Illinois Secure Choice: What You Need to Know About the State Retirement Mandate

The Illinois Secure Choice Savings Program Act became effective on June 1, 2015 with the goal of increasing retirement savings access to private-sector employees throughout the state. As of September 1, 2023, businesses with 16 or more employees are required to comply with the legislation or face fines for noncompliance. However, the deadline is fast approaching for businesses with five or more employees to comply.

Keep reading to find out what Illinois Secure Choice entails, who is impacted, and what you and your clients (both in and outside of Illinois) need to do. 

Program Details 

Illinois Secure Choice is a mandatory state-sponsored retirement savings program. The program requires businesses to either offer the state-run Roth Individual Retirement Account (IRA) or certify exemption from the program by proving they already offer a qualified retirement benefit, such as a 401(k).1 

These mandates are rolling out across the country, with nine states actively running programs, including Illinois.

Illinois Secure Choice provides a way for employers to set up an IRA for each eligible employee and follows the structure below:3 

• Employees are auto-enrolled with deductions set to 5% of an employee’s gross pay. 
• Employers provide payroll deduction arrangements and deposit funds into the program on behalf of their employees. 
• Employees have the ability to adjust their deductions and also opt out of the plan. 
• In Roth plans, contributions are post-tax. This means your taxable income is not reduced by your contributions to a Roth IRA. 
• IRA’s have an an annual contribution limit of $6,500 ($7,500 if you’re 50+ years or older) 
• Employers are not able to offer matching contributions with a Roth IRA. 
• Illinois Secure Choice includes annual, automatic increases to the contribution rates up to a maximum of 10% of a participant’s wages. 
• Employees who change employers will be able to keep their Secure Choice account. 

The deadline for businesses with 16 or more employees has already passed on November 1, 2022, and they are now receiving notices of noncompliance and being assessed for fines. Employers with five to 15 employees who have been in business for at least two years and who have not certified that they offer a qualified retirement plan must register by November 1, 2023. 

Employers that do not comply will face penalties of $250 per employee for the first year and $500 per employee for each subsequent year.

What should businesses be doing? 

Start researching your options now! It is important to understand the legislation and how the program works. Now is also a great time for businesses to start researching alternative options that may exempt them from the state plan, such as 401(k), 403(b), or 457(b) Plans. 

State-sponsored plans vs. 401(k)s 

State plans like Illinois Secure Choice are free to the employer to offer, but there are administrative- and compliance-related responsibilities they must handle.  

What are the biggest differences between Illinois Secure Choice and another offering?  

• Illinois Secure Choice offers a Roth IRA account., which allows employees to contribute a maximum of $6,500 (or $7,500 for those 50 and older)  in 2023. A 401(k) or 403(b) plan has a higher contribution limit of $22,500 (or $30,000 for those 50 and older) for the same year. 
• State-mandated retirement plans offer a limited number of investments for participants to choose from, whereas non-state plans may offer a wider range of investment options. 
• Administrative responsibilities fall on the employer for state-run plans. This includes manually sending employees’ contributions to the plan with each round of payroll. Private plans may have access to automated payroll integrations, which can help handle other administrative and compliance-related tasks. 

Interested in learning more about the Illinois state-mandated retirement program? Join Human Interest’s upcoming webinars, Beat the clock: Complying with the November 1st Illinois Secure Choice deadline on September 26 and October 11. This event will include an in-depth look at the mandate as well as time to answer specific questions. Please feel free to invite any clients who may be impacted by Illinois Secure Choice as well.