It is no secret that Illinois has had its share of pension problems. It has the most underfunded retirement system in the union and has one of the biggest pension burdens relative to state revenue. It also has the highest number of pension funds close to insolvency. According to Civic Federation, an Illinois-based research organization that looks at finance issues, Illinois has $111 billion in unfunded pension liabilities. And if that is not enough, one-in-four tax dollars is devoted to pensions.
While some of those same solvency issues are not present in other states or at a national level, the retirement savings habits of the average American have, and continue to be, an important issue for the nation, especially as the population ages. Only about two thirds of Americans (64%) have saved money for retirement, according to recent data from the Employee Benefit Research Institute. The federal government has been looking at this issue with President Obamas myRA proposal that allows workers without retirement plans to take a portion of their paychecks and deposit it into an IRA-type account.
Illinois, just one of about 17 states looking at the same issue, passed the Secure Choice Savings Program this week allowing employees of companies without a retirement plan to deduct 3% of their pay to be invested towards retirement.
With a potential logjam at the federal level not being able to get any regulatory or legislative changes onto the floor, let alone enacted, its up to the states to actually push forward on some of these retirement savings gap issues, says Stacy Scapino, partner and global leader for Mercers investment multinational consulting service. In the absence of federal legislation, I think this is the next best path, she adds.
Others in the pension community have given kudos to Governor Pat Quinn for enacting this legislation.
By signing State Senator Daniel Blisss legislation into law, Gov. Quinn made possible a public-private partnership that will make an at-work retirement saving program available to millions of Illinois workers who have no coverage, said Hank Kim, executive director and counsel for the National Conference on Public Employee Retirement Systems. It will also meet the needs of small business owners who otherwise would not be able to afford retirement plans for their employees. All of this with no cost and no financial risk to Illinois taxpayers.
But the legislation may need to address some issues. Scapino says that theoretically, mid-size employers could close down their 401(k) plans in favor of these cheaper plans.
There are a lot of unanswered questions and thats a negative potential outcome that Im not sure has been thought through, she says.
While legislation has just been enacted, the program will not become effective until 2017.
Joel Kranc is a Toronto-based freelance writer.
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