Skip to content
Vestwell Logo

Illinois Secure Choice Retirement Program: Everything You Need To Know

According to PwC's Retirement in America, one in four Americans has yet to save a single dollar for their retirement years. Moreover, approximately 30 million retirees are projected to live in poverty or close to it by 2035.

That's why Illinois launched the Secure Choice Retirement Savings Program (Illinois Secure Choice): A way to make it easy and automatic for workers to save money for their golden years.

In this article, we’ll answer some of your questions about Illinois Secure Choice. You’ll learn what it is, how it works, and how to begin saving.

What is Illinois Secure Choice?

Signed into law in 2015 and launched in 2018, Illinois Secure Choice is a new way for employees in the state to save for their retirement.

The program is overseen by a state Board but administered by private-sector partners, and it works like other workplace-based retirement savings plans: Employees regularly contribute money to their accounts through payroll deductions, and the funds are invested in stocks, bonds, or other investment vehicles. When they reach retirement age, workers can use the money saved in their account to help pay for their golden years.

The program's goal is to make saving for retirement more manageable and accessible for all Illinois residents.

How Does It Work?

Illinois Secure Choice is an automatic enrollment IRA program. Employees are enrolled with a default 5% contribution rate into a default target date fund based on their expected retirement age. Employees can choose to save more or less, and may select alternative investment options. The program is completely voluntary, so employees are not required to participate if they don't want to and can opt-out at any time.

Illinois Secure Choice uses a Roth IRA as the default investment vehicle, meaning contributions are made with after-tax dollars, and withdrawals in retirement are tax-free. This differs from a traditional IRA, which allows pre-tax contributions but requires participants to pay taxes on withdrawals in retirement. Savers in the program can elect to save in a traditional IRA instead.

With a Roth IRA, savers have access to the money they contributed penalty free. However, an employee must pay taxes and an additional 10% penalty if they withdraw investment earnings before the age of 59 ½ and before they have had a Roth IRA for five years. First-time homebuyers are exempted from this rule.

Which Businesses Are Required to Participate in Illinois Secure Choice?

According to the Illinois Secure Choice website, employers who meet the following criteria are required to participate in the program:

  • Have 5 or more employees
  • Have been in operation for at least two years
  • Do not offer an employer-sponsored retirement plan

Employers who meet the above requirements must either facilitate Secure Choice or offer their own employer-sponsored plan.

What Are the Alternative Options?

If your business has 5 or more employees and does not yet offer a plan, the following options are available. You can set up a:

  • 401(a) or 401(k) plan - Qualified plan (including profit sharing plans and defined benefits plans)
  • 403(a) - Qualified annuity plan
  • 403(b) - Tax-sheltered annuity
  • 408(k) - Simplified Employee Pension (SEP) plan
  • 408(p) - SIMPLE IRA plan
  • 457(b) - Governmental tax-deferred compensation plan
  • or Taft-Hartley plan

It's important to consider all available options and research which plan is best for your business.

What is the Registration Deadline?

Program deadlines for businesses are based on company size. The breakdown provided by the Illinois Secure Choice website is as follows:

  • Companies with 500+ employees - 11/1/2018 (deadline passed)
  • Companies with 100 to 499 employees - 7/1/2019 (deadline passed)
  • Companies with 25 to 99 employees - 11/1/2019 (deadline passed)
  • Companies 15 to 24 employees - 11/1/2022 (deadline approaching)
  • Companies 5-14 employees - 11/1/2023

Employer size is based on quarterly data reported to the state from each employer. If an employer reports five or more employees for all four quarters of the previous calendar year, they will need to abide by the appropriate deadlines.

Who is Eligible to Participate?

Anyone who is 18 years or older and has a W-2 wages reported in Illinois, regardless of whether they are part-time or full-time, is eligible to participate in the program. Seasonal employees are eligible though there may be limitations for those who work fewer than 60 days with an employer.

Eligible workers are auto-enrolled by their employers but have a 30 day window to opt-out before any payroll contributions begin. Savers can make changes to their accounts or opt-out at any time. Accounts are owned by each individual participant and are portable from job to job.

Self-employed individuals are also eligible for the programs as long as they are 18 years old and above and have earned income. Self-employed individuals may use the self-enrollment process to open an IRA in the program.

Registration Deadline, and Penalties

Companies that meet the requirements must register by their appropriate deadline. However, employers may register and begin facilitating the program before their mandated deadline. Employers may also choose to begin offering their own employer-sponsored plan instead of facilitating Illinois Secure Choice.

All employers with 25 or more employees should already be facilitating Illinois Secure Choice if they are not offering their own plan. The implementation deadline is November 1, 2022, for businesses with 15 to 24 employees. Similarly, companies with 5 to 14 employees will need to register for the program no later than November 1, 2023.

While the state has not yet begun issuing financial penalties, employers who fail to comply with the notice will need to pay a $250 penalty per eligible employee for the first calendar year of non-compliance and a $500 fine per employee for each subsequent calendar year of non-compliance. Employers who have missed their deadline should visit the program website and register to avoid any financial penalties.

Other Retirement Options

While Illinois Secure Choice might be the right decision for many employers in the state, other businesses could be better served by establishing their own employer-sponsored retirement plan, such as a 401(k), to meet government requirements while also improving their employees’ financial security.

A 401(k) plan offers both traditional and Roth options as well as higher contribution limits and profit-sharing. Because of this, 401(k) plans are an opportunity for business owners and employees to save more for retirement. Importantly, employer contributions to a 401(k) are deductible on the employer's federal income tax return up to a certain limit, meaning employers can also benefit financially from offering employees a 401(k).

What Does Vestwell Do?

Vestwell is a digital retirement plan platform that makes it easier for you to offer and administer a company-sponsored 401(k) or 403(b). By combining technology with best-in-class retirement plans, Vestwell has created programs that are more accessible, more efficient, and less expensive.

Conclusion - Tax Breaks for Small Businesses

Though retirement plans are a great way to save money for retirement, many people do not have access to employer-sponsored retirement plans such as 401(k)s. Illinois Secure Choice aims to help these individuals save for retirement.

If you are an Illinois employer interested in setting up a 401(k) account for your business instead of facilitating Illinois Secure Choice, you can contact Vestwell to determine if you are eligible to receive up to $16,500 in tax credits, which can help cancel out administration costs. Interested? Learn more here.

Interested in offering a 401(k)? It's easier than you think.