During the State of the Union address last week, President Obama raised the profile of the nation’s looming retirement insecurity crisis with the announcement of a new starter retirement savings account: the myRA. Nationally, 38 million working-age households (45%) do not own any retirement account assets.
The myRA program is designed for savers who either do not have access to an employer-sponsored retirement savings plan or are looking to supplement a current plan. The Roth IRA product will be offered on a pilot basis through the Treasury Department. Employers will have the option to provide myRAs to employees, and employees must opt-in through an online account. On payday, employers will send a direct deposit to each participating employee’s myRa. The myRa will offer a very modest variable rate of interest (currently less than three percent) tied to the Government Securities Investment Fund in the Thrift Savings Plan rate and will be guaranteed against loss of principal by the government. There is no choice of other investment options, and participants will be required to roll over the myRA into a private market Roth IRA once they accumulate $15,000 or after 30 years. MyRAs can be used at multiple employers and are portable. Learn more at www.treasurydirect.gov/readysavegrow or (800) 553-2663.
While the myRA program is a welcome first step in acknowledging the widespread problem of unequal access to employer-based retirement tools, the President realizes that much more needs to be done to ensure universal access to retirement savings tools for all workers and for those with poor financial literacy. That is why in addition to introducing the myRA product, the President also called on Congress to act to “offer every American access to an automatic IRA on the job, so they can save at work just like everybody in this chamber can.” President Obama has consistently included in his yearly budget a program that would require employers in business for at least two years that have more than 10 employees to offer an automatic IRA option to employees.
Illinois’s Solution--The Secure Choice Savings Program
The President’s State of the Union endorsement of employer-based automatic enrollment IRAs came just as Illinois advocates and Senator Daniel Biss filed a bill for a statewide automatic retirement savings plan, the Secure Choice Savings Program (SB 2758). The program gives every worker in Illinois access to a portable retirement savings account through his or her employer and the opportunity to build a financially secure future.
The Secure Choice Savings Program is a safe, easy, and affordable way to help hardworking Illinoisans save for retirement—and it’s sorely needed. According to a report by the Illinois Asset Building Group and Woodstock Institute, 2.5 million Illinoisans and 43.8% of private sector Illinois workers do not have access to an employment-based retirement plan. As a result, across age groups, the median amount of money in retirement savings accounts is only $3,000. That means more than one-third of all Illinois households will rely on Social Security benefits, which average only $1,152 a month, for at least 90% of their retirement income. When these workers retire, they will be retiring into poverty, where they will have to choose between basic needs like paying for their prescription drugs or keeping the lights on.
Unlike the president’s myRA program, the Secure Choice Savings Program provides universal coverage and extremely simple enrollment procedures. It requires all employers who do not offer a retirement savings tools to automatically enroll their employees in the program. Studies show that automatic enrollment goes a long way toward closing the retirement security gap; employees also overwhelmingly endorse automatic enrollment procedures, particularly because they are so easy and make a daunting financial task extremely simple. With automatic enrollment, participation in 401(k)s increased from 75% to 90 or 95% of newly eligible employees. That change was highest among lower income and minority workers.
Under the Secure Choice Savings Program, employees can choose to opt-out of the program at any time, as well as choose a contribution level (default is 3%) and up to four investment options. By pooling all assets into a single fund, managed by the Illinois Treasurer and a qualified board, participants will benefit from low fees and competitive investment performance. The program allows workers to save competitively for retirement without having to make complex and time-consuming investment decisions. Learn more about the details of the Secure Choice Savings Program here. The text of SB 2758 can be found here.
As the President has said, without a universal solution to our looming retirement crisis, Illinoisans face a great and increasing risk of retiring into poverty. The Secure Choice Savings Program is the secure choice to ensure Illinoisans’ secure futures.
Help the Shriver Center and the Illinois Asset Building Group (IABG) along with the Woodstock Institute, Heartland Alliance, AARP, SEIU and many other organizations build the movement by supporting efforts to get the Secure Choice Savings Program passed! Take Action Now: Add your organization, financial institution or business to our list of supporters.