The Secure Choice Retirement Savings Program

1 The Secure Choice Retirement Savings ProgramCompiled by the Office of the Illinois State TreasurerTreasurer Michael W. FrerichsContents Retirement Security What is Secure Choice ? Economic Impact and Benefits2 The Problem3 Retirementremainsthetopfinancialconcernf orAmericansacrossthecountry Financialexpertstypicallysuggestsavingbe tween10and15%ofyourwagesforretirement,an dtopracticeabalancedapproachtosavings usingemployersavingbenefits,individualsa vings,andSocialSecuritytoprepareforretir ement. Unfortunately,accordingtoaJuly2014survey bytheFederalReserve,only43%ofAmericansha veanemployerprovided401(k)or403(b)retire mentsavingsplan,andonly23%haveanIndividu alRetirementAccount(IRA).

2 A2013studybytheNewSchoolfoundthatthemedi anretirementsavingsforhouseholdswithouta nemployer-sponsoredretirementsavingsplan was$0,wherethemedianwas$55,000forhouseho ldsthathaveemployeroffereddefinedcontrib utionplans,and$52, Problem Illinoisisnodifferentthantherestofthecou ntryintermsofretirementsecurity. security in also a problem in IllinoisIllinois Problem5 Illinois Workers without Retirement Savings Plans by SectorSecure Choice SignedintolawinJanuary,2015,theIllinoisS ecureChoiceSavingsProgramActisastate-run retirementsavingsprogramthathasanautomat icenrollmentforallbusinessesthat:oHavebe enoperatinginIllinoisforatleasttwoyears, oHaveatleast25employees, ,automaticenrollmentretirementoptionSecu re Choice SecureChoiceautomaticallyenrollsallfull- timeemployeesworkingforqualifiedbusiness esintoadirectdeductionretirementsavingsp lan.

3 Theseemployeescanchooseanylevelofdirectc ontributiontheywouldlike,includingopting outoftheprogramentirely. Unlessotherwisestipulatedbytheemployee, Options TheSecureChoiceprogramwillofferenrollees theabilitytodiversifytheirportfoliobyass etclass,theywillhavearangeofchoicesbased ontheirrisktolerance,andtheywillbeableto choosefromactivelyorpassivelymanagedfund s,aswellasproprietaryornon-proprietaryfu nds. The Secure Choice Program will also contain a default investment option, designated under state law currently as a life cycle fund, but can be changed by the Secure Choice Risk Theprogramwillofferfourbroadinvestmentap proaches:oLife- of Program TheSecureChoiceBoardischargedwithkeeping annualadministrativeexpensesaslowaspossi ble, TherearetwofeeoptionsthatarepossibleforS ecureChoice.

4 OAflatfeecanbeassessedperenrollee similartoIllinoisDeferredCompensation,wh ichassessesa$ ($30annually)toallenrolleeswithaccountba lancesover$3,000oOr,apercentage-basedfee canbeassessedonthebalanceofinvestments( ) Thelatterismoreprogressive(thosewithhigh erbalancescontributemore).10 SecureChoicefeeswillbesimilartodefinedco ntributionprivatesavingsplansCost of Program11 Vendor Entity Services Fee Schedule Expense Ratio Projected Annual Fees Program Manager Recordkeeper Recordkeeping, Marketing, Program Admin Program Management Service Fee $9,500,000 Administrator Treasurer s Office Management, Oversight, Outreach, Enforcement Administrative Fee $2,500,000 Investment Managers (Proprietary, Non- proprietary funds)

5 Investment Management Investment Management Fees $22,500,000 TOTAL Program Fees $34,500,000 Example Fee StructureImpact SecureChoicewillhaveacontinuouspositivei mpactontheeconomy, $173,237inSecureChoicesavingsisexpectedt ocreatebetween$1,154,913and$3,464,740ine xogenousspendingbenefitstotheeconomy.

6 Whileeachworker simpactontheeconomywillbedifferent,thede layedspendingbenefitsplusthecreationofne wwealththroughinvestmentwillhavealargeim pactonlocaleconomies Choice will have a positive impact on the individual and communityExpected Total Contributions13 Expected Average Total Contributions by Sector ( Retirement by 67)$27,363$79,189$90,603$72,941$57,834$9 0,075$32,032$40,211$77,877$95,665$45,825 $90,941$35,032$43,043$41,523$42,320$33,4 97$51,058$58,555 Agriculture, Forestry, Fishing and HuntingMiningUtilitiesConstructionManufa cturing (General)Wholesale TradeRetail Trade (GeneralTransportation and Warehousing (General)InformationFinance and InsuranceReal Estate and Rental and LeasingProfessional, Scientific, and Technical ServicesAdministrative and SupportEducation ServicesHealth Care and Social AssistanceArts, Entertainment, and RecreationAccommodation and Food ServicesOtherTotalExpected Total Benefits14 Expected Average Total Investment Benefits by Sector ( Retirement by 67))

7 $37,175$165,683$133,812$138,068$92,685$2 20,692$78,482$59,388$165,439$164,778$56, 172$174,835$73,296$70,669$76,182$114,101 $161,149$99,693$114,682 Agriculture, Forestry, Fishing and HuntingMiningUtilitiesConstructionManufa cturing (General)Wholesale TradeRetail Trade (GeneralTransportation and Warehousing (General)InformationFinance and InsuranceReal Estate and Rental and LeasingProfessional, Scientific, and Technical ServicesAdministrative and SupportEducation ServicesHealth Care and Social AssistanceArts, Entertainment, and RecreationAccommodation and Food ServicesOtherTotalExpected Total Savings15 Expected Average Total Savings by Sector ( Retirement by 67))

8 $64,538$244,872$224,416$211,009$150,519$ 310,768$110,514$99,599$243,316$260,444$1 01,997$265,776$108,328$113,712$117,705$1 56,421$194,646$150,751$173,237 Agriculture, Forestry, Fishing and HuntingMiningUtilitiesConstructionManufa cturing (General)Wholesale TradeRetail Trade (GeneralTransportation and Warehousing (General)InformationFinance and InsuranceReal Estate and Rental and LeasingProfessional, Scientific, and Technical ServicesAdministrative and SupportEducation ServicesHealth Care and Social AssistanceArts, Entertainment, and RecreationAccommodation and Food ServicesOtherTotalSecure Choice Benefits ,theprogramwillprovidemuchneededstructur etoabalancedretirementsavingspool.)

9 SecureChoicewillallowIllinoisresidentsto delaytheiruseofSocialSecurityandgovernme ntagingbenefits Choice will have a positive impact on the individual and community