Illinois Governor Signs Into Law Groundbreaking Automatic IRA Bill

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By Michael Bologna

Jan. 5 — Illinois became the first state in the nation to require employers to automatically enroll workers—potentially millions—in Roth individual retirement accounts, under a new law signed by Gov. Pat Quinn (D) Jan. 4.

The measure (S.B. 2758) creates the Illinois Secure Choice Savings Program, which Quinn said will give nearly 2.5 million private sector workers access to an employer-sponsored retirement savings vehicle for the first time. The law applies primarily to employers that don't currently offer any type of retirement benefits beyond Social Security. S.B. 2758 doesn't require employers to make contributions on behalf of their employees.

During a bill-signing ceremony, Quinn said Illinois is the first state in the country to enact such requirements. He predicted that other states would view S.B. 2758 as a template for their own automatic IRA legislation. Quinn said the law is critical in Illinois, where 44 percent of workers don't have access to an employer-sponsored retirement system.

“For many people across Illinois, retirement planning is often a matter of too little, too late,” Quinn said in a statement. “Without an adequate retirement savings plan, many people are forced to spend their later years scrapping to get by with just Social Security. This legislation protects millions of private sector employees in Illinois who work hard but do not have the option of a retirement plan through their employer.”

Automatic Enrollment

S.B. 2758 requires employers to automatically enroll all workers in Roth IRAs under tax code Section 408A. The program applies only to private employers with 25 or more employees that have operated for two or more years and that offer no retirement plan outside of Social Security. Employers are required to administer payroll deductions and deposits into Secure Choice accounts for each covered employee using their existing payroll systems.

Central features of the program include:

• workers are automatically enrolled but may opt out at any time;

• workers' contributions are automatically set at 3 percent for each paycheck unless the worker designates a different amount; and

• Secure Choice accounts will be portable, permitting workers to retain their accounts when moving from job to job.

The law becomes effective June 1, but employers will have two years to implement their programs.

Illinois will choose a private investment company to manage the Secure Choice program through a competitive bidding process, and the investment company will be responsible for presenting covered workers with a menu of investment options and for educating workers about retirement planning. A seven-member board, chaired by the Illinois state treasurer, will oversee the entire program and monitor the conduct of the private investment company.

S.B. 2758 passed the Illinois General Assembly in December, with scant support from Republican lawmakers.

The measure was championed by a coalition of consumer organizations and groups that included the American Association of Retired Persons-Illinois, the Sargent Shriver National Center on Poverty Law and the Service Employees International Union.

Carol Ashley, Shriver Center vice president of advocacy, said the new law will provide important benefits to the most vulnerable workers.

The bill was opposed by business groups, including the National Federation of Independent Business. In a position paper released last year, NFIB said the legislation would “add yet another bureaucratic burden on Illinois employers.”

To contact the reporter on this story: Michael Bologna in Chicago at mbologna@bna.com

To contact the editor responsible for this story: Sue Doyle at sdoyle@bna.com

Text of the measure is available at http://op.bna.com/dlrcases.nsf/r?Open=kpin-9sgtyg.