Deadlines for employers with 16+ employees to offer Illinois Secure Choice have passed — businesses of these sizes should act now to avoid penalties
The next deadline is for employers with 5-15 employees on November 1, 2023 — although a Human Interest 401(k) plan can be an easy, affordable way to meet requirements today
Employers face penalties of up to $500/employee (e.g, an employer with 25 employees could be fined $6,000+ the first year found out of compliance1)
What is the Illinois Secure Choice Act?
The Illinois Secure Choice is a mandatory state-sponsored retirement savings program. Employers that do not comply face penalties of $250 per employee for the first year and $500 per employee for each subsequent year.
An Illinois business with 25 employees can face a $6,250 fine the first year they don’t comply with Illinois Secure Choice — and up to a $12,500 fine each year it’s found out of compliance.1
Originally launched in 2018, the Illinois Secure Choice Savings Program Act aims to increase retirement savings access to private-sector employees. Approved by the state in July 2021, H.B. 0117 requires employers with at least five employees to:
Automatically enroll each employee who has not opted out of participation in the program
Provide payroll deduction arrangements and deposit funds into the program on behalf of those employees
Create automatic, annual increases to contribution rates up to a maximum of 10% of a participant’s wages
Overview of Illinois Secure Choice Savings Program legislation
The Illinois Secure Choice Savings Program Act became effective on June 1, 2015, and mandated that a state-sponsored retirement savings plan be implemented within 24 months. Illinois Secure Choice went through updates in 2018 and 2019, and the final version of the law passed in July 2021, which also included several notable changes:
The program applies to employers with at least five employees in Illinois
The program includes annual, automatic increases to contribution rates (up to a maximum of 10% of an enrollee’s wages)
The $500 noncompliance penalty can be applied to companies found in non-consecutive years of noncompliance
Employers have 120 days to file a protest with the department after issuing a notice of proposed penalty assessment for noncompliance
Notices may be provided electronically (rather than only by first-class mail)
Who is required to provide a plan?
The approved version of the bill broadened the definition of “small business.” Employers that meet the following criteria must offer a qualified plan:
At least five employees
Have been in business for at least two years
Do not offer a qualified savings plan such as a 401(k), SEP-IRA, or Simple IRA
Businesses that meet these criteria are required to provide a qualified retirement plan — such as a 401(k), 403(b), or more — or enroll employees into the Secure Choice Program. Secure Choice participants are enrolled in a target date Roth IRA (individual retirement account) with a default 5% payroll contribution. Participants can change contribution levels or fund options and may choose to opt-out of the program.
Illinois Secure Choice: Registration deadlines for employers
Deadlines rolled out in waves, starting in November 2018, when employers with 500+ employees were required to offer the program (or another employer-sponsored retirement plan). Employers with 100-499 employees were required to register by July 2019, while those with 25-99 employees faced a November 2019 deadline. Businesses of these sizes that haven't registered should do so now to avoid penalties.
The approved proposal in July 2021 added deadlines for newly classified "small businesses." This means that state law now requires every Illinois employer with five or more employees to meet Secure Choice or offer their own retirement program. Registration is currently open, but businesses must meet the following deadlines:
|November 1, 2018
|July 1, 2019
|100 - 499
|November 1, 2019
|25 - 99
|November 1, 2022
|16 - 24
|November 1, 2023
|5 - 15
Is Illinois Secure Choice legally mandatory?
Yes, the Illinois Secure Choice Savings Program Act is legally mandatory for Illinois employers. Employers who don’t comply with the Illinois Secure Choice Act may be subject to penalties as described in the act (820 ILCS 80/85):
$250 fine for each employee for the full or portion of the first calendar year in which the employee isn’t enrolled or didn’t opt out of the plan
$500 fine for each employee for the full or portion of the second calendar year in which the employee isn’t enrolled or didn’t opt out of the plan
However, according to Sec. 70 (820 ILCS 8
0/70) of the act, the Illinois Secure Choice Act assigns no fiduciary risk to employers, doesn’t consider employers to be plan managers, doesn’t force employers to match any funds or guarantee any investment performance, and doesn’t make employers subject to the same administrative requirements as with employer-sponsored retirement plans.
Learn more about Illinois Secure Choice alternatives:
Are there contribution and income limitations?
Yes, because the standard Illinois Secure Act account option is a Roth IRA, there are limitations set by the federal government. Total annual contributions to traditional and Roth IRAs in 2024 cannot exceed $7,000 (under age 50) or $8,000 (age 50 or older) as mandated by the IRS. Additionally, there are maximum income limits. In 2024, these limits are:
$161,000 for a single tax filer
$240,000 for married taxpayers filing jointly
$10,000 for married filing separately
However, Illinois Secure Choice does offer a Traditional IRA option to participants who aren’t eligible to contribute to a Roth IRA. Traditional IRAs do not have an income limit.
