A Business Owner’s Guide to the IL Secure Choice Program
Siân Killingsworth / 26 Sep 2022 / Small Business 401k
55 million American workers—more than 40% of full-time, private-sector employees—don’t have access to a workplace retirement savings plan. As very few employers offer pensions and Social Security is drying up, with funds expected to be depleted as soon as 2035, the responsibility for saving falls more on the individual than ever before.
Since 2012, at least 45 states have implemented or considered establishing state-facilitated retirement savings programs, with the states of Oregon, California, and Illinois leading the charge.
In 2018, Illinois began rolling out Illinois Secure Choice, the state-sponsored IRA program for the 1.2 million private-sector workers in the state who do not have access to an employer-sponsored retirement savings plan. As of March 2022, more than 6,400 employers and 100,000 employees were already registered and saving for their future.
What is the IL Secure Choice retirement savings program?
To help Illinois residents build their retirement savings, the state of Illinois is rolling out an initiative requiring all employers to offer some type of retirement plan for their workers. The deadlines for setting up a plan are rolling based on the size of the business.
Is the IL Secure Choice program mandatory?
No. While setting up a qualified retirement savings plan is mandatory for employers who have 25 or more employees, it doesn’t have to be the Illinois Secure Choice plan. Beginning November 1, any employers with between 16-24 employees will also have to take part in a retirement savings plan, but it need not be the state-run plan.
Can I opt out of Illinois Secure Choice?
Yes. Businesses can offer a qualified retirement plan from a private provider, which could allow for more savings while providing tax incentives and greater customization.
Let’s see how the state mandate IRA stacks up against Ubiquity’s most popular small business savings plan:
Maximum employee annual contribution amount
Additional annual employer contribution limit
Yes, up to an additional $43,500¹
Flat fees that don’t increase with your account balance
No, asset-based fees
Yes, flat fees
$15,000 credit to offset setup costs2
Flexible auto-enrollment and vesting schedules
Investment guidance based on individual risk tolerance
Employee enrollment meetings and education
Auto-enrollment and escalation
Required at mandated levels
Optional and flexible
Customizable investment lineups
This limit is subject to cost-of-living increases for later years (for prior years, refer to this cost-of–living adjustment table.)
Available to eligible employers who have less than 100 employees who received at least $5,000 in compensation in the previous year, had at least one participant who was a non-highly compensated employee, and in the last 3-years did not contribute to a benefit plan for your employees through a plan sponsored by you or a member of a controlled group that includes you.
Is the IL Secure Choice retirement savings program a Roth IRA?
The plan they are offering is a basic Roth IRA. But with low contribution limits, limited investments, and few tax advantages, is it the best solution for empowering your team’s financial future?
What’s a Roth IRA?
A Roth IRA is an individual retirement account where the saver pays taxes on money going into their account, and (if the saver meets certain IRS criteria) all future withdrawals are tax-free.
Roth IRAs have two important rules and restrictions:
- You can’t contribute to a Roth IRA if you make too much money. The income limit for singles in 2022 is $144,000.
- The amount you can contribute each year changes, based on inflation. In 2022, the contribution limit is $6,000 a year unless you are age 50 or older—in which case, you can deposit up to $7,000.
Click here to read more about 2022 contribution limits
How does the IL Secure Choice retirement savings program work?
Illinois Secure Choice —the state-sponsored plan— has a deadline of November 1, 2022, for the next group of small business owners. Employers in Illinois with 16-24 employees will be required to enroll in the state-run Roth IRA or offer a private option. Illinois Secure Choice is an automatic-enrollment, payroll deduction Roth IRA. Let’s break down what that means to you:
- Automatic Enrollment: If your business opts into the state-provided IRA, after a 30-day grace period, eligible employees will automatically start saving for the future through a 5% contribution from their payroll.
- Payroll Deduction: This means that all participating employees will contribute a part of their salary into their IRA automatically from each paycheck.
- How it works in practice: Added employees will receive a notification from Illinois Secure Choice and will have 30 days to decide to customize their account, opt out of the program, or be automatically enrolled with the standard savings choices.
What will the state-run plan cost my business?
There are no employer fees in the Illinois Secure Choice program, but you are not allowed to make tax-deductible matching contributions as you could in a 401(k) plan.
Your employees, on the other hand, will pay an annual, asset-based administration fee ranging from 0.825% to 0.95%, depending on their investment choices. These fees will be pulled directly from their assets in their account.
What are the benefits of enrolling in the state-run plan?
There are several advantages for companies to choose the Illinois IRA product including:
- No cost to the employer
- No fiduciary risk
- No investment management responsibilities
What are the potential drawbacks of enrolling in Illinois’s state-provided option?
The access to workplace retirement savings plans offered by Illinois Secure Choice is a big step forward in solving the looming retirement crisis. However, there are significant drawbacks when compared to alternative eligible 401(k) plans from a private provider like Ubiquity Retirement + Savings:
- The contribution limit for a 401(k) is more than three times higher than that of an IRA
- Higher contribution rates allow savers to take advantage of the power of compound interest, meaning the more money that is saved, the more it can grow over time.
- Missing out on significant tax benefits
- Did you know small businesses that sponsor retirement plans for their employees are rewarded by the government? Thanks to the SECURE Act of 2019, small businesses can qualify for up to $16,500 in tax credits over a three-year period by starting a qualified retirement plan, such as a 401(k) plan, with auto-enrollment. Employers choosing the state provided option are not eligible for these benefits.
- Employees will be charged asset-based fees
- Currently, Illinois Secure Choice charges an asset-based fee, so your employees are increasingly penalized based on how much they save. This plan has no option to select a flat-fee program, which would provide greater transparency and ultimately lower costs as savings accumulate.
Is the IL Secure Choice IRA best for my business?
At Ubiquity Retirement + Savings, we’ve been helping small businesses and their employees grow their nest eggs for over two decades with affordable, customized 401(k) solutions. While we believe the state’s program is an important step toward ending the looming retirement crisis in Illinois, a 401(k) might be better alternative for your small business and your employees’ futures.
Choose the better path to savings with a Ubiquity 401(k)
If you’re looking for the maximum savings potential and tax benefit, Ubiquity provides customizable 401(k) plans that act as an Illinois Secure Choice alternative. For over two decades we have pioneered flat-fee retirement plans, designed for small businesses, all delivered online to you and your employees. That means no hidden fees or AUM charges in the fine print. We have helped hundreds of thousands of employees save for their future.
The content of this blog is for informational purposes only. It should not be used as a substitute for specific tax, legal and/or financial advice that considers all relevant facts and circumstances. Be sure to consult a qualified financial adviser or tax professional for official guidance.