State Mandates Employee Retirement Savings Plans

Illinois recently became the first U.S state to require businesses to provide a retirement savings vehicle for employees, according to a news story.

Dubbed the Illinois Secure Choice Saving Program, and signed into law by outgoing Gov. Pat Quinn (D), the statute is slated to take effect in 2017. Coverage will be mandated for all businesses with more than 25 employees, in business for at least two years and those without an existing, qualified retirement plan.

The legislation is designed to promote retirement savings among employees who don’t have access to employer retirement accounts. Employees will be enrolled automatically in a default retirement plan, which will deduct and invest three percent of their pay through standard payroll deductions. They can make different investment choices by changing the investment percentage or picking a different plan, as well as opt out entirely.

Several additional administrative features include employer notification requirements and the cost of processing the payroll deductions, which employers are expected to absorb. However, businesses won’t be held liable either for the retirement plan, or employee investment choices. The Secure Choice program isn’t yet operative. It awaits the creation of a board to administer the program, a federal decision determining if it will be covered by ERISA and receive favorable IRA tax treatment.