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The merits of Illinois' retirement savings option

Daily Herald

Tuesday, July 10, 2018  |  Editorial  |  Editorial Board

Retirement (70)

Employees of eight companies in Illinois began noticing a slight dip in their take-home pay last week. We hope they weren't alarmed. They should be relieved.

The reason? A new state law began taking effect that can lead to a more comfortable and secure retirement for workers whose employers do not provide a pension, 401(k) or other retirement savings option.

The program is called Illinois Secure Choice. The eight volunteer companies involved in the rollout this month are the first wave of a four-stage implementation.

When the process is complete, all Illinois companies with more than 25 employees that do not offer retirement-savings options will be required to automatically divert 5 percent of each worker's pay into a Roth IRA managed by a private financial services company under contract with the state.

Employees have options for managing their accounts, and they are not required to participate. But they should think carefully before deciding to opt out. The great merit of employer-operated retirement savings plans is that they help ensure that workers save for retirement by transferring money into investments before they're tempted to spend it.

Surveys consistently find that without such options, Americans don't prepare well for their golden years.

The Northwestern Mutual Life Insurance Co.'s 2018 Planning & Progress Study found that one in three Baby Boomers have less than $25,000 saved for retirement and one in five Americans of any age have no savings at all.

Perhaps you work for a company with no retirement program and you're disciplined enough to contribute on your own to a money-market, IRA or other retirement savings account. If so, good for you and feel free to bypass Illinois Secure Choice. But if you're like most people, you'll benefit greatly from this program.

And what if your company does offer a retirement savings program? Should you care? Well, first you should take this opportunity to look in your own financial mirror and make sure that you are participating. Then, you should keep in mind, as Illinois Treasurer Michael Frerichs pointed out in a meeting with our editorial board, that other people's savings also help you.

"You may not care about that individual," Frerichs said, "but you'll care when that individual shows up for food stamps. You'll care if that individual goes on Medicaid sooner, because that's going to cost you. If we don't help them save their own money, we're all going to contribute to their delinquency."