonprofits and religious groups that helped make Illinois the first in the nation to take this innovative step,” said Treasurer-elect Mike Frerichs. “I’m honored to have helped millions of middle class Illinoisans save their own money for their retirement, and I look forward to implementing Secure Choice as the next state treasurer.”
We’ll see how implementation goes, but this is a really good idea.
- A guy... - Thursday, Dec 4, 14 @ 11:07 am:
Yep.
- The Captain - Thursday, Dec 4, 14 @ 11:12 am:
A good idea that will be very challenging to implement.
- AlabamaShake - Thursday, Dec 4, 14 @ 11:16 am:
**Springfield Republicans, who say the measure was rushed through and should have been left for Gov.-elect Bruce Rauner to consider.**
The issue was discussed, in depth and in detail, for several years. This was, in no way, rushed.
The “rushed” thing is such a tired talking point.
- Wordslinger - Thursday, Dec 4, 14 @ 11:17 am:
Geez, the insurance industry has clout in this state.
Most HR departments and office managers give their employees a laundry list of programs in which they can enjoy tax-free savings through withholding: transit, medical savings, etc. It’s just a couple of keystrokes to set up.
How does a legislator explain to a constituent that they voted against a way for tax-deferred savings of their own money?
- 1776 - Thursday, Dec 4, 14 @ 11:22 am:
It forces individuals to save 3 percent unless they opt out. Why not make it optional for employees?
Ask small employers who still process paper checks and don’t have automated payroll how difficult it will be.
- walker - Thursday, Dec 4, 14 @ 11:28 am:
Employers could offer roughly similar benefits previously, but only with a lot of hassle and expense. This just makes it easier for them, easier for the employees, and has the likelihood of becoming very popular.
Very good legislation economically.
- Cassandra - Thursday, Dec 4, 14 @ 11:28 am:
I’m wondering why this couldn’t be made available to freelancers, who don’t work for an “employer” but for themselves. This is a growing segment of the work force, and many are low-income, not all are, say, software designers working out of their garage. They could set up their own retirement accounts, but many probably wouldn’t without a nudge. Why not give access through a deduction from bank account.
I think California has recently put up a similar program, but not sure it is available to freelancers.
- Jimmy CrackCorn - Thursday, Dec 4, 14 @ 11:29 am:
==Ask small employers who still process paper checks and don’t have automated payroll how difficult it will be==
Small employers (under 25 employees) were specifically left out of the bill for this reason. In the floor debate an analysis estimated 95% of the businesses use automated payroll software or firms. This will take a payroll manager about 10 minutes to add a deduction line in the pay stub.
- Wordslinger - Thursday, Dec 4, 14 @ 11:32 am:
1776, do we really need to wait on businesses with at least 25 employees who are still using an abacus, a bound ledger and writing checks to change policy?
As far as a “burden” on them — dude, if they’re still operating that way, they’re burdening themselves.
- vole - Thursday, Dec 4, 14 @ 11:36 am:
Be interesting to see how IL manages to keep crony influence out of the choice of the management firm and all the funds that the firm chooses for investment options.
And to expect that pulling 3% from the paychecks of low wage or minimum wage workers is going to keep them from extreme financial strain when they reach retirement age really stretches credulity. But a few thousand beats zero I suppose.
- walker - Thursday, Dec 4, 14 @ 11:40 am:
===”It forces employees to save 3% unless they opt out. Why not make it optional for employees?”===
You want to rephrase ‘76?
Actually I get your point, but think this requirement to make a choice on a savings opportunity, could be a boost to the economy in many ways.
- mythoughtis - Thursday, Dec 4, 14 @ 11:43 am:
==And to expect that pulling 3% from the paychecks of low wage or minimum wage workers is going to keep them from extreme financial strain when they reach retirement age really stretches credulity.==
There are lots of investment discussions that show investing even $1000 a year for 10 years beginning when you are 20 brings a lot more in return when you are 65 than people think. Remember the old adage of the Law of 72 - 8% return over 9 years doubles your money, reinvest that, repeat the cycle.
- jim - Thursday, Dec 4, 14 @ 11:47 am:
I’m confused. Aren’t IRAs available to those without 401-ks?
- Apocalypse Now - Thursday, Dec 4, 14 @ 12:00 pm:
75 basis points annually on the outstanding balance is no bargain for the employees/investors.
- That Guy - Thursday, Dec 4, 14 @ 12:00 pm:
“I’m wondering why this couldn’t be made available to freelancers, who don’t work for an “employer” but for themselves. This is a growing segment of the work force, and many are low-income, not all are, say, software designers working out of their garage. They could set up their own retirement accounts, but many probably wouldn’t without a nudge. Why not give access through a deduction from bank account.”
Cassandra- They are called IRAs
- vole - Thursday, Dec 4, 14 @ 12:02 pm:
mythoughts: And when the magic of those numbers does not happen, e.g. 2008? Can the state stand the kind of scrutiny that will occur in such events?
