Springfield, IL – The Illinois House of Representatives State Government Administration Committee will hold a hearing on the need for employment- based retirement savings in Illinois today. More than half of private sector Illinois workers do not have access to an employment-based retirement plan, a forthcoming report by the Illinois Asset Building Group and Woodstock Institute found. That means about 2.5 million workers are heavily depending on Social Security to sustain them in retirement, jeopardizing their financial security and the health of Illinois’ economy.

Low-income workers, particularly those in the service industry and those that are part-time, tend to be employed by businesses that do not currently offer access to retirement savings plans. Without access to employment-based retirement savings plans, Illinois residents will lack sufficient assets to support themselves in retirement. Currently, Social Security accounts for about 40% of retirement income (down from 52% in 1981), leaving many with insufficient finances in their retirement.

“Lack of access to retirement savings is a contributing factor to Illinois’ growing asset poverty rate—one that, if not addressed, will increasingly erode the financial security of our families,” says Karen Harris, Director of the Asset Opportunity Unit at the Sargent Shriver National Center on Poverty Law and an IABG partner.

“Older Americans are a growing percentage of our population and are not adequately prepared for the financial needs of their retirement,” says Spencer Cowan, Vice President of Woodstock Institute. “Illinois needs a public policy solution that allows workers to save for their future, no matter where they work.”

Automatic Individual Retirement Accounts are innovative solutions that can bridge the retirement savings gap, especially for low- to moderate-income workers.  Automatic IRA legislation (HB 4497 / SB 3278) was introduced this year in the Illinois General Assembly.

Under HB4497 / SB3278, small employers with more than 10 and less than 100 employees, who have been in business for at least 2 years and who have not, during such 2 year period, offered a retirement plan would be required to automatically enroll their employees in a payroll deduction direct deposit Automatic IRA account. Employees could opt-out of this plan at any time.

To increase efficiency and economies of scale, these Auto IRA accounts would be pooled and administered by the Illinois Treasurer’s Office. Start up costs for the Treasurer’s Office could be minimized to the greatest extent possible by using the State’s existing 529 college savings structure as a platform for the Automatic IRA accounts.  Additionally, as the accounts grow, the start-up costs and administrative costs would be repaid from the proceeds generated from the accounts and the program would become self-sustaining.

According to Nancy Nelson, Manager of Advocacy and Outreach for AARP Illinois, the Automatic IRA program is “a low-cost and common sense Springfield, IL—The Illinois House of Representatives State Government Administration Committee will hold a hearing on the need for employment-based retirement savings in Illinois today. More than half of private sector Illinois workers do not have access to an employment-based retirement plan, a forthcoming report by the Illinois Asset Building Group and Woodstock Institute found. That means about 2.5 million workers are heavily depending on Social Security to sustain them in retirement, jeopardizing their financial security and the health of Illinois’ economy.

Low-income workers, particularly those in the service industry and those that are part-time, tend to be employed by businesses that do not currently offer access to retirement savings plans. Without access to employment-based retirement savings plans, Illinois residents will lack sufficient assets to support themselves in retirement. Currently, Social Security accounts for about 40% of retirement income (down from 52% in 1981), leaving many with insufficient finances in their retirement.

“Lack of access to retirement savings is a contributing factor to Illinois’ growing asset poverty rate—one that, if not addressed, will increasingly erode the financial security of our families,” says Karen Harris, Director of the Asset Opportunity Unit at the Sargent Shriver National Center on Poverty Law and an IABG partner.

“Older Americans are a growing percentage of our population and are not adequately prepared for the financial needs of their retirement,” says Spencer Cowan, Vice President of Woodstock Institute. “Illinois needs a public policy solution that allows workers to save for their future, no matter where they work.”

Automatic Individual Retirement Accounts are an innovative solution that can bridge the retirement savings gap, especially for low- to moderate-income workers.  Automatic IRA legislation (H.B. 4497 / SB 3278) was introduced this year in the Illinois General Assembly.

Under H.B. 4497/SB3278, small employers with more than 10 and less than 100 employees, who have been in business for at least 2 years and who have not, during such 2 year period, offered a retirement plan would be required to automatically enroll their employees in a payroll deduction direct deposit Automatic IRA account. Employees could opt-out of this plan at any time.

