For decades, businesses have been offering various types of retirement plans to help their employees save for retirement. These retirement plans follow federal laws and allow the business to take advantage of available tax deductions by rewarding their employees. These types of plans are optional, but many employers offer these plans to attract, retain, and reward top talent.
There are several different types of retirement plans that are available, ranging from SIMPLE plans to more robust cash balance plans. If you work, but your employer does not sponsor a retirement plan, you can save by setting up an Individual Retirement Account (IRA). However, some argue that action is needed to make it easier for Americans to save for retirement.
States have stepped in to provide a solution: The State-Sponsored Retirement Plan.
The first state-sponsored retirement plan was implemented in 2017 in Oregon, and now Illinois is jumping on the bandwagon. Illinois’ retirement program is called Illinois Secure Choice and it is mandatory for businesses that do not currently offer a retirement plan, have been in business for at least 2 years, and have 25 or more employees.
The registration deadline is fast approaching so if you are a business operating in Illinois, you will need to decide whether you will adopt a retirement plan or offer the state-mandated saving plan.
|DECISION DEADLINE||➜ July 2019 for businesses with 100-499 employees|
|➜ November 2019 for businesses with 25-99 employees|
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What are the Key Differences Between Illinois Secure Choice and a Retirement Plan?
In both types of plans, the employer must take on certain administrative roles, such as: disburse plan information, facilitate the enrollment process, setup payroll deductions, and remit employee contributions. Below are some of the differences:
|Feature||IL Secure Choice Plan||Retirement Plan|
|Employee Deferrals||After-tax only||Pre-tax or After-tax|
|Automatic Enrollment||Mandatory at 5%||Optional|
|Employer Contributions||Not Allowed||Various Options|
|Employee Deferral Limit||$6,000||$19,000|
|Plan Administration Fees||None||Can be charged to participants|
|Investment Fees||Limited to 0.75% of assets||Varies: < or > .075% of assets|
|Plan Fiduciary Status||No||Yes|
In essence, the Illinois Secure Choice plan acts as a Roth IRA account for each employee, and makes it easy for employees to save as no action is required: 5% of each payroll will be deposited into their account and will be invested in a target date fund, unless the employee elects otherwise.
Although the employer takes on no fiduciary responsibility, they will be charged penalties of $250 – $500 per employee per year if they do not properly enroll an employee.
Prior to moving forward with the Illinois Secure Choice plan, we recommend that you review our blog series, What Type of Retirement Plan Should My Business Implement?