In just under one year, on June 1, 2017, the Illinois Secure Choice Savings Program, also known as Public Act 98-1150, will go into effect. This is a state-mandated program that Governor Quinn signed into law in January of 2015. This program was created because studies showed that many Illinois workers lack sufficient savings for retirement. Statistics show that the median amount of retirement savings is $3,000 for working age adults in Illinois. Additionally, 2.5 million Illinois workers do not have access to a retirement savings account through their employers. Public Act 98-1150 states that the program will be created “for the purpose of promoting greater retirement savings for private-sector employees in a convenient, low-cost, and portable manner.”
The state will not provide any funds for operation of the program, thus program assets will provide for all administrative and investment costs incurred. Although the operating costs will be charged to the program assets, Public Act 98-1150 states that, “in no event shall they exceed 0.75% of the total trust balance,” referring to administrative and investment expenses. The fees necessary to operate the program will be allocated to individual retirement accounts on a pro rata basis. Program funds will be private property and will not be available for use by the state or mixed with other state funds.
The Illinois Secure Choice Savings Program will not require participation from all employers. Those required to participate are ones that have been doing business in Illinois for at least 2 years, have at least 25 employees aged 18 years and above, and do not currently have a retirement plan for their employees such as a 401(k), 403(a), 403(b), etc.
Under this program, all full-time employees will be automatically enrolled into a Roth IRA plan, defaulted to 3% of pay contributed to the plan. Contributions cannot exceed regular Roth IRA limits under the Internal Revenue Code and there will be a variety of investment options based on the risk tolerance of the employee. Employees can decide to opt out of the plan at any time.
Employers will have a very limited role, as no employer contribution will be allowed and employers will not have a fiduciary liability. Employers must simply comply with the plan, and if an employer fails to comply, fines will be assessed at $250 per employee for the first calendar year and $500 per employee for the second calendar year. Employers will have no responsibility for employee decisions whether to participate or employee investment decisions. If an employer becomes subject to a penalty, an assessment will be issued, and an employer will have 90 days to protest, which may then lead to a hearing.
At inception of the program, information packets for employers and employees will be distributed by the board. Employers must supply these packets to their current employees when the program launches, and to new employees at the time of hire. The packets will contain a form that allows employees to opt out if desired – if not, they will be automatically enrolled.
The board will later establish a process by which employers are able to forward contributions to the program. This process may include the option to contract with financial service companies or third-party administrators. Payments will be due from employers either on or before the last day of the month after the month in which compensation would have been payable to the employee, or at a later deadline specified by the board, but not later than the due date for the deposit of tax required to be deducted and withheld.
Employers have nine months from launch of the program to establish a payroll deposit retirement savings arrangement for employee participation, and employers must enroll all employees in the program who have not opted out. Furthermore, employers are required to designate an open enrollment period at least once per year allowing employees who previously opted out to begin use of the program. Employees who have opted out, yet choose to begin participation, may only enroll in the program during the employer’s designated annual open enrollment period unless permitted to do otherwise by their employer.
We will continue to keep you informed as this program develops, but in the meantime if you have any questions about this or would like to consult a professional for more guidance, feel free to reach out for our help. ECS Financial Services is a full-service accounting firm helping businesses succeed since 1962. Our accounting and tax professionals are committed to delivering Exceptional Customer Service at every step.
About the Author - Spencer Steele joined ECS as an accounting intern for the summer of 2016. He currently attends Bradley University in Peoria, Illinois, and will be entering his senior year this fall. Spencer is working towards a double degree in accounting and finance, and has earned Dean’s List honors every semester in attendance. Spencer gained experience in financial and managerial accounting through his coursework at Bradley. After earning his degree, Spencer will look to pursue the Certified Public Accountant Designation. In his free time, Spencer enjoys playing basketball and working on cars. He is co-founder and president of the Automotive Enthusiast Association at Bradley University, which he founded with a close friend in the fall of 2015.