Illinois Secure Choice Retirement Savings Program Details

Image: Illinois Secure Choice Retirement Savings Program Details

Most small employers in the state of Illinois are now required to offer employees a retirement savings program to save in—an attempt from the state government to protect its citizenry from reaching retirement age without having adequate savings to get them to and through retirement.

Illinois is far from the only state implementing a mandated retirement savings program but it is one of the first to successfully pass legislation regarding the mandate and put plans into action. But is Illinois Secure Choice actually mandatory, and if so, how will small employers potentially be impacted?

Is Illinois Secure Choice legitimate?

Illinois Secure Choice is a retirement savings program established by the Illinois State Legislature and is overseen by the Illinois Secure Choice Savings Board. Its purpose is to increase the number of workers who have access to an employer-sponsored retirement plan and decrease the amount of upcoming retirees who may have to rely on public-funded taxpayer assistance to live stably in the future. The program opens up access to retirement plans specifically for employees of smaller businesses—workers who usually lack access to any type of savings plan that may help them prepare for their future.

How does Illinois Secure Choice work?

Illinois Secure Choice is set up as a payroll-deducted Roth IRA account, meaning workers can contribute on an after-tax basis via deductions from their paycheck. Employees are automatically enrolled into the program when they become eligible (usually 30 days after their employer registers for Secure Choice, giving the employee time to make changes to their account, update investment selections, or opt out if they choose) and are automatically enrolled at a 5 percent contribution rate. Employees can opt in or out at any time, and the account belongs to the employee—so it stays with them through job changes and the like. Those with higher incomes may not be eligible to contribute; Roth IRA contribution eligibility is based on income, and the limit is set at a federal level. These employees may opt-out or decide to have traditional IRA contributions instead.

On the employer side of the house, the Secure Choice retirement savings program is designed to have no employer fees for facilitating the program—which is important since the state is telling many employers that they have to offer the program or find a qualified alternative instead.

Employers cannot make matching contributions to their employees’ accounts and only serve a limited role in the day-to-day operation of the plan, though that doesn’t mean employers won't have manual responsibilities and regulations they need to adhere to.

Related: Why are states beginning to mandate small business retirement plans?

Complying with Illinois Secure Choice mandates

As we mentioned, the Illinois Secure Choice savings program was implemented to help close to coverage gap among employees working for small businesses, who are significantly less likely to have access to a retirement savings plan than their large corporation counterparts. As such, the Illinois state government wants the Secure Choice mandate to be as effective as possible, so any employer who satisfies the following criteria will be required to register for and participate in the program:

  • Has five or more employees
  • Has been in operation for at least two years
  • Does not already offer an employer-sponsored retirement plan

Any business that meets that criteria will be subject to participation in Illinois Secure Choice and will be required to adhere to the following registration deadlines, or face penalties:

25+ Employees 16-24 Employees 5-15 Employees
Deadline passed* Deadline passed* November 1, 2023

*Take action now to avoid any financial penalties.

Illinois Secure Choice penalties and fines

The Illinois Secure Choice legislation says that employers with five or more employees and have been in operation for at least two years are required to participate in the program if they don’t offer another employer-sponsored retirement plan. The employer is subject to fines and penalties if they don’t comply. But what are the penalties? Employers who fail to comply with Illinois Secure Choice legislation will be subject to a $250 fine per employee for the first calendar year the employer is noncompliant; $500 per employee for each subsequent calendar year the employer is noncompliant. Noncompliance does not need to be consecutive to qualify for the $500 penalty.

Illinois Secure Choice employer responsibilities

While Illinois Secure Choice is designed to be relatively hands-off for the employer, there are multiple steps the employer will have to take to ensure they are compliant with the regulations set by the state-mandated program.

  • Register for Secure Choice prior to registration deadline

First and foremost, employers who are subject to participation in Illinois Secure Choice, as outlined in the criteria above, will need to register their business for the program. Employers will receive an email from Secure Choice with a customized access code to start the registration process; they’ll need to input important company information, such as phone number and email address for the primary contact, and the business’s Federal Employer Identification or Tax Identification Number.

Once the business is registered, information for eligible employees will need to be entered as well. Make sure you have each eligible employee’s Social Security number or Individual Taxpayer Identification Number (ITIN) handy, as well as their first and last name, birthdate, physical address, mailing address, phone number, and email. Employers can complete this process manually or by using Illinois Secure Choice’s available Employee Payroll Census Template.

Keep in mind: Registration sessions time out after a few minutes of inactivity for security purposes. If you need to step away from your computer, click Submit to save your progress—even if you aren’t finished. Your work will not automatically save, but you can always come back to it later if you submit it.

  • Add delegates or payroll representatives to assist with ongoing administrative tasks
  • Prepare employee contribution information

Employees have 30 days after you upload their information to make changes to their account, select their investment offering, or opt-out of the program. After the 30-day window has passed, employers will need to add the employee’s desired contribution amount.

This can, again, be done manually or by using Secure Choice’s Employee Contribution Info Template.

  • Perform regular account maintenance

Once the business is registered and employee contributions have been prepared, the employer will still face ongoing maintenance tasks unless they’ve enlisted a payroll provider or delegate to help with regular account maintenance. Employers are responsible for processing payroll contributions on a timely basis, updating employee contribution rates with their payroll software or provider, adding new employees as they become eligible, and marking employees as inactive when they leave or are terminated from the company.

Employers who participate in Secure Choice are not responsible for:

  • Managing investment selections, including helping employees choose investment funds or processing employee investment change requests
  • Processing distributions when requested by the employee
  • Answering investment-related questions
    • In fact, you should actively avoid giving advice related to investment options.
  • Managing changes to employee accounts, including updating contact info or beneficiary selections

What are the alternatives to Illinois Secure Choice?

As a state-sponsored auto-IRA program, Illinois Secure Choice faces certain limitations compared to other employer-sponsored retirement plan options. The program offers no tax benefits for the business owner, high earners may not be able to participate due to income thresholds set by the Internal Revenue Service (IRS), and maximum annual contribution limits are much lower than other savings vehicles, like a 401(k). Additionally, the state-sponsored program requires ongoing manual maintenance for the owner, penalties and fees can be imposed on employers who fail to comply with registration deadlines, and no matching contributions or profit sharing options are allowed.

Business owners looking for more flexible options may want to look into other qualified plan options that would also satisfy Illinois retirement mandates—like a 401(k), 403(a), 403(b), SEP or SIMPLE IRA, 457(b), or Taft-Harley plan.

Other plan options, such as 401(k), may offer more flexibility for business owners and allow them to design a plan that truly fits their needs, such as adding safe harbor provisions to help pass non-discrimination testing or changing vesting schedules to encourage employee retention. Additionally, 401(k) plans boast higher contribution levels than other retirement plan options do—for both the employer and the employee—giving everyone involved a better chance at reaching retirement readiness over the course of their career.

At Ascensus, we want everyone to have a financially secure future—however they choose to save. That’s why we’ve partnered with local state governments to create purpose-built platforms to support state-facilitated retirement savings programs. Ascensus works closely with states to:

  • Simplify the plan and account management process with custom-built, user-friendly administration websites
  • Provide consistent and clear education about the program through all channels
  • Offer a dedicated service team to answer employer and employee questions on the program and general retirement savings

Learn about Illinois Secure Choice
For more information about Illinois Secure Choice, visit the Secure Choice website. If you’d rather speak to a representative from Secure Choice by phone, you can contact the program’s Client Services Team at 855-650-6914.