How are employee contributions treated?
Unless an employee opt outs within the 30-day grace period, Illinois employers automatically enroll them in Illinois Secure Choice, start deducting a default 5% contribution from each paycheck, and contribute that amount to a Roth IRA under the employee’s name. Once enrolled, employees can increase or decrease their withholding as a percentage or dollar amount.
By default, all employee contributions are deposited in an age-based target-date fund designed to end in the year closest to when the participant turns 65 (or plans to retire). To minimize investment fees, the Illinois Secure Choice Board chooses funds that are passively managed. Additionally, the Board offers these other funds, too:
A capital preservation fund: This option seeks to preserve a participant’s capital by investing in money market U.S. securities
A conservative fund: An index fund that tracks the total return of the U.S. investment-grade bond market
A growth fund: An index fund that tracks the S&P 500
Given the focus on passively managed funds, Illinois Secure Choice is able to offer low annual expense fees compared to other current state-sponsored retirement plans. The plan’s annual expense ratio is approximately 0.75%. This means that the average full-time uncovered worker eligible for Illinois Secure Choice making $38,000 and contributing the default 5% to his Roth IRA would contribute $1,900 and pay $14.25 in investment fees per year. The fund charges no fees for making withdrawals, changing contribution percentages, or moving monies between investment funds. Individuals making withdrawals before age 59 ½ are subject to applicable penalties, such as the 10% early distribution penalty from the IRS. However, there are specific early distribution penalty exceptions that allow participants to avoid the penalty tax.
Four financial downsides of Illinois Secure Choice
The objective of facilitating that 2.5 million Illinoisans save for retirement is very positive. However, the Illinois Secure Choice state retirement plan has four major weaknesses.
1. The 0.75% annual expense ratio could increase
According to the feasibility study from Boston College, with a 0.75% investment fee, the plan would become cash-flow positive within ten years. The finding of the study indicates that the Board would need to increase the default 3% contribution or increase the 0.75% investment fee to accelerate the plan’s break-even point. The Board increased the default contribution rate to 5% to avoid increasing the annual fee.
Ultimately, paying a 0.75% annual expenses ratio for a retirement account can be high. For example, a Human Interest 401(k) plan has a monthly investment advisory fee of up to 0.01% of the plan's assets is charged to the plan and allocated to participants' account. In addition, participants using Human Interest Advisors' Model Portfolios tend to see average fund expense ratios of 0.07%.
2. IRAs aren’t effective for high-income retirement savers and those close to retirement age
As presented in the income limits above, single tax filers making more than $161,000 (and joint married tax filers making more than $240,000) can make limited contributions to a Roth IRA. Even when able to contribute more, Roth IRA holders can only contribute up to $7,000 ($8,000 if age 50 and over) per year in 2024. These contribution limits also apply to traditional IRA holders.
Even though legislators are discussing the possibility of offering a traditional IRA for high-income earners, the latter wouldn’t be able to take full advantage of their pre-tax deductions. High-earning individuals and those close to retirement age are much better served by a 401(k), which allows them to contribute more than they can in an IRA. In 2024, 401(k) contribution levels are $23,000 and an additional $7,500 for those aged 50 and over — for a total of $30,500.
3. Lack of employer match
While the lack of an employer match might sound attractive to employers, the reality is that employers are generally better off providing a match to employee contributions. Vanguard reported that 96% of its 401(k) plans provided employer contributions in 2019. Employer contributions to 401(k) plans may be tax deductible as long as they don’t exceed limits set by the IRS. Plus, it’s important to know some 401(k) plan administrative fees may also be tax-deductible.
In addition, lower-income workers also may feel better served by an employer-sponsored 401(k) with an employer match than a Roth IRA. A Boston College study raised the concern that increasing the default contribution rate of the plan could pinch the budgets of lower-wage workers. With many employers offering retirement plans with a full employer match with as little as a 6% employee contribution, low-income earners may feel that a 401(k) with an employer match provides a better bang for their contribution dollars.
4. Target-date funds can underperform
While the Board provides additional investment options, age-based target-date funds are the default option. Although target-date funds provide investors with diversification and rebalancing capabilities, research has found that, in some cases, target-date funds may underperform and investors pay multiple layers of fees.
Here is a full review of target-date funds, which help you determine whether or not they would be a suitable investment for you.
Illinois Secure Choice Retirement Savings Program FAQs
What happens if your company already offers a 401(k)?
If your company already offers a 401(k)
or other plans qualified under sections 401(a), 403(a), 403(b), 408(k), 408(p), or 457(b) of the IRS, you are exempt and don’t need to enroll your employees in Illinois Secure Choice. To verify or certify your exemption, visit the Illinois Secure Choice website and enter your EIN/TIN.
What is the role of the Illinois Secure Choice Savings Board?
