Who is going to pay for the Illinois Secure Choice Savers Program?
The Illinois Secure Choice Savings Program Act, signed into law in January of 2015 goes into effect in 2017. This law – first of its kind in the nation – requires certain employers to provide an automatic payroll deduction for savings in a Roth IRA for employees who are over age 18 and who do not opt out. Employers who are subject to this mandate are those who have 25 or more employees in Illinois, have been in business for at least two years, and have not offered their employees tax-favored retirement benefits in the preceding two years.
Illinois claims that the new program will not be subsidized with taxpayer dollars. So, who is going to pay? The Illinois Treasurer’s Office estimates start-up costs to be $15 million, and then annual expenses are expected to run about $34.5 million (including about $22.5 million in investment management fees). Where is all this
money going to come from?
Various consultants have been advising states like Illinois about the “details” of setting up and running these types of programs. They claim the various states will confront a “revenue and expenses mismatch” when the programs begin. The states are mandating that service provider fees be based on assets whereas expenses will be based on transactions. According to those same consultants “… in the early years, almost anyone is going to lose.”
One has to wonder how many management companies are going to want to work for free, at least for several years until these funds collect enough contributions to start paying them. Once it becomes known that these funds are making no money, and perhaps contributions are being chewed up by fees, we could easily see companies bailing out and setting up 401(k) plans for their employees instead.
If you or someone you know owns a company with no 401(k) plan, please call Jim Stein in our office at (847) 382-999 to discuss your alternatives to the new Illinois state-run retirement system.
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