Illinois Enacts Auto-Enrollment Savings Program for Private Sector Employees
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On January 4, 2015, Illinois Governor Pat Quinn signed into law the Illinois Secure Choice Savings Program Act, which will require private sector employers to make automatic payroll deductions, and place the deductions into a state-run savings plan for the benefit of employees.

The new law, expected to go into effect sometime within the next 24 months, makes Illinois the first state to require employers to provide retirement savings for private-sector employees.  Within nine months after the Program opens for enrollment, employers must establish a payroll deposit retirement savings arrangement, and automatically enroll employees who have not opted out of the Program.  Once employees are enrolled into the Program, the employer must automatically deduct three percent of the employee’s payroll and place it into the Program on behalf of the employee.  However, employees may opt out of the Program at any time, or participate with a contribution level less than, or more than three percent. 

Employers need not comply with the new law if they already offer a qualified retirement plan, they have been engaged in business less than two years, or they employ fewer than 25 employees.  Employers do not need to make any additional contributions to the Program, and are only required to make deposits taken directly from an employee’s payroll.  Employers who fail to comply face a $250 penalty per employee for each year an employee is not enrolled in the Program, and $500 each year after a penalty has been assessed.         

Prior to the opening of enrollment, Illinois is expected to provide employers with an employer and employee information packet, and opt out forms for employees.  Employers must provide the information packet and opt out forms to employees upon the Program’s launch, and at the time of hire.  If there is sufficient interest, Illinois will also establish a website designed to assist employers in setting up alternative qualifying retirement arrangements in lieu of participation in the state-run Program. 

Although the Act states that enrollment under the Program must begin within the next 24 months, it may take some time before the Program actually goes into effect.  Illinois must take certain steps before the Program can be implemented, including the establishment of a Board consisting of appointed representatives to run the Program and manage the investments.

Even though Illinois employers have some time before they need to comply with the new Program, they should be cognizant of what payroll changes need to be made when enrollment begins, and ensure that they properly notify employees once the Program goes into effect.  

Several other states have already introduced similar legislation, including California, Connecticut, Maryland, Minnesota, and Ohio.  The federal government has also expressed interest in establishing a federally mandated savings program for private-sector employees.

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