Reflections

Back to All Reflections

Most Illinois Employers Required to Offer Retirement Plan by Nov. 2023

By Sean Condon, CFP^®

If you are a small business owner in Illinois, with 5 or more employees, listen up: you are required to offer your employees a retirement plan by November 2023.

The State of Illinois has passed legislation to ensure employees have access to some type of retirement savings plan. This legislation introduced the Illinois Secure Choice Retirement Savings Program, and it requires small to medium-sized businesses in Illinois to offer some type of retirement savings plan. This guide will take you through what Secure Choice is, its key features, the criteria for which businesses are required to provide it, your responsibilities as an employer in administering the plan, and if there may be better options for your employees and your business.

What Is Secure Choice?

Secure Choice is an Illinois State-sponsored retirement savings program. It was first introduced in 2015, but has been updated several times, most recently in 2021. The program is designed to help employees save for retirement, particularly those who work for smaller businesses that do not offer traditional retirement plans.  Secure Choice enables employees to save directly from their paycheck into a Roth Individual Retirement Account (IRA). If your company already offers a qualified retirement plan, like a 401(k), then you are not required to offer Secure Choice.

Features of Secure Choice

Secure Choice operates by automatically enrolling eligible employees in a Roth IRA with a default 5% payroll contribution. Participants do have the flexibility to change their contribution levels from the automatic 5%, but they need to make that change on their own.

The contributions are then invested, from a set of options including an age-based target-date fund, which is designed to change the investment allocation as you approach retirement age. Or the funds can be invested in a conservative fund, capital preservation fund, or growth fund.

The fee for Secure Choice is an account-based fee, with an expense ratio of 0.75%. For instance, if someone had $100,000 in their plan, the fee would be $750 for the year.

Who Is Required to Provide a Plan?

Under the latest update in 2021, employers that meet specific criteria are required to offer Secure Choice or another qualifying retirement plan. The criteria includes having at least five employees, being in business for at least two years, and not already offering a qualified retirement plan, like a 401(k), SEP IRA, or SIMPLE IRA. If employers do not comply, they can face penalties starting at $250 per eligible employee.

Contribution and Income Limits

While Secure Choice aims to be inclusive, it does adhere to the standard Roth IRA contribution and income limitations set by the federal government. For 2024, total annual contributions to a Roth IRA cannot exceed $7,000 if you are under age 50 or $8,000 if you are age 50 or older. Income limits also apply, with the maximum income for a single tax filer at $161,000, and for married taxpayers filing jointly at $240,000. However, Secure Choice does offer a traditional IRA option for participants who are not eligible to contribute to a Roth IRA due to these income limits.

What Do Employers Have to Do to Administer the Plan?

Employers’ responsibilities for administering Secure Choice include automatically enrolling eligible employees, providing payroll deduction arrangements, and depositing funds into the program on behalf of those employees. However, employers do not have to match any funds or guarantee any investment performance. The Secure Choice Act does not consider employers as plan managers, nor does it subject them to the same administrative requirements as with employer-sponsored retirement plans.

Is There a Better Retirement Plan Option for Your Business?

The Secure Choice program had good intentions to help employees save.  But as a business owner, you should consider the alternatives available.  There are many benefits to sponsoring a professionally managed 401(k) plan, especially considering new tax breaks can allow you to launch a 401(k) plan for free.

The table below provides a comparison between the Illinois State managed Secure Choice program and a professionally managed 401(k) plan.   A 401(k) plan will allow you and your employees to contribute significantly more to retirement at a lower cost.  You will have a much larger mix of available investments.  Your company also gains much more flexibility to provide employer matches and employee education from a financial advisor.

Do not let the upcoming deadline for the Illinois Secure Choice program stress you out.  Perhaps it is a good time to look at your company’s retirement plan options and understand what it will take to launch a 401(k) for you and your employees.  Otherwise, you will soon be handing over this important employee benefit to the state.

Do You Have the Best Retirement Plan for Your Business?

With the plethora of options between Secure Choice, a 401(k), SIMPLE IRA, and SEP IRA, it can be hard to know what the best retirement plan is for your employees and your company. If you would like help exploring the best plan to motivate your employees while also potentially lowering your tax bill, we are happy to help you.

At Windgate Wealth Management, we understand the challenges business owners face and love working through those issues. To get started, you can reach us by calling (844) 377-4963 or emailing windgate@windgatewealth.com. You can also book an appointment online here.

Perritt Capital Management, Inc. is the registered investment advisor for Windgate Wealth Management accounts
All investments carry some level of risk, including the potential loss of principal invested.

300 S. Wacker Suite 600
Chicago IL 60606
844-377-4963