The Secure Choice Savings Program Act, a private-sector retirement savings initiative sponsored by Sen. Daniel Biss (D-Evanston), was approved by an Illlinois House committee this morning.
“The need to address our looming retirement crisis is urgent,” Biss said in a statement, “There are 2.5 million Illinois workers likely to retire into poverty because they lack access to retirement accounts through their employers.”
“The good news is that this solution costs government and employers nothing and actually gives small businesses a boost by letting them compete for the best hires with larger companies that can afford retirement benefits,” Biss added, thanking Rep. Barbara Flynn Currie for leading support for the bill in the House.
The Secure Choice Savings Program would give employees access to portable savings accounts if their employer is a business with 25 or more workers that has been in existence for at least two years and doesn’t already offer retirement plans to their workers.
Other businesses could participate voluntarily.
Automatic withdrawals would invest three percent of workers’ paychecks in their accounts each pay period, but an employee could change their contribution rate or opt out at any time. Participants would also be able to select from higher-risk and lower-risk investment options.
Neither the state nor employers would contribute to Secure Choice retirement accounts; pooling the individual accounts would simply allow for lower fees and diversified, professionally managed investments.
All administrative costs would be covered by participant contributions. Businesses would not be responsible for running or funding the program, nor would they be liable for the performance of their employees’ investments.
“In the 21st century economy, people increasingly change jobs and careers many times during their working lives,” Biss said. “Illinois workers need a 21st century option for their retirement plans that’s portable and follows them as they change jobs. Most importantly, we have a responsibility to provide this option to Illinoisans so they can save their own money and retire in dignity.”
The Secure Choice Act, Senate Bill 2758, can now be considered by the full House.
Secure Choice
I don't understand.
Any person, regardless of how little they make or how much they make, can open a low cost tax deferred IRA at Vanguard (for example) and pay extremely low fees, no commissions, etc. today (the tax deferred status assumes that no current employer sponsored retirement plan exists). So what is special about the "Secure Choice" government run program and why would anyone support this?
Contribution limits
Presumably one reason a person might support the "Secure Choice" concept is that IRA contributions are capped by law at $5,500 a year for most people.
See: http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits
That amount is hardly sufficient on its own to assure a comfortable retirement.
— Bill
So not necessary
The 3% contribution Biss is talking about amounts to nothing, pure nonsense.
Take the proposed 3% contribution, on a $60K annual income, that equals to all of $1800 in annual contributions. Make $30K a year and the number is only $900, $100K = only $3K. A whole layer of added bureacracy is added for what? That is somehow better and more "secure" than the $5,500 annual contribution allowed under the existing IRA structure?
This is being sold as beneficial to lower income, less financially sophisticated workers. If their best interest is really what is targeted, and I don't think that's the case here, then the smarter thing to do is to make adjustments to the already established and very widely used IRA/Roth IRA. Educate those who don't have a basic understanding of personal finance to programs already in place, with their already much higher contribution levels and established federal tax benefits.
But again, I do not believe for a second that this is being proposed for the benefit of lower income workers. That 3% income stream, pooled together, creates a great oppportunity to collect "professionally managed" administration fees which can then be contracted out to independent firms in return for future political kickbacks, er, donations.
Basically mirroring the existing union system in IL. And what a great job these IL pols have done to "secure" the pensions of those financially unsophisticated union workers. It's a hoodwinking.
Same issue as poster above you noted
The contribution limits would still apply because this is just the State putting money into an IRA — the State does not have the power to amend the Federal tax code to do anything beyond that. Check out the legislature's website. It's all laid out there. They also indicate a maximum .75% admin fee will be charged to participants, and of course then fees will be charged by whatever mutual funds the participants hold. Consumers would be far better off getting a no fee IRA from the host of discount brokerages out there. The plan is expected to cost $15-20 million to implement (just initial set up). This is a colossal waste of taxpayer money for a State as broke as Illinois.