What You Need to Know About the Illinois Secure Choice Act

Illinois passed the Secure Choice Act to help those living in the Prairie State save for retirement. Learn more about it here.

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Illinois Secure Choice Act
Our partner at Human Interest answers questions and shares tips regarding the Illinois Secure Choice Act

The way Americans plan for retirement looks different when compared to years past. Today, individuals can no longer be sure that they will be able to receive Social Security benefits or be provided a pension by their employer. In fact, 1 in 4 United States adults do not currently have retirement savings and, of those that do, 64% of working Americans aren’t confident their retirement planning is on the right track.

To help tackle these issues, state mandated retirement plans are popping up across the country. Today, 46 states have proposed retirement legislation with 16 states and 2 cities having already passed retirement centered legislation. These laws do, or will, require employers to have an active retirement program for their employees or potentially face penalties.

In Illinois, the Secure Choice Act was passed with the goal of helping those living in the Prairie State save for retirement. Many small and medium-sized business owners have questions regarding the Illinois Secure Choice Act including “What is it?” and “What do I need to do?” Find answers in this guide.

What is the Illinois Secure Choice Act?

The Illinois Secure Choice Act is a state-run program that aims to make it easier for individuals to save for retirement. Since launching in 2018, the program has been open to employees who work for an eligible employer as well as individuals who want to enroll on their own and start saving.

Under this legislation, Illinois businesses that meet the following criteria will need to either enroll in the state run program or provide their own qualified retirement offering:

  • Employers with at least 5 eligible employees
  • Businesses that have been in operation at least 2 years
  • Businesses that do not currently offer a qualified savings plan such as a 401(k), SEP-IRA, or SIMPLE IRA

If using the state mandated program, employees must opt out or they will be automatically enrolled in a Roth IRA with a default 5% payroll contribution.

What do I need to do?

A key part of this legislation is that qualifying employers must comply with rollout deadlines based on their business’ employee count. Deadlines to either enroll in the Illinois Secure Choice Act program, or provide your own qualifying 401(k), are as follows:

  • 25+ employees: Deadline has passed — speak to an expert about your options
  • 16-24 employees: November 1, 2022
  • 5-15 employees” November 1, 2023

In order to ensure deadline and program compliance, qualifying employers will be monitored for their participation in either the state-run program or another qualifying 401(k). For any employer that does not enroll all eligible employees, penalties in the form of fines will be sent. For the first calendar year of non-compliance, employers will be fined $250 per employee and $500 per employee for each subsequent calendar year.

If employers choose to enroll with the state-run plan they will need to take on added administrative responsibilities. These admin responsibilities will be used to ensure compliance with the legislation and include:

Task Cadence
Changes to contribution amounts As employee elects
Updating an opted-out employee As employee elects
File contributions and send file listings Every pay period, must be sent within 7 days of payroll
Debit company’s bank account Every pay period
Add or remove employees to census As employees are hired or leave the company

What are my options?

While the Illinois Secure Choice Act is a retirement program that employers can use, this legislation also allows employers to set up 401(k) plans that may better suit the needs of themselves and their employees. Companies interested in exploring options outside of the state-mandated program may be attracted to the benefits that a modern 401(k) provider can offer them. These providers seek to save time, help provide advantages over competitors when hiring new talent and can allow for greater savings potentials for employees than the state run program.

With a modern 401(k) provider, employers can hand off time consuming administrative work related to enacting and running a 401(k) program. With payroll integrations, work can become automated and participants can have access to a dedicated support team for their 401(k) plan.

Additionally, employers may see a competitive advantage when using a private 401(k) provider over those in their industry using the state-run plan. For example, the Illinois Secure Choice Act provides a Roth IRA to employees, which is taxed based on the contributions they make today. A private provider typically offers traditional 401(k) and Roth options that allow you to choose between a pre- or post-tax contribution. While a state-run program is typically free to the employer, the additional cost of a private 401(k) can may be worth it. Employee fees for participating in a private program can be lower than a state plan depending the fees charged and investments offered. These characteristics can help set a business apart from competitors by offering a more attractive benefit to potential employees.

Employee contribution caps to consider

Lastly, while the Illinois Secure Choice Act aims to close the gap on the retirement savings crisis, it may not be doing quite enough to create a pathway that helps prepare individuals for their life after work. The Illinois Secure Choice Act is a Roth IRA, meaning employee contributions are capped at $6,000 or $7,000 (if 50 or older) annually. If an employer chooses to use a private retirement provider, contributions are capped at $20,500 or $27,000 (if over 50) annually. Since Roth IRAs come with income limits, that may mean that owners of the business may not be eligible for the state retirement option.

Get help meeting Illinois Secure Choice Act deadlines

With the upcoming deadlines for the Illinois Secure Choice Act, it’s important for small and medium-sized business owners to know what is required of them and to find out what options best fit their needs. If you have any questions or need help with ensuring compliance, reach out to [email protected] to see if TriNet Zenefits and Human Interest can help guide you through this process.

Register for our upcoming mini-webinar, hosted by Zenefits and Human Interest, to learn more.

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