Illinois Secure Choice Retirement Savings Program is for Businesses with 5+ Employees

Many Americans find themselves financially unprepared for their non-working retirement years. In response, states such as Illinois have established their own retirement plans. The deadline for the Illinois Secure Choice phased-in registration process for businesses with 5 to 15 employees was Nov. 1, 2023.

What is Secure Choice?

Secure Choice is a Roth individual retirement account (IRA) intended to help the 1.2 million workers in the Prairie State who lack access to employer-sponsored retirement plans. Under Secure Choice, businesses with 5 or more employees operating in the state for at least two years, and that don’t offer workers a qualified* savings plan, would:

• Automatically enroll eligible employees. However, an employer that does not want to participate in Secure Choice can choose to offer its workers another qualified retirement savings plan;
• Be responsible for distributing information about the program to all employees, facilitate enrollment, set up the payroll deduction mechanism, and ensure prompt transfer of employee contributions to the Secure Choice plan;
• Not be able to make employer contributions to the plan
• Not incur any costs to the employer.

*A qualified retirement plan includes a 401(a), 401(k), 403(a), 403(b), 408(k), 408(p), or 457(b).

Employees have 30 days to opt out of the program, but if they do not opt out they automatically will be enrolled at a contribution rate of five (5) percent. They also have 30 days to elect a deferral percentage (other than 5%).

Program designers expect the program to be self-sustaining, with no additional costs to the state outside of startup administrative funds.

Employer requirements and penalties

To satisfy the mandate, employers are automatically required to withhold five (5) percent of an employee’s compensation (up to the annual maximum allowed for IRA contributions each year as provided by the IRS), unless the employee elects a different amount or opts out of the program entirely, and must remit those contributions to the Secure Choice program.

The program recently announced that it would begin assessing noncompliance penalties in late 2021 to businesses that are not enrolled in Illinois Secure Choice or don’t offer a plan from a private provider. They face a penalty of $250 per employee for the first year, escalating to $500 per employee for each subsequent year.

What are the retirement savings options for Illinois businesses?

Registering for the Illinois Secure Choice program is only one way to fulfill the requirement that every qualified employee in Illinois have access to a retirement plan. As a compliant alternative, businesses can also establish their own employee retirement plan, such as a 401(k) or SIMPLE IRA, to satisfy this requirement. You should consider all available options before making a decision.

What are the differences among state-run IRAs, SIMPLE IRAs and 401(k) plans?

A state-run sponsored IRA is one way to satisfy requirements and help employees save for retirement. However, it has some limitations and may not be the best fit for your business, your employees, and your own retirement needs as a business owner

The chart below shows  the  characteristics of a state-run IRA compared to a SIMPLE IRA and 401(k) plan, both of which Paychex offers. The biggest differences are the amount of administration required, the option for employer matching,  the maximum amount employees can contribute, and the potential for tax credits.

¹Setting Every Community Up for Retirement Act of 2019. New plans may be eligible for up to $5,000 a year over three years and an auto-enrollment credit of $500 a year over three years. 

²Under SECURE Act 2.0, credit is limited to employers with 50 or fewer employees and reduced for employers with 51 to 100 employees. The credit is generally a percentage of the amount contributed by the employer.

The end of 2023 is an important time for applicable Illinois employers to satisfy the state’s retirement program requirements. To help you stay apprised of program updates, refer to our state retirement plan information guide to help you navigate the law.