Small businesses in Illinois face a deadline to implement a new state initiative that advocates hope will help workers save for retirement.
The Illinois Secure Choice Retirement Savings Program requires that Illinois businesses with at least 25 workers automatically enroll their employees in a state-sponsored retirement savings program, if they do not provide a qualified savings plan of their own.
Mark Grant, Illinois director of the National Federation of Independent Business, said workers and employers both need to be aware of what’s happening with Secure Choice.
“It’s an automatic opt-in, so that’s a bit of a burden on the employer,” Grant said. “For all those employees who don’t opt-out, businesses are going to have to arrange for an automatic deduction out of their paycheck.”
The initiative mandates that employers withhold 5 percent of a worker’s pay to be placed in a retirement account. There is a requirement that business owners alert workers to the changes, but Grant said it still could create unneeded friction in the workplace.
“There will be employees for whom this will be a surprise,” Grant said. “And they’re going to wonder why their employer is taking another 5 percent out of their paycheck. I think there’s going to be some problems with many employers getting some blowback from employees who may not be aware they have to opt-out.”
The NFIB opposed the new law because of the burden it placed on small business and the myriad alternatives available in the private sector.
“Workers who want to have a retirement program outside of the Social Security system could go down and meet with someone and get that done,” Grant said. “Also, employers who want to incentivize workers can offer that opportunity already. Many have done it and many are doing it, even under the 25-employee threshold of the law.”
Grant said retirement saving is a good thing, but it’s not always practical for workers.
“A lot of low-wage workers don’t do that because they don’t have the income to do it,” he said. “It’s a lot harder for them if they’re living paycheck-to-paycheck. Automatically withdrawing 3-to-5-percent of their paycheck every month could be quite a bit of a burden for them.”
By the end of October, employers with between 25 and 99 employees who don’t already offer a savings plan must register for the state program.
“That deadline is coming up and employers need to go online and take a look and see if they need to register so they can avoid any potential problems in the next week or so,” Grant said.
Employers who do not comply with the Secure Choice Savings Program Act may be subject to penalties, beginning with a $250 fine for each employee who neither was enrolled in the program nor had elected to opt out of participation.