Does Illinois Secure Choice Affect Your Small Business? 

A quarter of adults in the U.S. don’t have retirement savings. One reason? Not all employees have access to an employer-sponsored retirement program. Seeing this looming crisis, Illinois launched the Secure Choice Retirement Savings Program (Illinois Secure Choice).

Like other state retirement programs, Illinois Secure Choice mandates that all businesses with five or more employees must facilitate Illinois Secure Choice or offer a retirement plan.

Are you an Illinois employer? If so, read on to learn the ins and outs of the mandate, including deadlines, qualifying alternatives, and more. 

4 Questions employers may have about Illinois Secure Choice

Illinois Secure Choice is the state of Illinois’ retirement savings program. Employees can use a default Roth IRA to make contributions with after-tax dollars through payroll deductions. However, program participants can opt for a traditional IRA if they choose. Illinois businesses with five or more employees must facilitate Illinois Secure Choice or offer a qualified retirement plan. 

What is Illinois Secure Choice? Illinois Secure Choice is the state of Illinois' retirement savings program, giving employees whose employers don't offer a retirement program the ability to contribute to a Roth IRA each paycheck. Employers with 5 or more employees must participate (or set up another qualifying retirement program).

Employers who choose to facilitate Illinois Secure Choice need to verify additional information about their participating employees and register with the program.

For employees, the (completely voluntary!) Illinois Secure Choice program could revolutionize the way they save. Before Secure Choice, if an employee wanted to start an IRA on their own, they would have to find a financial institution that offers an IRA and set up an account with them. But with this program, employees can save at work and contribute to a plan managed on their behalf.

By default, employees are enrolled with a 5% contribution rate into a target date fund based on their expected retirement age. However, employees can choose to increase or decrease their rate or opt-out anytime. 

1. How much can employees contribute? 

Like a traditional Roth IRA, employees can contribute up to $7,000 (in 2024) to their Secure Choice account. 

Employees who are 50 or over can contribute up to $8,000 (in 2024). 

2. Do I have to participate? 

Not all Illinois employers must participate in the state-mandated retirement program. You must facilitate Illinois Secure Choice if you: 

  1. Have five or more employees,
  2. Have been in operation for at least two years, AND
  3. Do not offer an employer-sponsored retirement plan

But again, Illinois employers subject to the mandate do have other options. If you don’t want to facilitate the state program, you can set up one of the following qualifying retirement plans: 

  • 401(a) or 401(k) plan
  • Qualified annuity plan
  • Tax-sheltered annuity
  • Simplified Employee Pension (SEP) plan
  • SIMPLE IRA plan
  • Governmental tax-deferred compensation plan
  • Taft-Hartley plan

Before choosing between Illinois Secure Choice and a qualifying alternative, consider what’s best for your business. 

3. Are there penalties for failing to register?

There are penalties for failing to register or offer a qualifying alternative. If you fail to remit contributions to the program by your deadline, you could be penalized $250 per employee for the first year of noncompliance.

And if you’re still not compliant after the first year, your penalty increases to $500 per employee. For more information on penalties, check out the statute.

4. How can I start a qualifying retirement program? 

If you’re an Illinois employer interested in setting up a 401(k) for small business instead of facilitating the state program, help is available. 

Patriot and Vestwell have partnered to offer affordable retirement plans for small businesses in Illinois and across the United States. Vestwell’s digital retirement platform directly integrates with Patriot’s payroll software, making it easier for you to offer and administer a company-sponsored 401(k). 

Worried about administration costs? You may be eligible to receive up to $16,500 in tax credits, which can help cancel out administration costs. You can learn more about eligibility for tax credits and how to sign up for a 401(k) through Vestwell here.

This article has been updated from its original publication date of July 28, 2022.

This is not intended as legal advice; for more information, please click here.

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