Children's Savings Account Taskforce Recommendations by suchenfz


									Children’s Savings Account
Taskforce Recommendations
Vision Statement
   Within the context of shrinking savings rates, restricted
    economic mobility, and rising debt, this Task Force seeks to
    make recommendations that will increase the number of
    children in Illinois who own assets and obtain post-
    secondary education or training, purchase a home or start a
    business, as well as increase their level of financial literacy.
    Fulfillment of these goals will mitigate the current trend
    towards debt accumulation and will support positive savings
    behavior for future generations of Illinois residents.
   On August 11, 2009, Illinois Public Act 96-0329 created the Illinois
    Children’s Savings Account Task Force
   Goals:
       review,
       recommend, and
       develop a strategic implementation plan for providing a savings account at
        birth for every Illinois child.
   One member shall be appointed by the President of the Senate, one
    member appointed by the Senate Minority Leader, one member appointed
    by the Speaker of the House, one member appointed by the House
    Minority Leader, and one member representing the Office of the State
    Treasurer appointed by the State Treasurer.
   Governor appoints remaining members of the Task Force
   Governor’s leadership staff,
   Public members with an interest in asset building in Illinois, including a
    representative from each of following types of organizations or entities
    appointed by the Governor
       an operator of an individual development account or matched savings and
        financial education program;
       a grassroots organizing entity;
       a poverty law center;
       a service-based human rights provider organization;
       a business association;
       a bankers’ professional association;
       a child advocacy organization;
       a rural economic development entity;
       a representative from organized labor;
       a bank;
       a credit union; and
       an investment services provider.
   Ex-officio members of the task force appointed by the Governor include:
       State Treasurer or his or her designee;
       State Superintendent of Education or his or her designee;
       Secretary of Financial and Professional Regulation or his or her designee;
       Director of Commerce and Economic Opportunity or his or her designee;
       Secretary of Human Services or his or her designee;
       Director of Healthcare and Family Services or his or her designee;
       Executive Director of the Board of Higher Education or his or her designee;
       Executive Director of the Illinois Community College Board or his or her
        designee; and
       Director of Children and Family Services or his or her designee.
   Representatives of the Office of the Governor and the Office of the State
    Treasurer shall serve as co-chairpersons of the task force. The Governor
    shall designate one of the public members to serve as a third co-
Purpose of CSA Task Force
   “It is the policy of the State to encourage families’ savings, to increase
    families’ financial knowledge, to promote higher educational aspiration
    and attainment, to encourage home ownership, to assist small business
    development, to promote job creation, to strengthen communities, and to
    increase asset building opportunities for all residents. … The purpose of
    the Illinois Children’s Savings Account Task Force shall be to review and
    make recommendations about children’s savings account program options
    and to create a strategic implementation plan to create a savings account at
    birth for every child born in Illinois to Illinois residents.”

                                                       - Illinois Public Act 96-0329
National Savings Rates
   Nearly 1 in 5 American households and 1 in 4 women-headed
    households owe more than they own and 1 in 3 minority-
    headed households has zero or negative net worth.

   More than three quarters of low-income working families do
    not have enough assets to finance living expenses for three
    months at the federal poverty level if they lose their main
    source of income.

                                  Source: CFED, 2009-2010 Assets and Opportunity Scorecard, (Washington, DC: CFED, 2009)
                        ; CFED, “Seed Policy Update,” (Washington, DC: CFED, May
Illinois Savings Rates
   54% of Illinois households making $24,800 or less
    are asset poor.
   Even middle income families have inadequate
    savings, 24% of those making $44,801-$68,800 are
    asset poor.
   A typical household in Illinois has $2,911 in credit
    card debt, and installment debt of $14,375.
   The median net worth of a non-white household in
    Illinois is $12,100, compared to $128,444 in white
                    Sources: CFED, 2009-2010 Assets and Opportunity Scorecard, (Washington, DC: CFED, 2009)
                    Illinois Asset Building Group, “Illinois Asset Poverty Index,” htttp://
                    Patrick Stonehouse, “Race and the Recession in Illinois,” From Poverty to Opportunity Campaign Blog, entry posted Jan. 28, 2009,
          ; U.S. Census Bureau, “American Community Survey
Lack of Social and Economic Mobility
   For children born to parents at the lower end of the income
    spectrum, 42 percent remain at the bottom as adults—which
    is almost twice the percentage seen in other industrialized
   More than 50 percent of individuals that start at the bottom of
    the income distribution are still there 10 years later, and 70
    percent remain below middle-income status.
   The child poverty rate in Illinois is 16.9% with thousands of
    others living just above the poverty line.

