State amends Illinois Secure Choice Savings Program Act

In 2015, Illinois enacted the Illinois Secure Choice Savings Program, making it the first state in the nation to require a mandatory, state-run retirement saving program for private sector employers. Seven other states (California, Connecticut, Maryland, Massachusetts, New Jersey, Oregon and Washington) followed suit, with many other states considering whether to implement a similar program.

The Illinois Secure Choice Savings Program Act and Secure Choice Program (the Program) were established “to promote greater retirement saving for private-sector employees in a convenient, low-cost and portable manner.” When passed, the legislature allocated 24 months for the Program to implement the Program, but implementation was expressly tied to the Program receiving a favorable determination that the Program would not violate the Employment Retirement Income Security Act of 1974 (ERISA) and receiving initial program funding from the State. The Secure Choice Program is run by a seven-person Secure Choice Board.

In December 2015, the Department of Labor (DOL) issued proposed regulations and interpretative guidance to address how ERISA would apply to various types of state-offered retirement plans for private sector employees, like that contemplated by the Illinois Secure Choice Savings Program Act. The DOL’s proposed guidance excluded state-based auto enrollment plans from ERISA coverage, provided that the programs met certain requirements. This Final Rule became effective on Oct. 31, 2016.

At its August 2016 meeting, the Secure Choice Board, chaired by State Treasurer Michael Frerichs, presented a new implementation schedule for the Secure Choice Program. According to the state treasurer’s webpage, enrollment in the Program will be phased in over time, beginning with a Phase One Pilot Program in 2018. Most employees will not be able to participate in the Program until Phase Two, expected to begin later in 2018 or 2019.

Which employers must participate in the program?

When the Act passed in 2015, the private sector employers were limited to those who had been in operation for at least two years, had at least 25 employees and did not offer an employer-sponsored retirement plan. This was amended in July 2016 to include private sector employees who had been in operation for at least one year. Illinois employers with less than 25 employees also are invited to notify the Department of Revenue if they are interested in participating in the Program. Employers are not required to contribute to the retirement plan.

Will my employer be exempt?

As passed, Illinois employers will be exempt if—on or after June 1, 2017—it offers a 401(k), an ERISA 403(b) plan or any other type of ERISA retirement plan, or a SIMPLE or SEP. If an Illinois employer offers one of these retirement vehicles to its employees, this law and Program will have no impact on it. With the phase-in, it is not clear whether the deadlines for offering an employer retirement plan have been extended.

What if your employer is not exempt?

If an Illinois private sector employer does not offer a retirement plan, this Law requires the employer to automatically enroll its employees in the new state retirement saving plan. Employees will be allowed to opt out. Employers will make a three percent of pay IRA deduction and send it to each employee’s individual IRA under the Program. In addition to opting out, however, participating employees will be able to adjust the percentage of their pay that is deducted. Enrollees may contribute more – up to the IRA maximum. The enrollees will have the investment options provided by the State Board. The pooled investment fund will be overseen by the Illinois Secure Choice Savings Board.

At least once a year, employers that are not exempt from the Secure Choice Savings Program will be required to allow those employees that opted out the opportunity to re-enroll.

What are the consequences of not complying with this Act?

This Act falls under the supervision of the Illinois Department of Revenue. Employers who do not offer an employer-based retirement plan and fail to offer the Secure Choice Program will be subject to annual fines that start at $250 per employee in year one and increase to $500 per employee in year two and thereafter. As indicated, however, this law has not yet been implemented.

If you would like more information on this new law or other employment matters, please contact one of Chuhak & Tecson’s Employment attorneys.

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.

Client alert authored by: Jeralyn H. Baran, Principal