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First State Passes Mandatory Retirement Plan Law

January 10, 2015

Illinois became the first state to mandate employers to adopt a retirement savings plan for employees. The law requires all businesses in operation for at least two years and that have at least 25 employees, to offer its workers an individual retirement savings option by June 1, 2017.


Such companies without a work-based savings plan such as a pension or 401(k) can decide to work with private entities but they can also join the newly created Illinois Secure Choice Savings Program, which comes with a default 3 percent payroll deduction.


Since the financial crash of 2007, the pace at which privateemployers have stopped offering retirement plans has excelerated. State and local government employees have felt the pinch as well, with benefits being curtailed and some cases eliminated.


In Illinois, state officials said, 2.5 million private-sector employees do not have access to a work-sponsored retirement savings plan. Officials expect the vast majority of those offered plans under the new law will stick with it, though it allows them to opt out or lower their contribution amounts.


There will be no requirement for employer match or contributions, so the new law in effect will add little more than administrative cost of maintaing an employee-funded plan. No public dollars will be invested, although with the Illinois government functionally bankrupt, that option was never likely. 


The idea of requiring most businesses to give employees direct access to a retirement savings plan that will automatically deduct contributions straight from their paychecks has gained traction in recent years. In 2012, California approved the concept with a mandatory market analysis before implementation. Connecticut, Maryland, Massachusetts, Minnesota and Oregon are also at "various stages" of planning or implementing such a program, according to the Chicago-based Sargent Shriver National Center on Poverty Law.


The advocacy group pointed to the number of people who receive 90 percent of their income from Social Security -- among elderly recipients, more than 1 in 5 married couples, and nearly half of those not married, according to federal statistics. The group also said that low-income workers are the least likely to have access to such a savings option.

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