- Cassandra - Thursday, Dec 4, 14 @ 12:13 pm:
Yes, I know that, but do we leave it up to individual freelance workers, many of whom might be intimidated by the process, or do we make it easier. After all the folks who are affected by this bill could have set up their own retirement accounts too. I wonder how many of them did.
Economists have done a lot of research on this issue. You need to do more than just tell people
the possibility of setting up a retirement account is out there.
Ever try to talk to your yard guy or cleaning lady about setting up an IRA. I have. And these are the folks that need it most.
- Ghost - Thursday, Dec 4, 14 @ 12:20 pm:
in practice, my cynical side says this won’t work. People will pill out the money for hardship reasons and still have no savings. Also I would note we already have this, we call it social security. Amount take. Out of every paycheck to retire on.
So social security number 2?
This would make more sense if there was no way to withdraw, and if it was in lieu of social security. Reroute the social security payment to your new retirement account.
- Wordslinger - Thursday, Dec 4, 14 @ 12:24 pm:
Ghost. I hope you’re not counting on social security alone for your retirement.
As far as some people accessing the savings at times — so what? Theyre borrowing from themselves. They’ll have to pay it back to stay in the program.
- Confused - Thursday, Dec 4, 14 @ 12:26 pm:
If the workers are lucky, the “professional managers” will do as good a job with the retirements funds as they did with Bright Futures.
- Confused - Thursday, Dec 4, 14 @ 12:26 pm:
Bright Start, obviously…
- That Guy - Thursday, Dec 4, 14 @ 12:27 pm:
“Ever try to talk to your yard guy or cleaning lady about setting up an IRA. I have. And these are the folks that need it most.”
-Cassandra, you should just take 3% of the money you owe them and set up an IRA in their name. Problem solved.
- Anon. - Thursday, Dec 4, 14 @ 12:43 pm:
Before anyone gets too excited about this bill, for or against, House Amendment 4 added the following language:
“The Board shall request in writing an opinion or ruling from the appropriate entity with jurisdiction over the federal Employee Retirement Income Security Act regarding the applicability of the federal Employee Retirement Income Security Act to the Program.”
For “applicability of ERISA to the Program” read “does ERISA prohibit the State from forcing employers to do this?”
- Federalist - Thursday, Dec 4, 14 @ 12:44 pm:
On this I agree with Rich, it is a good idea but we will have to see about how successful the implementation will be.
- Truthteller - Thursday, Dec 4, 14 @ 12:50 pm:
This is a feel good bill for liberals. Gives them something to talk about. Doesn’t confront employers by requiring them to pay a dime toward an employee’s retirement.
It tries to push, through opt-out rather than opt-in,low wage workers into a retirement plan which will not sustain them financially when they retire and will pinch them financially while they are working.
We need to do something about retirement security, but this bill sets us back.
- Rich Miller - Thursday, Dec 4, 14 @ 12:51 pm:
===This is a feel good bill for liberals.===
…Designed by the Heritage Foundation.
- OneMan - Thursday, Dec 4, 14 @ 1:04 pm:
Is there a lower age limit on this? Also are government entities exempt?
Sounds like an interesting idea.
- john doe - Thursday, Dec 4, 14 @ 1:12 pm:
Great idea! Although workers can do an IRA on their own,this offers a payroll deduction and steers them away from expensive annuities with surrender charges. Does this prohibit loaded funds?
- Demoralized - Thursday, Dec 4, 14 @ 1:24 pm:
==This is a feel good bill for liberals. ==
How in the world is a bill about encouraging savings and making it easier for people to save a “liberal” bill? Or are you just incapable of making any sort of argument without going down the political hack angle?
- Weltschmerz - Thursday, Dec 4, 14 @ 1:28 pm:
Don’t forget to set up an agency to monitor the program, audit the employers and subtract a percentage to run the agency.
- Judgment Day - Thursday, Dec 4, 14 @ 1:30 pm:
“1776, do we really need to wait on businesses with at least 25 employees who are still using an abacus, a bound ledger and writing checks to change policy?
As far as a “burden” on them — dude, if they’re still operating that way, they’re burdening themselves.”
——————————–
Word, for a small biz, just the software costs alone can easily run $600 a year. And that’s just for the software & annual payroll services subscription.
Around $250-300 (maybe a little less) for a one user license for a popular program (you will have to replace every 3 years), but the annual payroll software subscription is extra (normally $300+), so it adds up.
And everything else is extra. May not seem like much to you, but that’s a load for some small businesses. Remember, that’s just one up front cost.
—————–
Personally, this sounds like a great idea. But I’m all about implementation.
Honestly, I do have some concerns about this. For example, what happens if an employee builds up a cash balance, and then hits a rough patch and gets in some debt troubles. Will debt collectors be able to attach against the employee’s savings under this program?
If that’s the case, you could easily see a lot of people saying why try and save? That’s what this program can run up against.
Just sayin.
- Yellow Dog Democrat - Thursday, Dec 4, 14 @ 1:30 pm:
=== designed by the Heritage Foundation ===
LOL.
