If your organization doesn’t yet offer a retirement plan for employees, it just became more likely that your state (or Congress) may force you into the retirement-planning business.
Last month, Illinois became the first state in the nation to require businesses to offer their employees a retirement savings plan. At least 17 other states—including bellwethers like California and Massachusetts—are debating their own savings-plan programs for private-sector workers.
President Obama pushed for a similar program at the federal level, but federal legislation to establish an automatic IRA has been stalled in Congress.
In December, the Obama administration launched a new voluntary retirement savings vehicle named “myRA.” The administration will encourage, but not require, employers to offer the myRA accounts, which are being touted as no-cost for employers and a no-fee “starter plan” for workers who lack a retirement savings plan.
The new Illinois law, however, takes the first step toward mandating employer-sponsored plans and “could be a game changer for retirement planning,” says Forbes.
Illinois businesses with 25 or more employees that have been in business for at least two years (and don’t already offer a retirement plan) must enroll their workers in the state’s Secure Choice Savings Program. Workers would be automatically opted in, but also have the option to opt out.
Three percent of the employees’ pay would be invested in a state-run plan fund unless the employee chooses a different amount or different fund. Illinois employers that fail to offer the retirement plan would face a $250 fine per employee per year. The program begins in 2017.
Outlook: Expect this concept to catch fire.
Reason: It helps solve America’s low savings rate problem—nearly half of all private-sector employees don’t have access to retirement savings plans at work. Plus, it does so by adding a few extra costs to the state—an important point, as many states are facing budget problems.