Can Secure Choice Secure Illinoisans’ Retirements?
As America’s savings crisis persists, Illinois acts to move employers and employees
toward secure savings habits.
Mark J. Gilbert, CPA/PFS, MBA
President, Reason Financial Advisors
You’ve probably heard the startling statistics on Americans’ savings for retirement so many
times that you’ve become numb to them. But I’ll put some out there anyway. A 2018 study
by Northwestern Mutual found that 31 percent of Americans have $5,000 or less in savings.
The same study discovered that 33 percent of baby boomers, the working generation
closest to retirement age, have $25,000 or less in savings. A 2016 survey of baby boomers
by the Insured Retirement Institute found that among those with little confidence in their
retirement plans, 68 percent wished they saved more money, and 67 percent wished they
had started saving earlier in their lives.
Clearly the need and desire to save for retirement is great. And IRAs and employer-sponsored
plans like 401(k) plans, in their present formats, have been around for at least
30 years. Yet, statistics like these prove something is lacking.
We know one problem. People save best when their funds are withheld from their
paychecks and are deposited into appropriate savings accounts before they have access
to those funds. That is an inherent weakness of saving through most personal IRAs. 401(k)
plans are funded largely by salary deduction contributions, which solve the problem with
most IRAs, but a 401(k) plan is costly for an employer to administer and is still an elective
for employees. Perhaps that is why, according to a 2018 report from the Stanford (University)
Center on Longevity, only about half of American workers are participating in a retirement
plan at work.
The long-term consequences of this failure to save might be dramatic. Not only could one’s
standard of living be negatively affected, but overall U.S. and global economic consumption
and GDP growth could stall, impacting the saving and investment goals of even those who
have been able to accumulate savings.
It stands to reason that if saving for retirement could be made easier for both employers
and employees, the severity of the problem could be lessened. In Illinois, one such solution
has been available since November 2018: Secure Choice.
Secure Choice has been designed as a simple-to-administer program for employers, as
well as an easy-to-access savings program for employees for whom an employer-sponsored
retirement plan is not available. The program, enacted through state legislation
in 2015, is overseen by the Illinois state treasurer and managed by a selected program administrator.
Under the Secure Choice law, Illinois employers with
at least 25 employees (generally) must offer eligible employees
participation in either an employer-sponsored retirement plan (like
a 401(k) plan) or in the Secure Choice plan, which is a Roth IRA.
Under Secure Choice, employers must withhold five percent of an
employee’s gross pay and remit the funds to the program
administrator for further deposit into investment accounts
established by the employees, unless the employee elects a
different percentage or opts out of the program altogether.
Unlike qualified employer retirement plans, Secure Choice is not
preempted by ERISA. This means that there is substantially no
liability on the part of the employer to educate participants or
monitor investment fund performance.
Employers are required to participate in Secure Choice if they (a)
employ at least 25 employees as reported to Illinois Department
of Employment Security for unemployment insurance purposes, (b)
have been operating for at least two years, and (c) do not offer an
employer-sponsored retirement plan.
The state has organized employers into three groups for purposes
of getting the program up and running. The first group consists of
employers with at least 500 employees. This group was mandated
to register with the program by Nov. 1, 2018 and commence payroll
deductions for enrolled employees in January 2019. The second
group, consisting of employers with 100-499 employees, was
required to register with the program by July 1, 2019 and commence
payroll deductions for enrolled employees in September 2019. The
third group, which includes employers with 25-99 employees, must
register with the program by Nov. 1, 2019 and commence payroll
deductions for enrolled employees in January 2020.
The treasurer’s office has already notified, and will continue to
notify, employers about the program and their required
participation. In most cases, eligible employers have received
multiple notices, according to a timeline prior to the employer’s
registration deadline. Generally, notices have been prepared and
sent to those employers for whom the office believes there are no
employer retirement plans in place as evidenced by a lack of a
Form 5500 filed with the IRS in recent years.
Employees are eligible for Secure Choice if they (a) are at least 18
years old, (b) are working in Illinois, (c) are not offered an employer-sponsored
retirement plan through their employer, and (d) are
full-time or part-time employees but not full-time students in a work-study
Employees can direct the rate at which contributions are withheld,
including 0 percent. Because Secure Choice is a Roth IRA, annual
contributions are limited to $6,000 in 2019 or $7,000 when the
employee is at least age 50. In addition, income limits (defined as
modified adjusted gross income) apply to further limit the maximum
contribution amount to an employee’s Secure Choice account. For
single filers, a full Secure Choice contribution is allowed if MAGI
falls below $122,000 in 2019. For married filing jointly, a full
contribution is allowed for MAGI of up to $193,000 in 2019.
Employees also direct how their contributions are invested. There
are four broad investment categories to choose from: The Target
Retirement Fund (consisting of 11 BlackRock target date mutual
funds,) the Capital Preservation Fund (including two money market
funds), the Conservative Fund (1 mutual fund), and the Growth Fund
(1 mutual fund). The default investment options under the Secure
Choice program include one of the money market funds (from day
1-89 after the initial contribution) and the age-appropriate target
date fund for the employee (90 days after the initial contribution).
Secure Choice represents a commonsense solution to the growing
problem of Americans saving too little for retirement. From the
employer’s perspective, after registering the company and enrolling
the employee in the program, ongoing maintenance is about the
same as any other payroll withholding or deduction. Most
importantly, there are none of the ERISA responsibilities as with
qualified employer retirement plans or testing requirements as with
401(k) plans. From the employee’s perspective, retirement savings
funds are withheld from payroll and deposited in appropriate
investment funds that do not require employee direction
unless desired. Thus, Secure Choice features some of the best
characteristics of retirement plans while avoiding some of the most
I believe Secure Choice will provide a meaningful portion of the
retirement savings for many Illinois workers in the years to come.
While Secure Choice is not a substitute for a well-thought personal
retirement savings plan, it can be one component of that plan — a
component that is often missing for many Americans.
Mark J. Gilbert, CPA/PFS, MBA, is the president of Reason Financial Advisors. He has been an ICPAS member since 1982.