Small businesses with 16 to 24 employees that have been in operation for at least two years and that do not already offer qualifying pension plans will, as of November 1, 2023, be subject to the requirements of the Illinois Secure Choice Savings Program Act.
Under an amendment passed last year, those who 5 to 15 employees must participate in the law – which created a state-sponsored retirement savings program to improve access for private sector employees – starting November 1, 2023.
those with 25 or more employees are already required to comply, which means they must automatically enroll employees who have not specifically opted out; arrange payroll deductions and deposit funds into the program on behalf of such employees; and introduce automatic annual increases in contribution rates of up to 10% of each member’s salary.
Employers who don’t already offer a qualifying plan (more on that in a minute) and don’t comply with the Illinois Secure Choice Act can face fines of $250 per employee in the first year and $500 per employee each year thereafter, reaching $6,250 for the first year and $12,500 each year thereafter for a small business with 25 employees, for example.
Passed in June 2015, the law required a state-sponsored retirement savings plan to be set up within 24 months; this date was moved to November 2018. The update passed in July 2021 lowered the threshold for employees, added automatic annual increases, made the $500 penalty applicable to those with non-consecutive years of non-compliance, gave employers 120 days to file a protest after receiving a penalty notice, and to do so electronically rather than by first class mail.
Qualifying retirement plans that would allow small businesses to opt out of Illinois Secure Choice include 401(k), 403(b), SEP-IRA, or Simple IRA. Employees who enroll in Secure Choice receive a target date Roth IRA with a default salary contribution of 5% that they are permitted to modify; they are also allowed to opt out if they wish.
Accounts created are subject to the same limits as any Roth IRA in terms of total annual contributions (set at $6,000 up to age 50 and $7,000 for ages 50 and over for 2022) as well as maximum income ($140,000 $ for a single filer and $208,000 for marriages filed jointly). Those who aren’t eligible to contribute to a Roth IRA can instead opt for a traditional IRA, which has no income limit.
Although the law requires employers to participate, it does not assign fiduciary risk to them, treat them as plan managers, require them to match funds or guarantee investment returns, or subject them to types of administrative requirements attached to employer-sponsored pension plans.
Employees have a 30-day grace period to opt out, after which they are automatically enrolled and begin to have 5% of each paycheck deducted into a fund on a targeted date either at age 65 or when they declare their intention to retire. The Illinois Secure Choice Board offers a range of plans, including a conservative fund that tracks the U.S. investment-grade bond market, a growth fund that tracks the S&P 500, and a capital preservation fund that invests in market securities. American currency. The annual expense rate is approximately 0.75%.
If you have any questions about how to comply with the Illinois Secure Choice Act, please contact George Bellas at 800.825.9260