Recently, Illinois became the first state to break ground on what could be the next big trend affecting organizations and their employees preparing for retirement. Signed into law on Jan. 4, the Illinois Secure Choice Savings Program Act requires companies to automatically enroll their employees in – or give them access to –personal Individual Retirement Accounts (IRA) funded through payroll deductions.
Because retirement planning can be daunting, the legislation’s intent is to simplify the process for employees, while maintaining a high level of competitive investment performance. Organizations must allow a nine-month enrollment period for workers wanting access to the program. After enrollment, both for-profit and nonprofit organizations automatically will deduct IRA contributions from their employees’ wages for deposit into the employees’ retirement fund.
Rules and Regulations
Although employee participation is not required, any worker investing in the program will be able to choose his or her desired contribution level (default set at 3 percent), as well as four investment options to maximize earning potential. Employers do not have to match the employee contributions, and participants may opt out at any time.
Under the Secure Choice Savings Program, businesses are required to set up a retirement savings account for their employees if the company meets any of the following criteria:
- employed 25 or more employees in the state in the previous year,
- has been in business for at least two years or
- has not offered an employment-based retirement program in two years prior to the law.
Any businesses that meet the requirements of the law, but fail to enroll their employees in a retirement program, are subject to fines.
Is Your State Next?
Although Illinois is the only state thus far to initiate retirement regulations on employers, these policies can spread quickly. This means that even businesses outside the Prairie State need to pay attention and plan accordingly for their company’s future.
Do your employees have a firm grasp on their financial future? Is your organization helping them achieve it? These questions carry new weight as legislation starts leaning on organizations to do more for their employees.
According the Chicago-based Woodstock Institute, a research and policy firm, more than half of private-sector workers in Illinois have no access to employment-based retirement plans. The Secure Choice Savings Program is designed to create an easier transition into retirement for Illinois workers who haven’t planned for it by giving them greater access to employment-based retirement accounts.
Do not expect this law to be stagnant; before long, it could cross borders and head to other states, perhaps even yours. Will you be prepared?