The Illinois Office of the State Treasurer announced that the state will soon begin phasing employers into the required state-sponsored Roth IRA savings plan, Illinois Secure Choice.

The first wave would require employers of 500 or more employees to register with the plan by November 1, 2018. Employers that already have a retirement plan would be able to file an exemption certificate, exempting them from participation in the state program.

Which employers are currently required to comply with the requirement?

The requirement to register with Illinois Secure Choice applies to both nonprofit and for-profit employers. State municipalities are exempt from the program.

There are no employer fees and employers are not allowed to contribute matching funds to the program. However, employees will be charged an ongoing administrative fee which will be paid as a percentage of their assets under management. The fee will be approximately 0.75% of assets per year ($0.75 for every $100 saved). (See EY Payroll NewsFlashes Vol. 16, #011 (1-8-2015) and #077 (3-17-2015); Vol. 17, #177 (10-25-2016) and #178 (10-26-2016.)

Who must participate?

The timeline for implementation of the program is as follows:

• Employers with 500 or more employees must register by November 1, 2018
• Employers with 100 to 499 employees must register by July 1, 2019
• Employers with 25 to 99 employees must register by November 1, 2019.

An employer is exempt from the program if:

• it has fewer than 25 employees in Illinois
• it has been in business less than two years or
• it offers a qualified retirement plan to its employees

All employees aged 18 or older, whether employed part-time or full-time, and who have wages that are allocable to Illinois during a calendar year are eligible to participate in the program.

The program will notify employers directly of when they will be required to register for the program and, if applicable, file an exemption certificate. The notice will include employer instructions and due dates. Employers required to facilitate the program may be subject to fines and penalties for failure to comply.

How will employees participate in, and employers facilitate, the program?

Upon registration with Illinois Secure Choice, employers that offer an employer-sponsored retirement plan to any of their Illinois employees will file an exemption certificate and need not facilitate the Secure Choice program with their employees. Employers that do not offer a retirement plan will be required provide the program with certain information to set up employer and employees' accounts. The program will then provide the employer with materials to pass on to its employees.

Employees will have 30 days to opt out of the program or make changes to their savings rates or investment choices. At the end of the 30-day period, the employer will provide the employees' choices to the program and begin payroll deductions for participating employees.

Unless an employee opts out or changes the withholding percentage, employers will deduct 5% of participating employees' gross pay and remit the deducted amount by ACH credit or debit, wire, or check to the program within seven business days of the deduction.

While the default contribution rate is 5% of gross pay, employees may at any time change their contribution rate to another percentage from 1% to 100%, up to the annual IRS Roth IRA contribution limits, or opt out of the program. The program will notify the employer through the employer portal of adjustments that need to be made to wage deductions. Contributions are made after-tax, and employers may not deduct more than the amount of pay available after other payroll deductions that have higher preference by law are deducted.

According to the state website, because the Illinois Secure Choice contributions act is a payroll deduction IRA, not an employer-sponsored retirement plan, employers will not show employee contributions to the program on Form W-2. Instead, the IRA trustee will file Form 5498, IRA Contribution Information, with the IRS and supply a copy to the individual.

For more information, contact the program by email to clientservices@ilsecurechoice.com, by phone at +1 855 650 6913, or see the website for more contact methods.

Implementation of the program faces challenges

Illinois Governor Bruce Rauner recently approved what is called an "amendatory veto" to the law (HB 4923), which would change the program from mandatory to optional for employers. The change must be approved by the state legislature, which does not return to session until mid-November.

Per an August 22, 2018 Treasurer's Office news release, Governor Rauner may execute an amendatory veto to change any legislative bill, but the Illinois General Assembly must approve the change by a simple majority vote (30 votes in the Senate and 60 votes in the House). The General Assembly can reject the governor's changes and again approve the original bill with a super-majority vote in each chamber (36 votes in the Senate and 71 votes in the House), or do nothing and the amendatory veto and HB 4923 dies.

Illinois State Treasurer Michael Frerichs stated that "Governor Rauner's veto of HB 4923 is a shameful attempt to try to undermine a bi-partisan program and deny private-sectors workers the chance at a secure retirement. We will work with members of both parties to override this veto and will stay committed to the successful rollout of Secure Choice to give Illinois workers an opportunity to retire with dignity."

The governor also used an amendatory veto against SB 2661, another State Treasurer bill affecting Illinois Secure Choice.

Ernst & Young LLP insights

It is uncertain if the Governor's attempt to veto the program will be successful. In the meantime employers of 500 or more employees should be prepared to meet the agency's November 1, 2018 deadline, particularly since the state General Assembly does not convene again this year until November 13, 2018.

Illinois was the first state to enact this type of an employer mandate (Illinois Secure Choice Savings Program, S.B. 2758, enacted January 4, 2015); however Oregon was the first state to begin implementation of a state-sponsored Roth IRA retirement program, called Oregon Saves, in November 2017.

Seven states — California, Connecticut, Illinois, Maryland, New York (in 2018), Oregon, and Vermont — have enacted similar legislation. Two other states, New Jersey and Washington, enacted legislation that would establish a small-business retirement marketplace where employers may voluntarily establish a payroll-deduction IRA plan for employees wishing to participate. Massachusetts has established a voluntary program (Connecting Organizations to Retirement (CORE)) for small nonprofit organizations. Similar legislation has been introduced in several other states. See the October 2017 issue of Payroll Perspectives for more information.

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