A retirement savings program rolling out from the state treasurer's office has an early Bloomington participant.
Fox and Hounds Day Spa is part of the first wave pilot project for the Secure Choice investment program, according to Treasurer Michael Frerichs. Seven other businesses of varying sizes are also part of the effort, said Frerichs.
"About half of working-age adults in our country have less than $5,000 saved for retirement. They are not going to be able to enjoy their retirement. They are not going to be able to retire with dignity. And so we need to make it easier for people to save their own money for retirement," said Frerichs.
The program will automatically deduct 5 percent of the wages from the paychecks of about 1.2 million Illinois residents for retirement savings and put the cash into Roth IRAs.
Taxes on Roth contributions are paid up front then all the investment income comes tax free, compared to traditional IRAs which involve paying taxes when the money is withdrawn during retirement, typically at lower income levels and so lower tax rates.
Frerichs said the choice of a Roth investment instrument was unanimously arrived at by a bipartisan panel, which acknowledged there is no one-size-fits-all mechanism for saving. But Frerichs said the experts believed the Roth structure does better for most of those who are not saving now and who are likely to be enrolled in the program.
Frerichs said the move could reduce the use of food stamps, Medicaid and other publicly funded programs. Secure Choice is being phased in more than three years after becoming law over the next year and a half.
The state-sponsored program works with businesses that don't offer savings plans that have been operating for at least two years with 25 or more employees. The businesses will be connected with a financial firm that'll provide ways for workers to build a savings for retirement with after-tax cash deducted from each paycheck for a Roth individual retirement account.
The U.S. Chamber of Commerce opposed the program, calling it a "poor substitute" for typical employer-provided retirement plans.
"Studies have shown that if you have a workplace retirement option, you are 15 times more likely to be saving for your retirement," said Frerichs.
Frerichs said the program affects those businesses that have not been offering such programs and do not plan to do so.
Frerichs said the piloting businesses have already had significant input into the website to make the experience better for later signups.
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