The Illinois Secure Choice Savings Board is a seven-person board led by the Illinois State Treasurer responsible for governance, organizational, and financial oversight of the Illinois Secure Choice Savings Program. The board selected Ascensus, a financial services company, as the program administrator to handle day-to-day operations like enrollment, account maintenance, and recordkeeping.
The board ensures compliance with regulations, oversees investment options, provides participant education, evaluates program performance, and reports on its impact.
How do market conditions and taxes affect the Illinois Secure Choice Program?
Market conditions can impact the Illinois Secure Choice Program, and account balances in IL Secure Choice will vary with the market conditions. However, Illinois Secure Choice offers retirement savings options with various risk levels so you can choose one that fits your risk tolerance.
Taxes are also relevant. Contributions are after taxes, so you don't pay taxes on your contributions when you request a withdrawal. Earnings on your contributions may also be tax free when withdrawn based on your age and the amount of time the account has been open.
How does enrollment work in the Illinois Secure Choice Program?
Business owners play a crucial role in facilitating enrollment and ensuring timely and accurate payroll deductions to the employee's retirement savings plan. Illinois employers automatically enroll eligible employees in Illinois Secure Choice, deduct a default 5% of every paycheck, and contribute that amount to the designated Roth IRA.
Once enrolled, employees will maintain their account, including contribution amount, directly through the Illinois Secure Choice program. It is important to note that the onus is on the employee to manage their plan, opt out of the plan, and understand their investment options.
How can eligible employees opt out of an employer-provided Illinois Secure Choice IRA?
Eligible employees who wish to opt out of an employer-provided Illinois Secure Choice IRA plan can do so by following these steps:
Visit saver.ilsecurechoice.com and click, “Set up your account.” If you opt out and have received notification within the past 30 days, you won’t need to set up a username and password. Beyond 30 days, you must set a username and password to complete your opt out.
Contact client services by emailing [email protected] or by phone (855) 650-6913 Monday through Friday between 8am and 8pm CST to complete your opt out.
The bottom line: Research all of your retirement saving options
Illinois Secure Choice is one way employers can comply with upcoming deadlines, but it’s not your only option. Take the time to investigate all of your available options, including a 401(k) with Human Interest. With its higher contribution rates, and the option to match employee deferrals, a 401(k) plan may fit the needs of your Illinois business. Click here to review your 401(k) options with Human Interest. Need help reviewing your retirement saving options? Check out these useful resources:
1 Disclaimer: This scenario is for illustrative purposes only. According to Section 85 of the Illinois Secure Choice Savings Program Act (820 ILCS 80/85), an employer who fails to meet established deadlines is subject to a penalty equal to $250 for each employee for each calendar year and a $500 penalty for any portion of each subsequent year during which an employee continues to be unenrolled without electing out of participation in the program. Our example assumes an employer with 25 qualifying employees is failing to comply with the act for both scenarios.
2 Investment advisory services are offered through Human Interest Advisors LLC, a Registered Investment Adviser and subsidiary of Human Interest Inc. An investment advisory fee is paid to Human Interest Advisors (HIA) of 0.01% of plan assets and a separate fee for recordkeeping services and custody-related expenses is paid to Human Interest Inc. (HII) of 0.05% of plan assets. Both fees are deducted on a monthly basis from the employee's account according to the HII and HIA Terms of Service. All prices are exclusive of applicable taxes. If the plan sponsor elects to hire an external investment advisor, the plan sponsor will pay such advisor as agreed between the plan sponsor and advisor. For more information, please see our pricing page. Similar services may be available at a lower cost from other vendors.
Average fund fees as of 12/31/23. Asset-weighted average of mutual fund annual operating expenses ("expense ratio") for all plan participants invested in Human Interest Advisors' Model Portfolios ("Models"). Provided for illustrative purposes only. Actual, average fund expenses a participant experiences vary based on the specific Model selected, allocation changes to Models, whether participants opt out of Models and choose their own investments and allocations, or allocation drift, especially in volatile markets. Model allocations and underlying mutual fund expenses are subject to change. Before investing, carefully review the fund’s prospectus, which includes, among other things, a description of fees and expenses a fund will charge.
3 As of 06/30/23. Asset-weighted average of mutual fund annual operating expenses ("expense ratio") for all plan participants invested in Human Interest Advisors' Model Portfolios ("Models"). Provided for illustrative purposes only. Actual, average fund expenses a participant experiences vary based on the specific Model selected, allocation changes to Models, whether participants opt out of Models and choose their own investments and allocations, or allocation drift, especially in volatile markets. Model allocations and underlying mutual fund expenses are subject to change. Before investing, carefully review the fund’s prospectus, which includes, among other things, a description of fees and expenses a fund will charge.
Article ByThe Human Interest Team
We believe that everyone deserves access to a secure financial future, which is why we make it easy to provide a 401(k) to your employees. Human Interest offers a low-cost 401(k) with automated administration, built-in investment education, and integration with leading payroll providers.