A smart way to save for retirement in Illinois could get even smarter

Close to half of all working-age families in America have less than $5,000 saved for retirement. And by the year 2035, as many as 30 million retirees are expected to be living in poverty or close to it.

We’ve written about this coming retirement crisis before, including three years ago when we supported an automatic retirement savings program being pushed by Illinois Treasurer Michael Frerichs. Almost nothing has improved since then, sadly, except that Frerichs’ program has been a modest success — and it definitely deserves to be expanded.

Frerichs’ program, called Illinois Secure Choice, is an entirely voluntary retirement plan that encourages people whose employers don’t offer pensions or 401(k)s to save for retirement on their own. The key to program’s success is its “opt out” rather than “opt in” feature, meaning workers who aren’t already offered retirement-savings options through their employers are automatically enrolled in the state retirement program unless they decide not to participate.

Since Illinois Secure Choice went into effect May 2018, more than 85,000 working people in Illinois have joined, saving more than $55 million for retirement. They were enrolled automatically through some 6,100 employers — as companies are required to do or pay a fine — and simply chose not to opt out. It’s the easy way to do the right thing.

We strongly support legislation working its way through Springfield, Senate Bill 208, that would expand Illinois Secure Choice so that it covers many more workers who, at the moment, are saving little or nothing for retirement. The current law requires companies with 25 or more employees to automatically enroll their workers in Illinois Secure Choice. SB208 would reduce that threshold to companies with as few as five employees.

We feel the need to stress this again: Companies that offer their own retirement plans need not participate in Illinois Secure Choice. And the only cost to companies that do is administrative.

Illinois Secure Choice automatically puts 5% of a worker’s income in a retirement Roth IRA through payroll deductions. The program is run by a private-sector financial-services firm — just like a 401(k) — and costs about 75 cents a year for every $100 in a worker’s IRA.

A second revision to Illinois Secure Choice called for by SB208 is that an “auto-escalation” feature be added. This would mean that at the beginning of a new year, any worker who has been enrolled in the program for at least a year would have their contribution increased by 1% — unless, again, they chose to opt out. So someone who joined the program at the 5% default rate, for example, would start kicking in 6% the next year.

These automatic increases could not exceed a total contribution of 10%, but workers would be free to save more than 10% if they wished.

“The retirement crisis in our country has not been solved,” Frerichs told us. “But the solution we are proposing is more expansive and, we think, more important than ever.”

It’s hard to save money. Especially if you work in a job where the hours can be fickle and the boss can be slow to offer any benefits at all. About a third of employees enrolled in Illinois Secure Choice are those who work in the hospitality industry, such as bartenders, waiters and the like.

Expanding the Illinois Secure Choice program, Frerichs estimates, would lead to at least 1 million more workers in Illinois finally saving for retirement.

Doing the smart thing is so much easier when all you have to do is not opt out.

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