Illinois Secure Choice: Retirement Savings Program

The state of Illinois now requires employers with 5 or more employees to enroll them in the Illinois Secure Choice program if they don’t offer another qualifying retirement plan. This state-administered retirement program launched in 2018. Do you currently offer your employees a retirement plan? If not, we’ll inform you of your options—your state-administered program and ePlan Services 401(k) plan.

Key Takeaways:

• Illinois Secure Choice Retirement Savings Program enrolls employees into individual retirement accounts.
• Employers cannot make contributions to these accounts, but employees can contribute up to $7,000 or $8,000 if they are aged 50 or older.
• Employees are automatically enrolled but can opt out at any time.
• Employers who do not offer a qualifying plan can face fines of $250 per employee for the first year and $500 for each subsequent year.

What is the Illinois Secure Choice Retirement Savings Program?

Illinois Secure Choice is a state-administered retirement program established to help employees state-wide gain access to retirement savings accounts. This program serves as an easy option for employers who don’t already offer a retirement plan. This type of account is a Roth IRA, meaning employees contribute to it using post-tax dollars. Once the employee retires, they can make qualified withdrawals tax free. 

Though employees are automatically enrolled in the Illinois Secure Choice Retirement Savings Program, they can opt out at any time. If an employee chooses to stay enrolled in the plan, their default salary contribution is 5% of gross pay. This percentage is escalated by 1% annually until finally reaching a maximum of 10%. Loans are not allowed.

Does the Illinois Secure Choice Retirement Savings Program have contribution limits?

Employees are permitted to contribute a maximum of $7,000 (2024) per year. The catch-up contribution limit is $1,000 annually if the employee is age 50 or older. Employers are not permitted to make contributions to employee accounts.

What other options are available?

Instead of enrolling your employees in a state-administered retirement program, you may consider offering a 401(k) option. Though plan participants will need to pay taxes on the funds in a traditional 401(k) at the time of withdrawal, ROTH 401(k) plans use post-tax dollars, so they are tax-free at the time of a qualified withdrawal.

The benefits of choosing a 401(k) include:

• Employer matching – Unlike state-administered programs, 401(k) plans permit employer matching contributions. The match amount is at the employer’s discretion.
• Higher contribution limits – The contribution limit for a 401(k) plan is $23,000 (2024) in comparison to an IRA, which only permits a contribution of up to $7,000 (2024).
• Tax breaks – SECURE ACT 2.0 makes it possible for eligible businesses to receive up to $5,500 in employer tax credits and potential for an employer contribution credit of up to $1,000 per employee.

What are the penalties for not enrolling in a retirement savings program?

If employers do not auto-enroll their employees in the state-sponsored program or offer a qualifying retirement plan, business owners stand to face stiff penalties. For one year of non-compliance, the penalty is $250 per employee. For each following year of non-compliance, the fine is $500. 

Conclusion:

When it comes to offering your employees a retirement plan, don’t settle for the bare minimum. ePlan Services offers full service 401(k) retirement plans that will allow your employees to make higher contributions and provide possible tax breaks for you.

Employees will even have access to an easy-to-use employee dashboard which makes it easy to make changes their plan at any time.