Illinois Secure Choice Retirement Savings Program Has New Enrollment Deadlines

Many Americans find themselves financially unprepared for their non-working retirement years. In response, states such as Illinois have begun establishing their own retirement plans. While the most recent phase of the Illinois Secure Choice mandate was for businesses of 25-99 employees, the law has been amended to include two more groups: businesses with 16-24 employees and 5-15 employees, respectively. In other words, even very small businesses are no longer exempt from the mandate. The new deadlines are:

• 16-24 employees, Nov. 1, 2022
• 5-15 employees, 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 25 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.