Illinois Secure Choice: What’s New in Employee Retirement Savings

by Angela Vaughn
Heinold Banwart, Ltd.

Be prepared for this new retirement savings program as it moves toward launch.

On January 4, 2015, Illinois Governor Pat Quinn signed one of his last pieces of legislation, Public Act 098-1150, the Illinois Secure Choice Savings Program Act. Its intention is to provide a retirement savings option for private-sector workers in Illinois without access to an employer-sponsored plan. The decision to sign this into law made the State of Illinois only one of a handful of states offering similar types of programs. 

Background
Why Secure Choice? According to the state treasurer, an estimated 1.2 million Illinois workers will be helped either through this program or because an employer elects to implement its own retirement plan. Although Illinois was the first state to pass this type of legislation, Oregon was the first state to implement “Secure Choice”—a catch-all name for several retirement savings plans that states have adopted. Oregon’s program is set to include employers with four or fewer employees as of May 2020. 

Proponents claim this program is needed to improve the ability of Illinois workers to have access to and save for retirement. According to the AARP Public Policy Institute, “People are 15 times more likely to save if they have a savings option through work.”

The law went into effect on June 1, 2015, with an initial implementation date of June 1, 2017, which was later extended to 2018. During this process, appointments were made to a seven-person board that includes the state treasurer, state comptroller, director of the Governor’s Office of Management and Budget, two public representatives, a representative from one of the participating employers, and a representative for the individual worker (of which the last four were appointed by the governor).

In January 2018, the Office of the Illinois State Treasurer released a notification stating the board signed a contract with Ascensus for management of the program. Investment managers BlackRock (handling the target date fund investment options), Charles Schwab (equity index and box index investment options) and State Street Global Advisors (capital preservation option) were also selected.

The Illinois Department of Revenue (IDOR) made a significant modification to Form IL-941 beginning with the first quarter of 2017. Employers were asked to complete the Illinois Secure Choice Savings Program Requirements under Worksheet 1 of the return. The instructions were updated and provided employers with the information needed to determine if they were subject to this new law.

In the March 6, 2018, board meeting minutes, Jay Rowell, designee for the state treasurer, confirmed the employer data had been secured 

and was being reviewed by the treasurer staff and Ascensus. He also stated that Ascensus was using this information to come up with the employer “wave” schedules.

Covered Employers
All Illinois employers with 25 or more employees who have operated in the state for two or more years and do not offer a qualified savings plan will be subject to this new program. Beginning in November 2018, employers are legally required to participate in the program as outlined below. 

  • Pilot Phase (May 2018): voluntary participation
  • Wave 1 (November 2018): employers with 500+ employees
  • Wave 2 (July 2019): employers with 100-499 employees
  • Wave 3 (November 2019): employers with 25-99 employees

An employer-sponsored retirement plan includes: a plan qualified under Internal Revenue Code sections 401(a), including a 401(k) plan; qualified annuity plan under section 403(a); tax-sheltered annuity plan under section 403(b); Simplified Employee Pension plan under section 408(k); a SIMPLE IRA plan under section 408(p); or governmental deferred compensation plan under section 457(b).

Preparation
On Form IL-941, employers need to review Step 2, “C,” each quarter. Employers should remember the state now requires W-2s to be e-filed each year. The W-2 contains many items that could also be used to compare the information provided on Form IL-941, including the number of employees and if a retirement plan is currently provided. 

Employers subject to this requirement should determine when they will be phased in based upon the above wave schedules. A timeline for implementation should be set for reviewing the employer requirements, processing and employee notification. To allow for any unexpected changes, a goal of four to six weeks before the start date would be suggested.

Requirements for the employer include the following:

  • Provide program information to each employee;
  • Educate and train all employees. Money contributed will be withdrawn tax-free upon retirement. Employees choose their investments and control how much they contribute, although they cannot exceed the maximum annual contribution limits for Roth IRAs. An employee’s lack of response after the 30-day eligibility enrollment will result in an automatic enrollment of a five-percent payroll deduction.
  • Payroll setup & implementation; and
  • Remittance of employee contributions. The employer must ensure all deferrals are remitted on a timely basis and implement contribution changes as requested by the employee.

Here are some additional program specifics:

  • Employer match contributions are not allowed.
  • Seasonal employees who work for more than 60 days are eligible.
  • Out-of-state residents qualify if their employment is based in Illinois.
  • An employee must be 18 years of age or older.
  • The program includes both part-time and full-time employees.
  • Employees may opt out at any time.
  • Employers who are not compliant may be subject to fines and penalties.

Latest Developments
Governor Bruce Rauner issued an amendatory veto to this program on August 14, 2018. Technical changes were made in the effort to make it optional for employers to participate in the Secure Choice program. He cited various concerns which have been raised, including a result of few small retirement plans, the termination of existing small plans, and concerns about the program’s viability under federal law.

A news release issued by the Office of Illinois State Treasurer Michael W. Frerichs, who is currently overseeing the program, states: “We will work with members of both parties to override this veto and will stay committed to the successful rollout of Secure Choice to give Illinois workers an opportunity to retire with dignity.”

Legislators in the House and Senate will have the opportunity this fall to vote to approve or override the amendatory veto. If they choose no action, they will let die the technical changes. As this program moves toward the November 2018 launch date, Illinois Secure Choice continues to provide information online for Illinois employers at ilsecurechoice.com. iBi

Angela Vaughn is the payroll accounts manager at Heinold Banwart, Ltd.

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