The Illinois Secure Choice Savings Program Act (“Act”) (S.B. 2758, Pub. Act 098-1150), which requires certain small businesses to implement retirement plans for employees, took effect on June 1, 2015. Here are just a few highlights of what Illinois employers need to know about the Act and how it will impact their businesses and employees
Who does the Act apply to?
The Act applies to both for-profit and non-profit employers who fit the following criteria:
-
-
- have at no time during the previous calendar year employed fewer than 25 employees in Illinois;
- have been in business for at least two years; and
- have not offered a tax-qualified retirement plan, such as a 401(k) plan, to its employees during the preceding two years.
-
The Act also provides that “small employers,” which are defined as business that had no more than 25 employees at one time during the previous calendar year and/or have been in business less than two years, may elect to participate in the Illinois Secure Choice Savings Program Fund (“Program”).
How does the Act work and when does employee enrollment in the Program begin?
If an employer meets all of the criteria listed above, then its employees are automatically enrolled in the Program, with open enrollment set to begin within two years of the effective date. Employees may also opt-out of the Program using a form that the Illinois Secure Choice Savings Board (“Board”) will provide as part of a pre-enrollment employee information packet it will send to employers along with an employer information packet. Of note, the same form which allows employees to opt out of the Program will also allow employees to select a Program contribution level other than the default amount, which the Act sets at 3% of the employee’s wages.
The Board itself is comprised of seven members who are fiduciaries of the Program for the benefit of enrollees and their beneficiaries. Employers are not fiduciaries of the Program. This seven-member Board will include the State Treasurer or his designee, who will act as chair; the State Comptroller or her designee; the Director of the Governor’s Office of Management and Budget or his designee; two governor-appointed public representatives with expertise in retirement savings plan administration and/or investment; a governor-appointed representative of participating employers; and a governor-appointed representative of enrollees.
In addition to the duties of care and loyalty imposed on the Board by virtue of its fiduciary status, the Act also details at length the other responsibility of the Board and its members. Amongst other things, the Board must operate the Program in accordance with best practices for retirement savings; appoint a trustee; establish investment options; create a process by which interest, investment earnings, and losses are allocated to accounts; and contract with investment managers, financial institutions, consultants, counsel, actuaries, auditors, third-party administrators and other professionals for services to the Program. Again, this is a non-exhaustive list of the Board’s duties and powers under the Act, which also provides a catch-all that the Board may “[e]xercise any and all other powers reasonably necessary for the effectuation of the purposes, objectives, and provisions of this Act pertaining to the Program.”
What does the Act require from Employers?
The Act mandates that employers establish a payroll deposit retirement savings arrangement within nine months after the Board opens enrollment for the Program for each employee who elects to participate in the program, this requirement is optional for those who qualify as “small employers.” After the Program is implemented, at least once every year, employers shall designate an open enrollment period during which employees who previously opted out may enroll in the Program. This open enrollment period is the only time during which an employee who has previously opted out of the Program may enroll.
In addition to these requirements, the Act also imposes penalties on employers who fail to comply with the Act. Under the Act, an employer who fails without reasonable cause to enroll an employee in the program within the time prescribed by the Act shall be subject to a penalty equal to (1) $250 for each employee for each calendar year or portion of the calendar during which the employee neither enrolled nor opted out, or (2), after the initial penalty, $500 for any portion of that calendar year during which such employee continues to be un-enrolled without opting out.
Why does this matter for Illinois employers?
Although the Act does not impose an overly heavy burden on employers who fit the necessary criteria, it still imposes certain mandates that Illinois employers should be aware of, such as the nine-month post-enrollment period to create a payroll deposit retirement savings arrangement. Additionally, the Act contemplates the creation of a vendor website through which employers who fall under the Act’s jurisdictions may acquire private retirement plan services instead of having their employees automatically enrolled in the Program; however, the Act states that such a website will only exist if there is “sufficient interest” in it from private sector providers who must also furnish the necessary funding to establish and maintain the website. In any event, the Act says the website must be available before enrollment in the Program opens. Although whether the website will actually be maintained (or efficient) is uncertain, this website may provide an alternate route for employers who would otherwise have to comply with the Act.
For now, Illinois employers to which the Act applies should keep abreast of when the Board plans on opening enrollment in the Program. As of now, the only timeline is that enrollment will begin at some point between June 1, 2015, and June 1, 2017. Before enrollment opens, employers should also keep an eye out for the Board’s information packets and carefully review the employer packets once they are received as well as disseminate the employee packets to its workers. After enrollment, employers should maintain records of which employees have opted out or decided to enroll as well as the contribution levels those participating employees selected.