Illinois has successfully launched the Illinois Secure Choice Program. The Illinois Secure Choice Savings Program Act (820 ILCS 80/85) requires affected employers to either have a retirement plan in place for employees or to register for the Illinois Secure Choice Program. Failure to comply will result in such employer paying a fine of $250 per eligible employee in 2019. The fine increases to $500 per eligible employee in 2020 and beyond.
Any qualified retirement plan, including a SEP-IRA or Simple-IRA program, will satisfy compliance with the Illinois law. It should also be noted that small businesses may have access to a tax credit for establishing a retirement plan but will not have access to the credit for registering for the Illinois Secure Choice program.
An “affected employer” is one that operates a business in Illinois, has been in business for two or more years, has 25 or more Illinois employees, and does not have a retirement plan. Neither 1099 contractors nor those employees under the age of 18 are includable in the 25 Illinois employee headcount.
If an employer has between 25 and 99 employees and does not offer a retirement plan, the Illinois Secure Choice Program registration deadline is November 1, 2019. The registration deadline is July 1, 2019 for those employers with between 100 and 499 employees.
The Illinois Secure Choice Program will provide employees of employers who register to participate in the program with an option to select a percentage of their pay to be paid into a ROTH IRA account and give them an opportunity to select between four funds: a Capital Preservation Fund; a Conservative Fund; a Growth Fund; or a Target Date Series Fund. An employee that does not make any election will be defaulted into the Target Dates Series fund at a five percent of pay deduction rate. Employees will have the ability to opt-out of the program at any time. The cost of 75 basis points (0.75%) is paid directly from an employee’s account through the invested funds, the equivalent of these funds having a gross expense ratio of 0.75%.
Employers in the program will be responsible for providing their employees with information about the program, including initial enrollment forms. Those employers will also be responsible for setting up the account on the secure choice platform, implementing the appropriate deductions into payroll, and depositing those deductions after every paycheck. Such employers will not have any discretion to change employees’ investments. They also will not have any input on the program’s choice of investment funds. Importantly, these employers will not have the ability to pay an additional contribution on an employee’s behalf, such as a matching or profit-sharing contribution. The employers will be expected to remit contributions as soon as feasible, likely no later than seven business days from a check date for companies with less than 100 employees. However, the program does layout that the employer will have no fiduciary role outside of these listed functions.
Since the Illinois Secure Choice Program only provides a ROTH IRA product, employees are only eligible to contribute to an account if they have an adjusted gross income of less than $137,000, if filing as a single taxpayer in 2019, or $203,000 if filing as a married filing jointly taxpayer. The responsibility for determining contribution eligibility will be on the employee, and the program currently does not have a resource that assists with monitoring this eligibility requirement. The program will also be unable to track if an employee has another ROTH IRA account that may have already exhausted an individual’s $6,000 per tax year contribution limit ($7,000 if age 50 or older). Illinois Secure Choice does claim to be working on an option to offer participants to opt-in for a Traditional IRA account rather than a ROTH IRA account.
The program will be administered by Ascensus for IRA custodian and recordkeeping.
If you have any questions regarding the Illinois Secure Choice program, please contact FGMK.
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Michael Razny
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The summary information in this document is being provided for education purposes only. Recipients may not rely on this summary other than for the purpose intended, and the contents should not be construed as accounting, tax, investment, or legal advice. We encourage any recipients to contact the authors for any inquiries regarding the contents. FGMK (and its related entities and partners) shall not be responsible for any loss incurred by any person that relies on this publication.