State Retirement Plan Expands to Smaller Employers


Bellas & Wachowski – Chicago Business Lawyers

Small businesses with 16 to 24 employees that have been operational for at least two years and don’t already offer qualifying retirement 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 with 5 to 15 employees must participate in the act—which has created a state-sponsored retirement savings program to boost access for private-sector employees—as of 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 for payroll deduction and deposit funds into the program on those employees’ behalf; and set in place automatic annual increases to contribution rates as high as 10% of each participant’s wages.

Employers that do not already offer a qualifying plan (more on that in a minute) and do not comply with the Illinois Secure Choice Act can face fines of $250 per employee in the first year and $500 per employee each year after that—reaching $6,250 for the first year and $12,500 each succeeding year for a small business with 25 employees, for example.

Passed in June 2015, the act required that a state-sponsored retirement savings plan be implemented within 24 months; this date was delayed until November 2018.  The update that passed in July 2021 lowered the employee threshold, added the annual automatic increases, made the $500 penalty applicable to those with non-consecutive years of non-compliance, provided employers 120 days to file a protest after receiving a notice of penalty, and to do so electronically rather than only by first-class mail.

Qualifying retirement plans that would enable 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 5% payroll contribution that they are permitted to change; they also are permitted to opt out if they wish.

The accounts created are subject to the same limitations as any Roth IRA in terms of total annual contributions (set for $6,000 up to age 50 and $7,000 for age 50 and older for 2022) as well as maximum income ($140,000 for a single filer and $208,000 for married filing jointly). Those not eligible to contribute to a Roth IRA can instead opt for a Traditional IRA, which does not carry an income limit.

While the act requires employers to participate, it does not assign them fiduciary risk, consider them to be plan managers, force them to match funds or guarantee investment performance, or make them subject the sorts of administrative requirements attached to employer-sponsored retirement plans.

Employees have a 30-day grace period to opt out, after which they are automatically enrolled and commence having 5% of each paycheck deducted into a fund date-targeted to either age 65 or when they declare plans 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, growth fund that tracks the S&P 500, and capital preservation fund that invests in money market U.S. securities. The annual expense ratio is approximately 0.75%.

If you have questions about how to comply with the Illinois Secure Choice Act, please contact George Bellas at 800.825.9260