State-Run Retirement in Illinois: What is Secure Choice?
posted by Fisher 401(k) October 14, 2020 Updated
In an effort to help more employees save for retirement, the state of Illinois has implemented a new law mandating employers to provide a retirement plan for their employees. Illinois Secure Choice is a state-sponsored retirement savings plan for businesses to offer employees and has a tiered registration and implementation deadline for various sized business. It’s important for business owners to understand the details of the program in order to determine if it’s the right plan for their business. See below for a list of Frequently Asked Questions about Illinois Secure Choice.
What is Illinois Secure Choice?
Illinois Secure Choice is a mandate requiring all Illinois employers who have been in business for 2+ years and who have 25+ employees to provide a retirement plan to their employees. The mandate was effective starting November 2018, and requires business owners to either sponsor a 401(k) plan (or other qualified retirement plan) or adopt the state-run Illinois Secure Choice retirement plan.
How does the Illinois Secure Choice plan work?
The Illinois Secure Choice plan is a payroll-deducted Roth IRA that is run by the state of Illinois. If an employer adopts the Illinois Secure Choice plan, all of their W-2 employees are eligible to participate (including part-time workers). The program is auto-enrolled at 5%, which means that unless employees proactively opt out they will be automatically enrolled to contribute 5% of after-tax income into the plan.
What features are included in the Illinois Secure Choice Plan?
The Illinois Secure Choice plan includes the following features:
- Auto-enrollment at 5% (i.e. employees will be automatically enrolled to contribute 5% in the plan unless they proactively opt out annually)
- Auto-escalation (i.e. employee contributions will be automatically increased by 1% annually (up to 8%) unless they proactively opt out annually)
- Annual contribution maximum of $6,000
- Roth only contributions (no pre-tax option)
- Does not allow loans
- Does not allow employer contributions
- Limited to employees with annual income < $135,000
Do employers have to offer the Illinois Secure Choice Plan?
Illinois business owners do have to offer a retirement plan (if they’ve been in business for 2 or more years and have 25 or more employees), but it doesn’t have to be the Illinois Secure Choice Plan. Business owners who offer a 401(k) (or other qualified retirement plan) are exempt from the mandate. Other qualified retirement plans could include 403(b), SEP IRA, and SIMPLE IRA.
How does Illinois Secure Choice compare to other plan options?
See how Illinois Secure Choice compares to other retirement plan options here.
Does Illinois Secure Choice Apply to All Businesses?
Illinois Secure Choice applies to any Illinois employer who has 25 or more W-2 employees and has been in business for 2 years or more.
When is the deadline to implement a retirement plan in Illinois?
The deadline to implement a retirement plan in Illinois depends on how many W-2 employees your business has:
What are the penalties for non-compliance with Illinois Secure Choice?
Companies who fail to comply with the Illinois Secure Choice mandate could be subject to a fee of up to $750 per eligible employee.
Good news, it’s really easy to comply by setting up a 401(k) plan (or other qualified plan)—click here to find out how.
How much does Illinois Secure Choice cost?
The Illinois Secure Choice plan cost is 0.75% of assets; this fee is deducted from each employee account balance. For example, if an employee has $100K in the retirement plan, $750 a year will automatically be deducted out of their balance. There is no direct cost to the employer, but there are substantial administrative tasks that need to be carried out by the sponsor on an annual basis.
What do employers have to do to administer the Illinois Secure Choice plan?
Illinois Secure Choice creates a significant administrative burden for the employer. Employers must:
- Submit an employee census to Illinois Secure Choice annually
- Track eligibility status for all employees
- Provide enrollment packets to all employees 30 days after date of hire
- Track whether each employee has opted in or out
- If employee doesn’t opt out within 30 days of notification, set up 5% payroll deduction
- Answer questions from employees who have been auto-enrolled
- Manually auto-escalate all employees annually (unless they’ve opted out)
- Repeat auto-enroll process annually for all employees who have opted out
- 6-month look-back for auto-escalation:
- Track if employee has been participating for 6 months with no auto-escalation
- Provide 60-day notice that they will be auto-escalated Jan 1st if they do not opt out again
- Hold open enrollment every 2 years
- Auto-enroll anybody who hasn’t been participating for at least 1 year (these have to be tracked
Fisher Investments provides affordable, hassle-free solutions that reduce the administrative burden on employers. Explore your options here.
How to Start a Retirement Plan Toolkit
Starting a retirement plan is exciting. It’s one of the most powerful savings tools the government gives business owners and employees. Complete the form below to download the small business retirement plan toolkit. Inside has important How-To Information, Tools to help you along the way, and Checklists.