Does your nonprofit offer a retirement plan? In Illinois, the “Secure Choice Saving Program Act” requires larger employers to participate in a state-sponsored retirement program, but not if they offer their own retirement plans. The Act thus essentially motivates employers to offer retirement programs benefits, as many do. Since retirement plan benefits may carry substantial administrative expenses, the tendency is for only larger employers to offer them. Smaller employers may or may not provide retirement benefits, such as 403(b) plans for religious organizations and other Section 501(c)(3) organizations. The Act’s reach recently expanded to cover smaller employers, but thankfully with similar exclusions.
Current Coverage and Exclusion
The Act was originally enacted in January 2015 and covered employers that have been in business for at least two years and have more than 25 total employees (at least 18 years old) working in Illinois. The Act imposes a mandatory retirement program for Illinois employers, known as “Secure Choice.” The Secure Choice program operates as a trust fund for enrollees’ individual retirement accounts. Enrolled employees and employers participate through automatic payroll deductions and contributions to specified accounts. These accounts are Roth IRAs; as such, individuals with higher incomes may not be eligible to contribute.[1]
Significantly, employers are excluded from mandatory Secure Choice participation if they sponsor retirement plans such as an employer-sponsored defined benefit plan, 401(k) plan, 403(b) plan, a Simplified Employee Pension (SEP) plan, a Savings Incentive Match Plan for Employees (SIMPLE), or an automatic enrollment payroll deduction IRA offered through a private provider.[2] Many nonprofits therefore need not be concerned about the Act’s coverage if they offer such retirement benefits. Note too that the Act’s coverage requirements are distinct from federal ERISA law, which regulates certain retirement plans.[3]
Secure Choice funds are not property of, nor a department, institution, or agency of the State and are not commingled with State funds. Likewise, the State has no claim or interest in these funds.[4] Secure Choice maintains its own website domain for employers to enroll and employees to manage. Employees can opt out or wait to be automatically enrolled. Applicable administrative fees are passed down to the employee in the form of an annual asset-based fee to cover maintenance, oversight, customer service, etc.
Amended Act’s Expansion to Employers With 5 to 25 Employees
On July 30, 2021, Governor Pritzker approved the Act’s expansion.[5] The Act will now apply to smaller entities, including nonprofits, unless they maintain retirement plans as listed above. Again, the strong public policy incentive here is for employers to provide retirement benefits.
The Act now covers the following employers: (a) any person or entity engaged in a business in Illinois, (b) for profit or not for profit, (c) having employed at least 5 employees in the State (d) during every quarter of the previous calendar year, (e) has been in business at least 2 years, and (f) has not offered a qualified retirement plan in the preceding two years.[6] Stated differently, the amended Act does not apply to new entities (less than 2 years in operation), entities with less than 5 employees, nor those that offer an eligible plan; but it will apply once these criteria change (e.g., after 2 years and organizational growth).
The amended Act’s implementation deadlines are staggered. For employers with 16 to 25 employees the deadline to enroll is September 1, 2022. For those with 5 to 15 employees, the deadline is on September 1, 2023. Therefore, a newly established organization formed this year may face the September 2023 deadline or soon thereafter, depending on the number of employees.
Penalties for failure to enroll without reasonable cause are $250 per employee for the first calendar year and $500 per employee for each subsequent calendar year. Years of noncompliance accumulate and need not be consecutive for a penalty to be assessed at the $500 rate.[7] Under the Act, a noncompliant employer will be notified of a proposed assessment and given 120 days to file a protest with the Department of Revenue or come into full compliance with the program.[8]
Other changes to the Secure Choice Savings Program Act include additional duties of the Board to establish annual, automatic increases to the contribution rates based on a schedule provided for in rules up to a maximum of 10% of an enrollee’s wages and verification of employee eligibility for auto-enrollment in accordance with the Internal Revenue Code and applicable State and Federal laws, rejecting any enrollee under 18 years of age.[9]
Registration, or not?
Must all Illinois employers register, at least for an initial determination of coverage? Thankfully, no. Technically speaking, an organization is only an “employer” for purposes of the Act is if they do not already offer an employer-sponsored retirement plan. More specifically, the Act defines the word “employer” as follows (and as described above):
"Employer" means a person or entity engaged in a business, industry, profession, trade, or other enterprise in Illinois, whether for profit or not for profit, that (i) has at no time during the previous calendar year employed fewer than 25 employees in the State, (ii) has been in business at least 2 years, and (iii) has not offered a qualified retirement plan, including, but not limited to, a plan qualified under Section 401(a), Section 401(k), Section 403(a), Section 403(b), Section 408(k), Section 408(p), or Section 457(b) of the Internal Revenue Code of 1986 in the preceding 2 years.[10]
For organizations with retirement plans in place, they are not “employers” for purposes of the Act. Only “employers” defined as such by the Act must comply with the registration and other requirements of this law. So, take note, plan well, and understand whether and when the Act may apply!
[1] See Illinois Secure Choice website Savers / Program Details. Roth IRA phase-out ranges for 2021. Single filing status income is $125,000 – 140,000; and married filing jointly $198,000-$208,000.
[2] 820 ILCS 80/85 at subsection (o).
[3] See also Supreme Court: ERISA ‘Church Plan’ Exemption Applies to Religiously Affiliated Hospital Plans, McGuire Woods, June 8, 2017; and Advocate Health Care Network et al. vs. Stapleton, 137 S. Ct. 1652, 1654 (2017) (church’s and church-affiliated nonprofits’ retirement plans are excluded from ERISA’s regulatory requirements).
[4] 820 ILCS 80/15.
[5] The Illinois Secure Choice Savings Program, Pension Rights Center
[6] 820 ILCS 80/5
[7] 820 ILCS 80/85
[8] 820 ILCS 80/60
[9] 820 ILCS 80/30 o-10 and q-5
[10] 820 ILCS 80/5
