Our Love for Automatic IRAs

This Valentine’s day we are showing our love for Automatic Individual Retirement Accounts (IRAs).

As the wealth gap in Illinois grows so does the need for an Auto IRAs program. This innovative proposal could bridge the retirement savings gap, and especially assist low to moderate income workers save for their retirement.

SB3278 / HB4497: The Illinois Automatic IRA Act was introduced by Senator Iris Martinez and Representative Deborah Mell, respectively. The Act would require Illinois businesses with more than 10 employees, but less than 100, and that have been established for more than 2 years to provide their employees with access to an Individual Retirement Account (IRA). Employees may opt-out of the Automatic IRA program and adjust their contribution at any time.  To reduce administrative costs, the IRA accounts would be pooled accounts administered by the State Treasurer’s Office.

Auto IRAs are structured to help workers who do not have employer-sponsored retirement plan save. According to the recent CFED Assets & Opportunities Scorecard, only 46% of Illinois workers (ages 21-64) participated in an employment-based retirement plan in 2010. Low-income workers, particularly those that are in the service industry and those that are part-time, are less likely to be employed for a business that offers access to retirement savings opportunities.

Lack of access to retirement savings opportunities contributes to Illinois’ growing asset poverty rate. 1 in 4 Illinois households are asset poor with no savings while almost 1 in 2 Illinois households of color are asset poor.

Auto IRAs could help to address these growing asset poverty rates and the expanding racial wealth gap. Here are the top three reasons we love Auto IRAs:

1. Builds Savings Over a Lifetime: Among non-retired adults ages 50 to 64, about one-third have less than $25,000 in total savings. We must create systems that empower Illinois workers to save for their future when they first enter the workforce.
2. Addresses a Growing Over-reliance on Social Security: Social security alone is not enough, and was never meant to sustain Illinois residents in their retirement. Yet despite their hard work, many Illinois workers are employed in jobs that do not offer a retirement savings plan to supplement Social Security.
3. Provides an Opportunity for Small Businesses: Almost all larger firms administer a retirement plan for their workers.  By establishing a retirement account that small business can successfully administer, the Automatic IRA proposal provides small employers with a competitive benefit at a minimal cost.

The idea for Automatic IRAs was first introduced in 2006 by the Heritage Foundation and has since gained bipartisan support with a bill introduced by Senator Bingaman (D-NM) at the federal level in 2010. President Obama’s 2013 budget also includes funding for a federal Automatic IRA program

IABG hopes that others will show their love for retirement savings. With the Illinois Automatic IRA Act, our legislators have an opportunity to do so. They have an opportunity to create a system that provides Illinois workers with an infrastructure to build financially secure futures.