If conservative want to argue that only Democrats care whether the middle class has adequate savings when they retire, so that they can live happily and independently, run with it BABY!
And if by “feel good” you mean it feels good to be addressing one of the top worries of the middle class, the answer is Yes.
Politically, understand that there are roughly 400,000 minimum wage workers in Illinois and this measure potentially benefits 2.5 million workers.
- Enviro - Thursday, Dec 4, 14 @ 1:36 pm:
The 75 basis points fee in much too high.
Most workers could set up an IRA with an investment in an index fund and only pay 17 basis points or even less. It only takes a phone call to a large investment company to do this. I would not willingly let the state manage my retirement investments.
- Ghost - Thursday, Dec 4, 14 @ 1:50 pm:
Word nope
The theory behind this is to create savings for people who don’t save anyway. I am not talking about borrowing, like a loan against a 401k, I am referring to early hardship withdrawals. People can take the money out. So you
have the same problem unless you prohibit withdrawlas for any reason.
On my social security point, when this fails do we create a third program and say I hope you weren’t planning on this plan for your retirement l.
Seems like creating a second plan is just kicking the social security problem down the road…. Like underfunding pensions. Last point. This would be far better as a defined benefit plan. These individual accounts do not perform as well, and can really sock someone with a small amount if the market turns down. Defined benefit plans are a better system.
- Yellow Dog Democrat - Thursday, Dec 4, 14 @ 1:56 pm:
Ghost:
The “theory” behind all IRA is that they create savings for people who don’t save anyway.
But hey, guess what? It’s not a theory. 401(k) and other IRA programs actually work.
And why do they actually work? Because it turns out that people actually can save, people actually want to save, and IRA’s give them the tools to save.
- Mittuns - Thursday, Dec 4, 14 @ 2:05 pm:
What about workers who have employers shafting them with 1.5% management fees in 401ks?
- vole - Thursday, Dec 4, 14 @ 2:44 pm:
Easy road for the legislature to do this bill. I would have much rather preferred for them to pass the state health care exchange which might have much more immediate impact.
- Anon - Thursday, Dec 4, 14 @ 2:57 pm:
Republicans who are griping about this might want to think again. There’s a lot in this for the “free market” crowd.
The most obvious is that it is a big thumbs-up by Illinois Dems for 401(k) retirement plans, which Bruce Rauner wants for public employees rather than pensions. After having endorsed these plans as a “Secure Choice,” it will be interesting to see how the Dems explain why they are unacceptable for public employees.
Rauner and the Illinois Policy Institute may get a lot of mileage out of this.
- Living in Raunerville - Thursday, Dec 4, 14 @ 3:30 pm:
Just as long as it doesn’t the “Bright Start” treatment.
- vole - Thursday, Dec 4, 14 @ 3:46 pm:
Should be pointed out that a high proportion of employees in company 401K plans, especially the less financially savvy lower wage employees who will need their savings to a greater degree than higher paid employees to supplement their SS, have badly managed their contributions and investment choices. The game is rigged for the big boys. Not surprising the big boys are happy with this development.
- Yellow Dog Democrat - Thursday, Dec 4, 14 @ 4:08 pm:
Anon:
State employees already have the right and the ability to opt into a 401k.
- vole - Thursday, Dec 4, 14 @ 4:35 pm:
The good news: Illinois is doing this.
The bad news: Illinois is doing this.
- Anyone Remember - Thursday, Dec 4, 14 @ 4:38 pm:
Below is a very cost effective way federal employees can add to their pensions. Obviously, some changes would be necessary. However, an administrative fee of 0.029% - $0.29 per $1,000 - is hard to beat. Sure better than what Wall Street charges.
https://www.tsp.gov/index.shtml
https://www.tsp.gov/investmentfunds/fundsoverview/expenseRatio.shtml
- Anon - Thursday, Dec 4, 14 @ 5:05 pm:
YDD,
Illinois Dems have endorsed 401(k)s as a “Secure Choice” and have imposed them (without an employer match) as the default option for the poor, working-class, and middle-class folks whom this bill is purported to help. It certainly makes a case for giving public employees the same deal.
- Truthteller - Thursday, Dec 4, 14 @ 9:53 pm:
-Designed by Heritage-
pushed by the Shriver Center, SEIU, and others who normally are on the side of the working poor for whom this bill will do nothing.
Liberals will brag about the bill, and the Heritage Foundation will be very happy, as well they should
- Father Time - Thursday, Dec 4, 14 @ 11:36 pm:
I wouldn’t want to be the legislator who has to explain to a private sector voter why they voted against this bill while at the same time, voting to save their own pension.
- Carhart Representative - Friday, Dec 5, 14 @ 8:07 am:
Unlike public employees most of these people do get social security so if the market drops, their entirement retirement savings aren’t wiped out.
- Georg Sande - Friday, Dec 5, 14 @ 2:35 pm:
Another loss of freedom and liberty in the name of big government doing more for its people because we are all too stupid to do for ourselves. And what was with Rep. McSweeney as a co-sponsor and sole Republican vote?! He cannot be on good paper with IL business these days.