Broker Check

Small Business Owners at Risk - Learn about the IL Mandate Retirement Plan

April 02, 2024

What is the Illinois Mandate Retirement Plan?

Illinois businesses including non-for-profit organizations that have been operational for a minimum of two years, employ a staff of at least five individuals, and do not currently have a retirement plan in place, must either introduce a qualified plan or enroll their employees into Secure Choice through automatic enrollment. The deadline is November 1st, 2023. A business that doesn’t comply will be subject to fines and penalties. The first-year penalty is $ 250 per employee. The subsequent year and each year thereafter the employer is noncompliant, the fine is $ 500 per employee per year. Noncompliance does not need to be consecutive to qualify for the $500 penalty.


How the Secure Choice plan works:

Employees auto-enroll after 30 days unless they opt out, saving through payroll contributions. Their Secure Choice plan is established as a Roth IRA account under their name, characterized by after-tax contributions. Secure Choice allows any participant to opt-in or opt-out anytime. A default option is a 5% payroll contribution, which participants can adjust anytime. The contributions you make are 100% vested, which means you can roll them over into another plan or withdraw the funds from the plan at any time. Please note that all early withdrawal provisions associated with Roth IRAs apply to the Secure Choice plan. Regarding investment options, a life-cycle fund will be the default option based on an enrollee’s age. Additional options may include a conservative fund, growth fund, secure return fund or an annuity fund. Employee contributions will be paid through payroll deductions directly into the chosen option.

 

What are alternative options to the Illinois Mandate Retirement Plan?

Any IRS approved retirement plan can be an alternative to the Illinois Mandate Retirement Plan. Examples of these are 401(k), SIMPLE IRA, SEP IRA, and a profit-sharing plan. What is important is that the business compare the options available and determine what are the best options for them. Some important points of difference between the Illinois Mandate Retirement Plan and the examples mentioned above are the state mandated plan does not include employer contributions, there are no tax credits available for employer contributions, start up costs, auto enroll, as there is for a SIMPLE IRA or SEP IRA. With a SIMPLE IRA and SEP IRAs there could be no fees, depending on which plan you choose, and the underlying assets chosen. The state mandated plan has administrative and asset management fees. The state mandated plan offers guidance and assistance via a state run program website. The alternative plans mentioned above can be supported by a financial adviser who will provide personal and customized guidance and service.

Possible outcome for choosing an alternative:


Tax credits

The amount of the credit is 50% of your eligible start up costs, up to a greater of $500 or the lesser of $250 multiplied by the number of non-highly compensated employees who are eligible to participate in the plan. In addition to the tax credits available, there are tax incentives for establishing a retirement plan when not using the Secure Choice plan. Qualified business could potentially receive a tax credit, up to $5000 annually for three years, covering essential expenses when establishing a SEP, SIMPLE IRA, or qualified plan, such as a 401(k) plan. 401(k) plans require 100 or employees who have received at least $ 5000 compensation in the last year, at least one non-highly compensated employee participant, employees not substantially the same as prior plan beneficiaries in recent tax years. There are a lot of rules and regulations regarding 401K plans compared to SIMPLE and SEP IRA plans, in addition to fees and expenses.

 

 

 

Mutual Funds are sold by prospectus. For more complete information, please request a summary or full prospectus from your registered representative or the investment company. Please read it and consider carefully a Fund's objectives, risks, charges and expenses before you invest or send money. The prospectus contains this and other information about the investment company. 

Investing involves risk, including the potential for loss of principal.  Past performance does not guarantee future performance.  There is no guarantee that a "Life-cycle" fund will provide adequate retirement income.  The participant may lose money by investing in the fund, including losses near and following retirement.

There are contribution and withdrawal restrictions for Individual Retirement Accounts (IRAs), 401(k) retirement plans and other qualified retirement plans, including possible penalties for early withdrawals.  Please refer to IRS.gov for details.  This information is not intended as tax or legal advice.  For advice concerning your own situation, please consult with your appropriate professional advisor. 

 

Jay Weyers is a registered representative and investment adviser representative of, and securities and investment advisory services are offered solely by Equity Services, Inc. [ESI], known as Vermont Equity Services in WI, NH, CO & MO,  Member FINRA/SIPC, 1 N. Franklin Street, Suite 3450, Chicago, IL  60606. PH: 312-236-2500. Weyers McKeever Financial Partners is independent of ESI.

 

TC138034(1223)1