Is Illinois Secure Choice Your Best Option?
Employers with 25 or more employees in Illinois will be subject to the Secure Choice Savings Program Act (the “Act”) if they do not already have an employer sponsored retirement arrangement like a 401(k) plan. For such employers with 500 or more Illinois employees that have been in business for at least two years, the compliance deadline is November 1, 2018. By that date, these employers must register at the Secure Choice website here and enroll their employees. Subject employers with fewer than 500 Illinois employees have compliance dates deferred until July 1, 2019 (100-499 employees) and November 1, 2019 (25-99 employees).
Here are some of the details:
The required retirement arrangement includes a separate Roth IRA account for each employee that is set up by the employer. Employees are automatically enrolled at a five percent contribution rate but they can elect out of the plan at any time. There are no employer fees to participate in the program and no employer retirement contributions are required or permitted.
The program is administered through the Illinois State Treasurer’s Office by a private contractor that will act as the Roth IRA “trustee,” process contributions, manage account records and maintain the website. Program costs are funded through an annual administrative charge not to exceed .75 percent of employee account balances. The Treasurer’s Office also charges employees a fee of .05 percent to cover its costs.
Employees may choose between several diversified mutual funds for the investment of their accounts and, if they make no investment direction, their accounts will default into a target date fund. Employee accounts are portable and may be transferred to other Illinois employers.
The employer’s role as “facilitator” includes registering as a participating employer, establishing an online “employer portal,” setting up a payroll deduction process, and remitting employee contributions.
The program is established with the intent to avoid complication for employers under ERISA, the federal pension law, and it is anticipated that employers will be subject to none of the ERISA responsibilities that apply to sponsors of 401(k) plans.
Non-compliant employers are subject to a fine of $250.00 per employee per year.
The Fine Print:
Official guidance available at this time provides the following specifics:
For purposes of determining program applicability, employers need to count all employees 18 years of age or older who receive wages taxable in Illinois (this includes part-time employees, but some seasonal employees can be excluded).
Illinois employers, including not-for-profit organizations, are subject to the Act if: (1) at no time during the prior calendar year they employed fewer than 25 Illinois employees, (2) they have been in business at least two years, and (3) they have not offered an employer sponsored retirement plan in the preceding two years.
Employers are required to log on to the Treasurer’s website to create a payroll list and then to input the following information in the employer portal by the applicable deadline: each employee’s address, phone number, email address, legal name, date of birth and social security number or individual tax identification number (undocumented workers are not permitted to participate in the program).
For employers with 500 or more Illinois employees, the November 1, 2018 deadline is fast approaching. Employer electronic enrollment of each of its employees may take some time unless data is submitted in bulk form. More important, subject employers may want to give serious consideration to a private retirement plan alternative like a 401(k) plan that also can provide enhanced benefits for management-level employees.
If your company is not among the eighty-eight percent (88%) or so of large Illinois employers that already sponsor a retirement plan under Sections 401(a), 403(b), 408(k), 408(p) or 457(b) of the Internal Revenue Code, then you need to take the steps outlined above to comply with the Illinois Secure Choice Act by November 1, 2018. Also consider the 401(k) and 403(b) options that may work better for you and your work force. Retirement professionals can analyze a census of your current employees to provide specific retirement plan options that might make more sense for you than a Secure Choice arrangement.