Illinois First State to Enact Automatic IRAs

Author: Ashley Shaw, XpertHR Legal Editor

January 9, 2015

On January 4, 2015, Illinois Governor Pat Quinn signed into law the nation's first mandatory retirement savings plan. The Illinois Secure Choice Savings Program Act applies to private sector employers. If implementation hurdles that could potentially block the law are met, starting in 2017, an employer that has been in operation for over two years and employs 25 or more employees will be required to provide a retirement savings program. Any Illinois employer that fails to provide a retirement savings program may be subject to a fine.

A covered employer will be required to either offer a retirement savings plan or auto-enroll its employees into the Illinois Secure Choice Savings Program (SCSP) - which has not yet been created - through automatic payroll deductions. Under the SCSP, payroll deductions will automatically be set at three percent; however, the employee will be able to change the contribution level or opt out entirely at any time.

The funds will be held as part of an individual, portable retirement account that is held in the name of the participant. The penalty for not offering a private retirement plan or one through the state will be a $250 fine per employee per year.

The law will be effective on June 1, 2015. However, because of the need to set up the program, elect a Board of Trustees, and perform other tasks necessary to make the SCSP functional, the employer mandate will not begin until 24 months after the effective date: June 1, 2017.

Illinois is the first state to enact a law of this nature, but several other states have proposals to create similar programs.