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IL Small Biz Owners Face Nov 1 Retirement Plan Deadline

IL Small Biz Owners Face Nov 1 Retirement Plan Deadline

August 18, 2019
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Small business owners in the state of Illinois already fight more uphill battles then average. Unfortunately, they'll soon be facing down the legal deadline of one more.The Illinois Secure Choice Act was established to make it easier for all workers to access an employer-based retirement savings vehicle.

Now for a brief history lesson--The Illinois Secure Choice Act was signed into law in January 2015 by then Governor Pat Quinn. Governor Bruce Rauner took office in Illinois just days later. The Rauner administration did their best to kill and/or change the Secure Choice Act, saying that it limited participant choice, discouraged business owners from starting their own plans, and created undue burden on small business owners. In 2018 however, after surviving Rauner's amendatory veto challenges in the legislative branch, the ball started rolling on Secure Choice. It was implemented in three phases, starting with the largest of businesses and working its way down. This particular impending deadline refers to the final phase of the plan, affecting small business owners with 25-99 employees.

It is worth stating at this point whom this law does NOT apply to. If you are a small business and you have 24 or less employees, if you have not been in operation for 2 years as of November 1, 2019, or if you already have established your own employer-sponsored qualified retirement plan, you're in the clear.

Those small business owners located in Illinois with 25-99 employees who have been in operation for 2 or more years and currently offer no qualified retirement plan to their employees will have to have their own retirement plan, such as a 401(k), SEP IRA, SIMPLE IRA, etc., in place by November 1, 2019, or enroll in the state-based program known as Secure Choice. If one of these things is not in place on November 2, steep $250 per employee penalties will be assessed by the state. (That penalty doubles up to $500 per employee in 2020, by the way.)

Applicable business owners will receive two reminder letters, one at 120 days before the deadline and another 30 days prior.

In the Secure Choice program, all employees 18 years of age and older are eligible as long as they work at least 1 hour for your business. All employees must be auto-enrolled in the program after 60 days of employment. (Employees are able to opt out, but must so do annually.) The automatic payroll deferral is 5% of wages, with no escalation.

As for the investments, there will be two standalone funds, two money market funds, and a suite of target date funds. For their participation in Secure Choice, employees will be charged 0.75%, or 75 basis points, plus the cost of the individual funds.

As for the cost to the employer, Secure Choice states that it is "Free to the Employer". Is it, though? One must consider that there is still the cost of materials and labor hours, as well as time lost on other tasks, that the business owner must incur to input the data of establishing an annual enrollment period, new employees into the system, monitor/update contributions, submit payroll contributions, etc. On top of this, one can assume that the business owner, or somebody in an HR leadership type role, would probably field most of the questions regarding the program from their employees, even though there is a 1-800 number that the employees are offered. (Let's not put too much faith into that call center, either, I'm afraid. The call center will be staffed with 25 representatives to handle questions from the 2 million(!!) IL workers that this program is designed to assist. I hope you have plenty of spare time to sit on hold!)

It's worth noting that the Secure Choice program does not contain an element of employee education, either in helping your workers understand the program itself, or the benefits of saving/investing in general. Also, you'd most likely be losing out on potential tax credits that you could realize by starting your own retirement plan, up to $1,500 per year, for the first three years, in some cases. 

So, is it in your best interest to participate in the state-sponsored plan or to initiate your own retirement plan? Well, that's something that needs to be discussed on a one-on-one basis between you and a trusted financial advisor.

I humbly offer my services if you are in need of one. Please reach out to my office today so that we can begin the conversation. There's still plenty of time to get your business into compliance with the law, but every day counts at this point.

My best,
Chris