                                 Source: The Economic Mobility Project (2009). Renewing the American Dream: A Roadmap to Enhancing
                                 Economic Mobility in America 2009 page 3
THE REALITY TODAY: Low Savings Rates Are
  Hurting Illinois Residents and the State

  -Fewer College Grads
                            Low Savings
  -Fewer Biz Start-ups
  -Less Homeownership          Rates

  -Fewer Educated
                             -Less Family Income
   & Skilled Workers
                             -Less Tax Revenue
  -Fewer New Businesses
                             -Fewer Services for
  -Businesses Leave State
Reversing the Cycle: College Education
   Over the past four decades, those with a college degree have
    enjoyed a 46 percent increase in earnings—compared to an
    increase of only 13 percent for those with some college and 7
    percent for those with only a high school degree.
   Even within the midst of a recession, college graduates have
    sustained higher levels of employment and better pay.
       In a report released in May 2010, The Bureau of Labor Statistics
        found that those with a college degree had a weekly earnings average
        of $1,025; compared to an average of $626 for high school graduates.
       The unemployment rate for high school graduates is 9.6%, while
        significantly less for college graduates, at 5.2%

                                                 Source: The Economic Mobility Project (2009). Promoting Economic Mobility
                                                 by Promoting Postsecondary Education 2009 page 5.
                                                 Bureau of Labor Statistics, The Current Population Survey, May 2010
Within this Context
   The CSA Task Force presents recommendations for review
    and public comment.
   Recommendations are designed to build a CSA program that:
       Provides aspiration for families and their children to pursue post-
        secondary education.
       To create a structure, with the use of initial deposits, family
        contributions, and matched savings, that will provide a pathway to
        educational attainment.
Components of the Program
   The Task Force finds that the best way to encourage savings
    for all families and promote greater economic mobility is to
    utilize the 529 College Savings Account structure.
       Tax advantaged education savings plan
       Protected for college and post-secondary education, withdrawals are
        limited to education related expenses
   The Task Force recommends eligibility to be based on Illinois
       Universal automatic enrollment for all children born to Illinois
       Exceptional children who are unable to attend college due to
        disability or other physical challenge shall be entitled to the full
        benefit of the program.
Components of Program
   The Task Force recommends that the CSA account be owned
    and operated by a third-party or public entity with the child as
    designated beneficiary.
       Family contributions are highly encouraged, but the owner will decide how
        the funds are invested and ensure that the funds are not removed unless for
        qualified expenditures. This will ensure a simple and safe way to save for the
        future of Illinois children.
       Third-party or public funds will be segregated in order to ensure their use for
        designated purposes only.
Investment Options
   In order to ensure that saving is both simple and accessible to
    all Illinois families, the Task Force recommends that the third
    party owner of the account select a single investment option
    for all CSA participants.
       This will allow for one pooled investment, which simplifies the
        process for both families and administrators.
       However, families that wish to have control over investment choices
        are encouraged to open their own 529 savings account; if parents
        decide to do this, beneficiaries will still be entitled to all funds
        deposited into the CSA account for qualified expenditures.
   Preferably, an age based option should be selected:
       Similar to a targeted age retirement fund, these options change over
        time to reflect the beneficiary's age, becoming more conservative as
        the beneficiary approaches college age.
   The Task Force recommends that every account be seeded
    with an initial deposit. For families unsure about or
    unfamiliar with financial investments, the initial contribution
    will serve as a catalyst to future saving.
       Amount will depend on family income level.
       Eligible amount linked to existing means-tested public benefit
   Contribution Methods:
       Direct deposit or via mail
Behavioral Incentives
   It is the recommendation of the Task Force that the CSA
    program implement a matched savings component.
       Like an employer-sponsored 401 (k) program, incentives will be
        provided for individuals and families to contribute to savings
   Matched incentives will be based on eligibility standards of
    existing public benefits program to help those without a great
    deal of money save and meet the goal of college or post-
    secondary education
Asset Limits and Public Assistance
   Illinois families should not be penalized for saving for their
    children’s future, therefore, the Task Force recommends that
    529 accounts be excluded from all asset tests on public
    benefits programs.
       Currently, Illinois excludes 529 accounts from asset tests when
        considering Medicaid, SCHIP, and SNAP.
       The Task Force supports state policy change to exclude 529 accounts
        when determining eligibility for Temporary Assistance to Needy
        Families (TANF) benefits; additionally, the Task Force supports
        federal policy change to exempt 529 accounts from the asset test for
        Supplemental Security Income (SSI) eligibility.
Financial Education
   The Task Force recommends that the state should invest in
    more financial education programs for youth through
    strengthening the Illinois laws requiring financial education
    in schools and incorporate the CSA program into the
    curriculum as a way for children to understand savings.
        Illinois Children’s Savings Account Program:
         State of Illinois-administered 529 Plan for Postsecondary Education and Training

