Back in 2018, the Pritzker Administration passed a law requiring employers in Illinois to offer retirement plans to their workers. The law requires you to offer one of the following types of plans to your workers.
401(a) or 401(k)
403(a) or 403(b)
408(k) or 408(p)
457(b)
Taft-Hartley plan
These are all qualified retirement plans. When multiple employees are involved, there are annual fees for administration, additional underwriter fees, and annual requirements to file Form 5500. If that form isn’t filed timely, the late filing penalties are $25 per day with a maximum of $15K per year.
The only other option is the Illinois Secure Choice plan which is a Roth IRA program administered by the state. A 5% withdrawal from employee payroll checks is initially mandatory, but the employee can opt out of the withholding entirely or change that to a lower percentage.
Employer matches cannot be made and since it’s an IRA, the plan is portable. Given that this is administered by the state, there are no administration or underwriter fees, and no tax reporting is necessary on this program.
This new law went into place back in 2018 and has been phased in slowly over that time. Initially, it was only mandated to employers with more than 500 employees. The deadline if you have more than 25 employees was back in November of 2019. The deadline for employers with 16 -24 employees was November 1st of 2022. If you have 5 – 15 employees it’s November 15th of 2023.
Penalties for not complying with this law are $250 per employee per year for the first year. For years two and beyond, the penalty doubles.
Additional information can be found at the following web address.
https://www.illinoistreasurer.gov/Individuals/Secure_Choice
Let me leave you with this.
What happens if you have a non-qualified plan that doesn’t qualify given this new state mandate that’s actually better than what the state is requiring you to provide? What happens then?
Think about it. The state either requires you to provide a qualified plan that’s expensive to maintain, with potential penalties that are egregious or a Roth IRA. Since it’s a Roth IRA, your workers can’t even get the income tax deduction they might receive on a regular IRA.
The max contribution is $6K per year or $7K if the worker is over 50 years old, and your company can’t contribute. Of course, there’s penalties if you choose to do better for your employees by offering them something like a SARSEP with a 3% employer match.
The only way to not face those penalties would be to enroll in the Illinois Secure Choice Plan, and offer it to your employees. If they all opt out of the state sponsored plan, then you could still offer your plan without facing penalties.
I grow rather tired of a government that can’t manage its own house having the unmitigated gall to tell me how to manage mine. But these are the rules, and we all must abide.
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Employee Retention Credits, M&A Due Diligence, Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
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