In 2015, the Illinois Secure Choice Savings Program Act became law. Under this law, employers with 25 or more employees are mandated to enroll their employees into a retirement savings account that is administered by the State. Employers who fall below the 25-employee threshold may voluntarily elect to participate in the program. Employees whose employers are participating in the program (whether by mandate or by volunteering) will have the option to opt out of the program. For those employees who don’t opt out, three percent of their pay will be deposited into the account unless the employee elects a different contribution amount. Employee enrollment in the program will begin in June 2017.
It is estimated that 2.5 million Illinois workers do not have access to a retirement savings program. Retirement savings are increasingly important to a retirees’ economic security considering that other sources of income – earnings, assets, and Social Security – fail to fully replace a retiree’s pre-retirement income. Retirees with insufficient retirement savings may be forced to skimp on food, housing, health care, and other necessities. In addition, retirees pushed into poverty create fiscal pressure on publicly financed retirement programs and on other public assistance programs. Woodstock published a report in 2012 called Coming Up Short: The Scope of Retirement Insecurity Among Illinois Workers. This report details the extent of this problem. Secure Choice, which is estimated to make retirement savings accounts newly available to 1.7 million workers, represents a chance to substantially reduce the scope of this problem.
There is a hurdle to the program’s implementation, however. Under the state law, the program cannot be implemented if it is determined that the program falls under the federal Employee Retirement Income Security Act (ERISA). ERISA provides strong protections for workers under employer-sponsored retirement plans that are not necessary in the context of a state-created and administered plan such as the Illinois Secure Choice program. Fortunately in November of last year, the U.S. Department of Labor (DOL) released a proposed regulation that would clarify that programs like Secure Choice are not covered by ERISA. This regulation is referred to as the State Savings Arrangements Safe Harbor.
On January 15, 2016, Woodstock delivered a comment letter to the DOL supporting the safe harbor but also suggesting some changes. Many of these changes would be technical in nature, but there is one substantive issue that concerns us. Under the DOL regulation, only employers who are mandated to participate in the program would be entitled to the ERISA safe harbor. Employers who volunteer to participate in the program would not be entitled to the safe harbor. This would effectively doom the program for volunteer employers and could threaten the law as a whole. It also creates confusion for employers whose payroll numbers fluctuate and who sometimes fall below the 25-employee threshold. In Woodstock’s letter, we urge the DOL to do away with the distinction between mandated and volunteer employers. Eliminating this distinction would enable the Secure Choice program to go forward and would expand the benefits of the program to a wider scope of workers.