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State to Offer Retirement Savings Plan

Employers of 25 or more workers who don’t offer retirement plans will encounter a new state requirement, effective June 1, 2017. Under the “Illinois Secure Choice Savings Program Act” which was passed by the Illinois General Assembly earlier this year, employers will be required to automatically enroll their employees in a state-administered ROTH IRA retirement savings plan.

Employers are not expected to match their employees’ contributions – in fact, they are not permitted to do so under this plan. And employees are permitted to opt out of the program entirely or raise or lower the amount which is withheld from their paycheck from the default three percent, according to Alison Leipsiger, legislative director for Senator Daniel Biss of Skokie, the bill’s sponsor.

“When Senator Biss and Representative Elaine Nekritz worked on public pension reform, Senator Biss realized that there is a huge retirement savings gap across this country in both the private and public sector, and it is getting worse. If we don’t do more to encourage both public- and private-sector employees to save for retirement now, we will be confronting a huge crisis down the road which will put an enormous strain on public resources,” Leipsiger said.

“So our office started looking around and came across a model that is being studied in California and was put together in 2006 by an unlikely partnership of the right-leaning Heritage Foundation and the left-leaning Bookings Institute,” she continued.

Senator Biss and his team took the model and tweaked it to meet the needs of Illinois stakeholders and the General Assembly gave its approval. The program will be overseen by a board consisting of the State Treasurer, the State Comptroller, the Director of the Governor’s Office of Management and Budget and four gubernatorial appointees.

The board is expected to spend the intervening months getting organized; putting out requests for proposals and conducting a competitive bid process to select a plan administrator with fiduciary duties; setting up a website; and putting together easy-to-comprehend enrollment packets to be distributed to eligible workers by their employers.

Up to four different investment plans may be offered under the Act, but it is up to the board to specify what they will offer. Most of the plan options are expected to focus on secure return funds, but the board is also permitted under the Act to offer growth funds and annuities, if they so choose.

“The money in this fund will be held entirely outside of the state treasury so that the state is not able to sweep the funds,” Leipsiger emphasized.

“During the course of our research, we were shocked to learn that half of Illinois’ private sector employees are not currently able to save for their retirement through their employer. A handful of those people are, admittedly, counting on a spouse’s retirement savings or are working more than one job and have a plan through their other job, but the thought that so many Illinois workers are counting on Social Security alone (and therefore in or near poverty) is truly frightening,” she stated.

“I have never heard of anyone who got to retirement age and said that they wished they had saved less for their retirement, but we are offering the opportunity for people to opt out or reduce their contribution to the fund should they desperately need the money now. We have obsolete data that shows the vast majority of employers with 25 or more employees have electronic payroll systems. We expect that number is even higher now, which should make implementation pretty simple for employers,” Leipsiger added.

Employers with fewer than 25 employees will not be required to offer the program to their employees, but they will be permitted to do so, if they wish.

As for the penalties for those employers who do not comply, they will be charged a fine of $250 per employee during the first calendar year of non-compliance and $500 per employee for every non-compliant year thereafter.

Since employers cannot match employee contributions, there is no upside to not complying – other than their cost in administrative expenses and time.

But employers may also choose to continue to set up their own qualified retirement plans through a licensed, certified financial advisor like Paul Gennuso, president of The Gennuso Financial Group in Oakbrook Terrace. This would put them in compliance without having to deal with the state program. It would also allow interested employers the opportunity to offer their employees the additional perk of a matching employer contribution to their fund.

“If you have been thinking about offering a qualified retirement program to your employees, now is probably the time to approach a licensed and highly trained financial advisor and set one up before the state does it for you,” Gennuso said. “The cost of working with an advisor is minimal and a private advisor will be able to offer your employees more robust platforms and investment alternatives.”

“Personally, I am not in favor of this Act. I see it as an additional burden on business. Why is it an employer’s responsibility to make sure that their employees save for retirement? And since employees can opt out, what is the point?” he asked.

“There are a ton of professional financial advisors in this state and anyone can approach one of them to set up their own IRA. Instead, the state is planning to spend $15 to $20 million to administer a program like this that duplicates programs already available,” Gennuso added.

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