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. By the end of 2023, Illinois businesses with five or more employees must facilitate Illinois Secure Choice or offer a qualified retirement plan.
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 $6,000 per year to their Secure Choice account.
Employees who are 50 or over can contribute up to $7,000 per year.
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:
- Have five or more employees,
- Have been in operation for at least two years, AND
- 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. When do I need to register by?
Your registration deadline for Illinois Secure Choice (or a qualifying alternative) depends on how many employees you have:
- November 1, 2018: Companies with 500+ employees
- July 1, 2019: Companies with 100 to 499 employees
- November 1, 2019: Companies with 25 to 99 employees
- November 1, 2022: Companies with 15 to 24 employees
- November 1, 2023: Companies with 5 to 14 employees
What if your employer size varies? Use quarterly data that you reported to Illinois to determine your registration deadline.
Heads up! There are penalties for missing your registration deadline. 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 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 Connecticut 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 is not intended as legal advice; for more information, please click here.