In what may emerge as a standard for all states, Illinois is introducing a tax-advantaged retirement savings plan for most residents who do not have such a plan at work. The program echoes one that President Obama has endorsed at the federal level, and it boosts momentum that has been building for several years at the state level.
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Beginning in 2017, Illinois businesses with 25 or more employees that do not offer a retirement savings plan, such as a 401(k) or pension, must automatically enroll workers in the state’s Secure Choice Savings Program, which will enable them to invest in a Roth IRA. Workers can opt out. But reams of research suggest that inertia will keep most employees in the plan.
Once enrolled, workers can choose their pre-tax contribution rate and select from a small menu of investment options. Those who do nothing will have 3% of their paycheck automatically deducted and placed in a low-fee target-date investment fund managed by the Illinois Treasurer.
The plan may sound novel, but at least 17 states, including bellwethers like California, Connecticut, Massachusetts and Wisconsin, have been considering their own savings plans for private-sector employees. Many are taking steps to establish one. In Connecticut, lawmakers recently set aside $400,000 to set up an oversight board and begin feasibility studies. Wisconsin and others are moving the same direction. Oregon may approve a plan this year.
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