To increase efficiency and economies of scale, these Auto IRA accounts would be pooled and administered by the Illinois Treasurer’s Office. Start up costs for the Treasurer’s Office could be minimized to the greatest extent possible by using the State’s existing 529 college savings structure as a platform for the Automatic IRA accounts.  Additionally, as the accounts grow, the start-up costs and administrative costs would be repaid from the proceeds generated from the accounts and the program would become self-sustaining.

According to Nancy Nelson, Manager of Advocacy and Outreach for AARP Illinois, the Automatic IRA program is “a low-cost and common sense solution to the problem that too many Americans are saving too little for retirement or aren’t saving at all. This is largely due to the fact that too few employers provide access, either by choice or by need, to an employment-based retirement savings vehicle.”

Almost all larger firms administer a retirement plan for their workers. By establishing a retirement account that small businesses can successfully administer, the Automatic IRA proposal provides small employers with a competitive benefit at a minimal cost.

Auto IRAs are a tool that Illinois workers can use to help them save for their own retirement. When given an opportunity to save, low-income families do save and save at a higher percentage of their income than do more wealthy families. Auto IRAs are a chance to give Illinois workers the opportunity to build financially secure futures.

More information about the Automatic IRAs, including written testimony from the hearing and fact sheets, can be found at http://www.fifal.local/autoira/policyrecommendations.

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The Illinois Asset Building Group (IABG), a project of Heartland Alliance for Human Needs & Human Rights and the Shriver Center, is a statewide coalition committed to building financial security for all households. We believe that everyone deserves the opportunity to save for their future and the future of their children. Through partnerships with leaders and organizations across the state, IABG advocates for the creation of tools that help people build safe, stable futures.

IABG and Woodstock Institute will be releasing a report later this spring about the retirement savings landscape in Illinois.

Money Smart Week, in its 10th year, appropriately falls during April’s National Financial Literacy Month. The public awareness campaign stresses the importance of financial literacy and offers free educational seminars from April 21-28. IABG partners across the state are hosting workshop and seminars to help households build their financial stability.

Last year, President Obama proclaimed April as National Financial Literacy Month, calling it a time to “recommit to improving financial literacy and ensuring all Americans have access to trustworthy financial services and products.”

Our advocacy focuses on asset building among low-income populations and financial education is an important component. While our efforts are year-round, we believe highlighting financial literacy in April only helps spread the message to more people.

Financial education is critical to developing financial literacy, which results in smarter consumers who optimize their household budgets to create greater opportunity to pay off debt, save and invest. Financial education helps consumers avoid financially destructive transactions and fraud while teaching them how to exercise their rights as consumers.

Research shows that youth who receive financial education gain skills and tools to secure lifelong financial health.

• 86% of youth participating in financial education curriculum demonstrated an increase in financial knowledge or behavior when dealing with money.
• Three months after participating in a financial education course:
  • 58% improved their spending habits
  • 56% improved their savings habits
  • 39% identified starting a savings account as the program’s most important impact
• Five years after high school, students with mandated financial education in high school had self-reported savings rates 1.5% higher than those without mandated education.
• Youth involvement in financial education encourages other family members to save and/ or pursue post-secondary education.

These statistics call for increased financial education in Illinois schools. Currently, financial education is a minor part of the public school curriculum, which shortchanges students now and for the future.

Developing financial literacy is needed among consumers of all ages and particularly among low-income consumers who face multiple challenges.

Several resources are available this month to promote financial literacy. Money Smart Week, in its 10th year, appropriately falls during April. The public awareness campaign stresses the importance of financial literacy and offers free educational seminars from April 21-28. You can search for events in Illinois on the Federal Reserve Bank of Chicago website.

The nonprofit group Money Management International created a website for National Financial Literacy Month to educate and assist consumers in achieving financial wellness. Check out the site’s Thirty Steps to Financial Wellness and join the 2012 Financial Literacy Challenge for a chance to win $500.

As Money Management International points out, too many individuals and families are not sufficiently educated about their personal finances. As a country, we have more than $2 trillion in consumer debt and 30% of consumers report having no extra cash, which makes it impossible to escape of living paycheck to paycheck.

So, this month, let’s move closer to financial stability by recommitting to increasing access to effective financial education for all.