                                                                                                             Qualified Expense:
Private Contributions:                                                                                       All contributions
Parents, Grandparents,                                                                                       available.
Relatives, Siblings,
Child, Friends                     Deposit                                                Release           Unqualified Expense:
                                     of                                                      of             Contributions
                                   Funds                                                   Funds            protected from
                                                                                                            unintended use. Public
Third-Party or Public                                                                                       contributions
Contributions: Initial                                                                                      unavailable; private
Deposit, Savings Match                                                                                      contributions subject to
                                                                                                            penalty based on IRS
                                                              Program Features                              rules for 529 accounts.

 Third-party or                                                                                                      Simple, clear
                          Third-party or     Progressive         Multiple          Financial        Account
 public entity opens                                                                                                 investment
                          public entity      public              methods to        Education        exempt from
 account                                                                                                             options. Third-
                          owns account       incentives for      contribute -      through          asset tests
 automatically at                                                                                                    party or public
                          with child as      lower-income        cash/ teller      improved         and
 birth for every child.                                                                                              contributions:
                          designated         children.           transactions,     school           financial aid
 Every account                                                                                                       age-based.
                          beneficiary.                           direct deposit,   requirements     for all state
 seeded with initial                                                                                                 Private
                                                                 mail.                              programs.
 deposit.                                                                                                            contributions:
                                                                                                                     protected, age-
Future = Increased Savings Benefits Individuals
and the State

  INCREASED                   -More College Grads
                              -More Small Businesses
    SAVINGS                   -More Homeownership

    -More Personal Income     -More Skilled
    -More Tax Revenue          & Educated Workforce
    -More Hospitals, Fire,    -New Business
     Emergency and other       w/ Good Paying Jobs
     Public Services          -Business Retention
Greater Savings = Results
   The initial deposit amount, expected family
    savings contributions, and a matching
    component present various pathways to an
    accessible post-secondary education.
   Design & contributions impact ability to
    generate nest egg
Towards Greater College Savings:
Potential Savings Scenarios
                           Scenario 1               Scenario 2                 Scenario 3                Scenario 4

Initial Deposit            $500                     $250                       $150                      $100

Supplemental Deposit       $500                     $250                       $150                      $0
(Low Income families)

Parental                   $108                     $240                       $300                      $600
Contribution               ($9/month)               ($20/month)                ($25/month)               ($50/month)
(per year)

Savings Match              $324                     $240                       $300                      No match
(subject to eligibility)   (3:1 for first 5 yrs)    (2:1 for first 5 years)    (1:1 for first 5 years)

Net Savings                $7,227.46                $11,055.94                 $10,768.60                $15,697.58
(After 18 years)

Impact:                    2 years of tuition and   3 semesters at the         1 year of tuition and     2 years of tuition
                           fees at the City         University of Illinois -   fees at the               and fees at the
                           Colleges of Chicago,     Chicago                    University of Illinois    Southern Illinois
                           plus the cost of a                                  – Champaign               University -
                           computer                                            Urbana                    Carbondale
Next Steps
   Solicit Input from Community Members
   Provide feedback to the Task Force for
   Finalize Plan
   Present to Treasurer, Governor & Illinois
    General Assembly

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