Guest Post: Illinois Automatic IRA Bill (98th General Assembly)

Editor’s note: This blog post was authored by Karen Harris, Director of Asset Opportunities at the Shriver Center.

For many retired Americans, the potential for financial insecurity is great. Although our government provides a modest monthly Social Security check ($1,152 on average) to retirees, Social Security was never meant to be the sole source of an individual’s retirement income. While $1,152 might be just barely enough money for a young healthy individual, being elderly is much more expensive. Among people who reach the age of 65, 70% will eventually require long-term health care and 30% will eventually receive nursing home care. The average cost of a semi-private nursing home room is $215 per day or $78,000 per year. Yet, according to the Social Security Administration, Social Security benefits constitute 50-90% of income for more than 33% of Social Security Recipients, and 90 to 100% for more than 31% of recipients. This means that about two out of three Social Security recipients over-rely on Social Security.

In order for retirees to avoid over-relying on Social Security, they must prepare during their working years. However, 49% of Americans say they are not saving any money for retirement. A 2012 Woodstock Institute Report shows that the lack of savings is primarily a problem of access to savings mechanisms. The report finds that across all Illinois state legislative districts at least 50% of full-time workers are not offered an employer sponsored retirement savings plan. As the Assets Report infographic shows, lower-income workers are much less likely to have access to these plans.

In order to address this widespread retirement problem, the Illinois Asset Building Group (IABG), along with the Shriver Center, AARP, SEIU and many other organizations are working to pass S.B. 2400/H.B. 2461 The Automatic IRA Program Act. This bill, sponsored by Senator Daniel Biss and Rep. Deborah Mell, would provide all full time workers in Illinois access to retirement savings accounts. Unlike a classic 401k, employers would not contribute to these plans, would not be required to comply with ERISA, and would not be liable for any investments. The Auto IRA isn’t meant to compete with or dissuade employer plans, but to put in place a basic measure of retirement security for workers. All employers with greater than ten employees, that have been in business at least two years, and have not offered a qualifying retirement plan for the past two years, would be required to automatically enroll their employees in an automatic payroll deduction. The employer would, on behalf of the employee, deposit this deduction into an Individual Retirement Account (IRA) that is held by the state. Employees would have the ability to select their contribution rates and investment option or opt-out of the deduction entirely. If an employee did not make any selection then they would be automatically enrolled in a default target-date lifecycle investment option with a 3% income contribution rate.   

All investments would be overseen by the Automatic IRA Program Board established by the bill. This board would consist of these seven members: The State Treasurer (serving as chair), the State Comptroller, Director of the Governor’s Office of Management and Budget, as well as two public representatives with retirement savings and or investment expertise, a representative of employers and a representatives of enrollees, each of whom would be appointed by the Governor.  The board would contract with third party investment firms to invest and administer the fund. All interests and income earned from the investment fund would remain in the fund. Administrative fees charged on the interest on the fund would pay for initial start-up costs and ongoing administration. 

This bill would provide Illinois workers with the opportunity to efficiently grow their savings and ultimately rely less on the state during retirement thereby saving the government money and allowing retired individuals to live with dignity. 

The Illinois Asset Building Group (IABG) is working to support efforts to create an Automatic IRA program in Illinois. Click here to learn more and consider joining our coalition of non-profits, financial institutions and businesses who support creating a basic retirement savings plan for every worker in Illinois.