By Jennie L. Phipps
Illinois has just adopted a unique plan to get its residents to invest for retirement -- automatic enrollment in a savings program for private-sector workers whose employer doesn't offer a 401(k) or similar plan.
A bill passed by the General Assembly and signed into law this week creates the Illinois Secure Choice Savings Program, which mandates that private sector employers in business for at least two years and employing 25 or more workers either offer their own retirement savings plan or provide payroll deduction for workers who want to use the newly created state plan.
The state savings plan is voluntarily, although workers will have to opt out if they don't want to join. The law's supporters expect as many as 2 million of the state's 13 million residents may get one of these individual retirement accounts.
The state plan offers 3 percent payroll deduction, although participants can choose to save more or less. Employers' involvement will be limited to managing the payroll deduction.
The bill mandates that Illinois hire a vendor to administer the retirement plans, so that the state can't have access to the money -- a good thing considering Illinois' track record. The state's employee retirement funds were only about 40 percent funded in 2013, according to Bloomberg.
Secure Choice’s default investment option will be a target-date fund, which invest in a diverse array of stocks, bonds and cash. Fund managers make investment choices based on the age of the participant, growing more conservative the closer he or she is to retirement. There is no employer match, and no public funds will be invested.