Most businesses in Illinois will soon be required by law to adopt a retirement savings plan for employees, under a bill Gov. Pat Quinn signed into law Sunday.
The law requires all businesses in operation for at least two years and that have at least 25 employees to offer by June 1, 2017, its workers an individual retirement savings option.
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.
"This is a special ... opportunity, for all of us to go forward at helping people save for retirement," said Quinn, who in about a week will be replaced by Gov.-elect Bruce Rauner.
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.
A match or employer contribution is not required, and no public dollars will be invested.
"This bill is a step, a piece, it's a building block," said Sen. Daniel Biss, D-Evanston, who as a bill co-sponsor led the charge in Illinois.
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, members of which attended Quinn's bill signing, 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.
"The retirement network in America has been disintegrated now for two generations, and the statistics we heard from the governor are true and they are terrifying," Biss said.
Quinn said he has not consulted Rauner on the program that will unfold over the next two years. The law goes into effect June 1 of this year, which is when appointments will be made to the seven-member Illinois Secure Choice Savings Board tasked with choosing a private firm to manage the funds.
Money going into the Secure Choice program will be pooled as private property and will not be available to the state, officials said. The large number of people expected to join will also help keep fees low, Biss said.