What Happened?
Illinois has deployed a program that automatically enrolls state residents into a retirement account if their current job does not offer a retirement plan. The program will be funded through a 3 percent deduction from participant paychecks.
Goal
Illinois’ Secure Choice savings program was created with the signing of SB 2758 into law and goes into effect in June 2017. The savings program is designed to provide Illinois workers with access to:
- Retirement savings tools
- Secure investment options
- Financial education and guidance
Under the law, employers with 25 or more employees who do not offer a retirement plan will participate in the automatic retirement savings plan. Employers will not have to match or contribute to the savings program, and no taxpayer dollars will be allocated to the initiative.
An estimated 2.5 million private sector employees in Illinois do not have access to an employer-sponsored retirement savings plan. Workers enrolled will have 3 percent of their paychecks deducted to support the savings program. Those enrolled can opt out of the program, as well as change how much of their paychecks are put toward savings.
The retirement savings program will be administered and managed by state officials as well as financial investment and retirement savings experts. There will also be four representatives on the program’s board for participating employers and employees. The board will make a request for proposals to choose investment firms to manage the retirement fund.
Why It Matters
A recent financial industry study revealed only 41 percent of middle-income baby boomers utilize a financial professional to help plan for retirement. Those not seeking professional financial advice do so because:
- Prefer to make their own financial decisions
- Feel they do not have enough savings
- Believe the services are too expensive
However, 62 percent of middle-income baby boomers expressed concerns on whether they have enough saved for retirement. In fact, more than 60 percent of middle-income baby boomers do not have up-to-date wills, living wills or power of attorney documentation.
Of the baby boomers who do work with a financial professional:
- 48 percent are confident they will be comfortable in retirement
- 75 percent have more than $100,000 after 10 years of working with a professional
- 26 percent have investable assets of more than $500,000
According to a whitepaper from Broadridge Research, one way to address the retirement savings shortfall reported nationwide is for the financial sector to provide personalized and streamlined communications to plan participants.
When financial guidance and services are more contextual and interactive, annual communication costs drop by 10 to 20 percent while generating double-digit returns in participation adoption and participation rate increases, the study found. To customize the participant’s experience, employers and financial professionals should:
- Segment programs and approaches by age group
- Integrate digital and social media for a more personalize communication strategy
- Maintain and analyze real-time data for improved participant outcomes
- Ensure equal focus is placed on plan success as well as reasonable cost of services
Because baby boomers, Generation X and Millennials have unique needs and preferences, it is important for employers, financial and retirement experts to customize their services to improve the participant’s experience.
Retirement Age
Gov1 has followed several initiatives to improve retirement planning with pension reform and other strategies.