How one state is taking a crack at the retirement crisis

One of the major dilemmas facing America is how to fund the retirements of today's workers, especially when four out of 10 haven't even started saving.

Now, Illinois has signed into law a new plan that's aimed at addressing this issue and could provide a blueprint for other states and even at the federal level. Called Secure Choice, the plan will start enrolling state residents with jobs who don't already have a retirement plan in 2017.

The program will be funded through a 3 percent deduction from workers' paychecks. While some might bristle at the idea of a government mandating deductions from their paychecks, the system isn't mandatory, although it does rely on an opt-out system. That's considered a better way of getting people to actually save, given Fidelity's findings that three-quarters of young workers with opt-out plans stick with their retirement savings, compared with only 20 percent who sign up for opt-in plans.

The fact is that many Americans lack access to retirement plans, either through 401(k)s or pensions, at their work places, which is considered a stumbling block to getting workers to save. While consumers can open up an IRA on their own, only four out of 10 U.S. households owned an IRA in 2013, according to research from the Investment Company Institute.

Even having an IRA isn't an assurance that workers will sock money away, given that the ICI found only 15 percent of U.S. households contributed to any type of IRA in 2012.

With the low rate of participation and savings, the country is facing a massive retirement deficit. The shortfall could be as high as $14 trillion, the National Institute on Retirement Security estimates.

Given the tendency of workers to only save if they happen to work at employers with opt-in retirement plans, that means millions are left without the incentive or an easy path toward socking away money. In Illinois alone, the state estimates there are about 2.5 million workers who lack an employer-sponsored retirement plan. Secure Choice could enroll as many as 2 million of them.

Of course, there are drawbacks to the program. For one, Illinois won't require employers with fewer than 25 employees to participate. And by some measures, a 3 percent contribution isn't enough to fund many peoples' retirements, given that retirement experts often recommend saving 10 percent to 15 percent of one's income.

Secure Choice will pool the funds as private property, which means it will be off limits for state use, the Chicago-Tribune noted.

Retirement experts and politicians may be watching the program closely to see how it unfolds. States ranging from Connecticut to Oregon are mulling similar plans, while the U.S. Treasury started a new retirement savings plan called myRA, which depends on individual workers taking the initiative to sign up themselves.