With less than 10 days left before the official Illinois Secure Choice Program enrollment deadline for small businesses, it remains obvious that many businesses are still not that clear on what the program is, why they should participate in it, and how much does it. In this blog post, we already covered the whole idea behind the program. In a nutshell, the Illinois Secure Choice Retirement Savings Program is a state-sponsored pilot retirement program launched in early 2018. The goal of the program is to help workers who don’t have a retirement plan at work to save for retirement. Essentially, an employee is offered an option to open a Roth IRA and the employer makes contributions to the employee's Roth IRA automatically by deducting contributions from the paycheck. Simple and easy.
Yet, when employers started receiving mail with access codes and details on how to enroll in the program, it became clear that many small businesses were caught off guard. Many didn't even hear about it. Taking into account the third phase of employer registration for businesses with 25-99 employees is almost here (November 1, 2019), we thought that it would be good to answer some questions and summarize key points of the program so that small business owners know what to expect going forward.
How to Get Enrolled
If you received an access code then it means three things: your company employes 25-99 employees, you've been in the business for at least two years and don't offer a retirement plan. That also means that you need to enroll your business in the program - participation is mandatory for companies that currently don't offer employer-sponsored retirement plans. Luckily the enrollment process is very easy. All you need to do is to go to the Illinois Secure Choice website and register your business first by providing some basic information about your business and employees.
After registering the business you will need to set up an account with the Program. To simplify things for you in the future and save your valuable time, the Program gives you the option of adding a payroll representative. The payroll representative is an external company who will help you with managing the plan. Another way to manage the plan is using your own resources. You can add delegates (internal employees responsible for the process, such as an HR manager) to help you with that. Each delegates can be assigned different roles and permissions depending on your needs.
The remaining steps are
Set up payroll and add employees - you have 30 days to add employees to the system
Set up bank information
Send contributions
As you can see, the process is very easy.
What About My Employees?
Once you add employees to the system, the Program Administrator (which is Ascensus) will reach out to your employees directly to help them customize their accounts and make savings selections. Participation in the program is voluntary and an employee can decide to opt-out from participation or change his or her decision later. If the employee does nothing, he or she will be enrolled at the 5% of gross income savings rate and automatically invested in a default target-retirement date fund based on the age. This is very similar to 401(k) plans that have an auto-enrollment feature.
Outside target-retirement date funds employees will be offered three more options: a capital preservation fund, conservative fund, and growth fund. The total annual fee that will be deducted from the account is 0.75%. This is not cheap by any means. A much more cost-efficient portfolio can be created if the employee were to open a Roth IRA directly with a brokerage company of employee’s choice. This is something you should bring to the attention of your employees.
What Else Does My Business Need to Do?
Once the plan is up and running, the only thing you need to do is to maintain it. That means to make sure that the employee list is up to date, submit employees’ contributions, and keep an eye on payroll representatives should you decide to outsource the process. Other than that, there’s not that much you need to do.
Pros and Cons of the Program
There is no doubt that saving for retirement is a huge issue not only here in Illinois but in the country in general. Understanding this issue the state of Illinois, second after Oregon, is trying to do good for both businesses and regular workers. The advantages of the program for businesses are clear. For example:
Participation in the program doesn’t cost anything (unless you decide to hire a payroll representative)
It is very easy to set up and maintain which is not the case with qualified plans
There is no obligation to make employer contributions which is often the case with qualified and even non-qualified plans. This is extremely important for small businesses whose cash flow is not stable and seasonal
No legal and personal responsibility for business owners – the program is fully run by the state of Illinois and state secured
However, when it comes to regular workers, the benefit of participating in the program isn’t that obvious. As mentioned above, our biggest concern is the annual expense. An annual fee of 0.75% is a big price to pay. Considering limited investment options, workers can invest their hard-earned money in cheaper funds and construct a better diversified portfolio by opening their own Roth IRA with a brokerage company. With many stockbrokers eliminating commissions on trades we hope that the Illinois Secure Choice program will become a wake-up call for many workers. It should become the trigger to take their financial future under their own control and don’t rely on anyone, even when the intentions are good.