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The Illinois Secure Choice Savings Program Act

On January 4, 2015, Illinois Governor Pat Quinn signed into law the Illinois Secure Choice Savings Program Act (Public Act 098-1150). Introduced as S.B. 2758 by Illinois Senator Daniel Biss, the Act passed the State legislature in 2014. With the Governor’s signature, Illinois becomes the first state to fully enact legislation requiring that private-sector employers offer their workers retirement benefits. Supporters of the law believe most of the state’s 2.5 million private-sector workers who currently do not have retirement plans through their workplace will ultimately participate in the program. The program is to be implemented by June 1, 2017.

The Act requires employers with 25 or more workers who do not already offer their employees a retirement plan to automatically enroll their workers aged 18 and older in a state-run payroll-deduction Roth Individual Retirement Account (Roth IRA). The Act applies to both for-profit and non-profit employers, and is also open to employers with fewer than 25 workers who wish to participate on a voluntary basis.

Employees will select how much to contribute, though their contributions cannot exceed the current maximum annual contribution limits for Roth IRAs ($5,500 for workers under age 50 and $6,500 for those older). Employees will pick their investment options from a menu of choices established by a seven-member board, which will oversee the program. Employees in the program who fail to select investments will be automatically enrolled at a contribution rate of three percent of pay, and their contributions will be invested in a life-cycle fund that automatically becomes more conservatively invested as they age. Workers must pay income tax on any money contributed to Roth IRAs , but, once the worker retires, he or she can withdraw money from the account tax-free. Employees are allowed to opt out at any time.

The law goes into effect June 1, 2015, when appointments will be made to the Illinois Secure Choice Savings Board, which is tasked with choosing a private firm to manage the funds. The Board will include the State Treasurer, State Comptroller, director of the Governor’s Office of Management and Budget, two public representatives with expertise in retirement savings plan administration or investment, a representative of participating employers, and one representing enrollees.

Money going into the Secure Choice program will be pooled in a protected fund that is separate from the state’s budget and pension funds, and that may not be used for any other purpose. No taxpayer dollars will be invested in the Program. Costs will be paid by participants, and the pooling arrangement is designed to keep fees low (they are capped at 0.75 percent of invested assets).

The Secure Choice Program is not intended to be an employer-sponsored retirement plan. It is a state-run program that employers facilitate. The Act does not require or allow employer matches or contributions; the employer requirement is limited to offering the Program to new workers (using materials provided by the Board), providing an annual enrollment period for ongoing employees, automatically enrolling workers who do not opt out, and depositing worker payroll deductions into the Program’s trust fund. Participating employers are not fiduciaries under the Program, and they will not be responsible for the Program’s administration or investments. They may, however, be subject to penalties if they do not comply with the Act. Penalties for noncompliance begin at $250 per employee per year initially, and increase to $500 per employee if the employer continues to be in violation of the Act.

The Act also directs the Savings Board to seek the opinion of the Internal Revenue Service as to whether the Roth IRA established by the Act qualifies for tax-favored status, and to seek the opinion of the U.S. Department of Labor (DOL) whether the program is subject to the Employee Retirement Income Security Act of 1974 (ERISA). The Board may not implement the Program if it is determined that the proposed IRA does not qualify for tax-favored treatment, or if the program is considered an ERISA employee benefit plan.

Read our summary of similar initiatives in other states: State-based retirement plans for the private sector.