Illinois Secure Choice Savings Program Act Took Effect June 1, 2015
On June 1, 2015, the Illinois Secure Savings Program Act took effect making Illinois the first state to mandate a retirement savings plan for private sector employees. However, employers are not expected to comply with the Act until the State implements and opens the program for enrollment, which must be completed by June 1, 2017.
The new law applies to employers with 25 or more employees that have been in business for more than two years (“Qualified Employers”). The law was signed by outgoing Governor Patrick Quinn on January 4, 2015 and was implemented in response to the problems resulting from Illinois retirees relying primarily on social security for their retirement income.
Under the new law, unless the Qualified Employer provides a retirement plan to its employees (such as a 401(k) Plan or a Simplified Employee Pension (“SEP”) Plan), Qualified Employers must participate in the state of Illinois–organized retirement savings program in the form of an automatic enrollment payroll deduction IRA. Specifically, the Act requires that, unless an employee opts out of the program or elects to change the amount of the contribution, the employer must automatically deduct, by payroll deduction, three percent (3%) of the employee’s after-tax compensation. The Act does not specify that an employee must be employed for any length of time or must work a specified number of hours.
The funds will be remitted to a separate trust fund established by a state-run board, and the funds will be maintained as an individual retirement account for each employee. The Act permits employees to direct the investment of their individual accounts among investment funds approved by the Illinois Secure Savings Board.
Under the Act, any employer who fails to enroll an employee will be subject to a penalty of $250 per employee. The penalty increases to $500 per employee for each calendar year after the initial penalty assessment.
Although the Act took effect January 1, 2015, employers are not expected to comply with the Act until the State implements and opens the program for enrollment. Such implementation must be completed within 24 months of the effective date, which will give the Illinois Secure Savings Board adequate time to solidify details involving the funds and whether the employee Retirement Income Security Act (“ERISA”) will apply to the program.
In response to this new law, Qualified Employers who do not currently provide retirement plans to its employees should investigate whether it should establish an employer-sponsored retirement plan. Qualified Employers choosing not to implement such a plan should apprise themselves of the payroll deduction requirements under the new law before the Act’s implementation deadline.
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Copyright © 2015 Kimberly A. Sarff, Esq., Quinn Johnston Henderson Pretorius Cerulo