Advantages and disadvantages of Secure Choice in Illinois for small businesses

Since it was launched in 2018, the Illinois Secure Choice Retirement Program has helped thousands of people in Illinois save for their future. If you are an employer in Illinois, state law requires you to offer Illinois Secure Choice if you:

  • Stay 25 or more employees during the four quarters of the previous calendar year
  • Has been running for at least two years
  • Do not offer employer-sponsored retirement plans

If your company has recently qualified for Illinois Secure Choice or you are wondering if this is the best choice for your employees, read the answers to frequently asked questions.

1. Do I have to give my employees Illinois Secure Choice?

No. Illinois law requires businesses to provide retirement benefits with 25 or more employees, but you don’t have to choose Illinois Secure Choice. If you offer a 401 (k) plan (or other type of employer-sponsored retirement program), you can request a waiver.

2. What is Illinois Secure Choice?

Illinois Secure Choice is a pay-roll deduction IRA program – also known as the “Auto IRA” plan. Under an auto IRA plan, you must automatically enroll your employees in the program. Specifically, employers in the Illinois plan would automatically enlist employees at a 5% delay rate and contribute contributions to the Roth IRA.

As a qualified employer, you must set up a pay-cutting process and send the contributions of participating employees to the Secure Choice Plan provider. Employees retain control over their Roth IRA and can customize their accounts by selecting or selecting their own contribution rates and investments.

3. Why should I consider Illinois safer choice?

Illinois Secure Choice is a simple, straightforward way to help your employees save for retirement. It is operated by a private sector financial services company and is sponsored by the state of Illinois. As an employer, your role is limited and there is no fee to provide Illinois Secure Choice.

Ill. Is there a downside to Illinois Secure Choice?

Yes, there are factors that may make Illinois Secure Choice less attractive than other retirement plans, such as the 401 (k) plan. Here are some important considerations:

  • Illinois Secure Choice is Roth IRA, which means it has an income limit. If your employees earn above a certain limit, they will not be able to participate in Illinois Secure Choice. For example, single filers with a revised consolidated total income of more than 140 140,000 in 2021 will not be eligible to contribute. However, the 401 (k) plan is not subject to the same income limit.
  • Illinois Secure Choice does not cover workers’ protection under ERISA – other taxable retirement savings plans – such as the 401 (k) Plan E ERISA, subject to a federal law requiring trusted oversight of retirement plans.
  • Employees do not receive tax benefits for their savings – unlike the 401 (k) plan – which allows for both pre-tax and post-tax contributions – Illinois Secure Choice only allows post-tax (chariot) contributions. Roth may be tax-suspended and eventually tax-free until investment earnings within the IRA are withdrawn.
  • The contribution limit is much lower – employees can save up to $ 6,000 in an IRA in 2021 ($ 7,000 if they are 50 or older), while employees in the 401 (k) plan can save up to ,500 19,500 in 2021 (if they can save ,000 26,000). Age 50 or older). So even if employees make the most of their contribution to Illinois Secure Choice, they may still have less than the amount of money they would need to achieve a financially secure retirement.
  • No employer match and / or profit sharing contribution – Employer contribution is a major incentive for employees to save for their future. 401 (k) plans allow you the flexibility of employer contributions; However, Illinois is not a secure choice.
  • Limited Investment Options – Illinois Secure Choice offers a relatively limited investment, which may not be suitable for all investors. General 401 (k) plans offer a wide range of investment options and often additional resources such as managed accounts and personalized advice.
  • There is no cost to employers to provide Illinois Secure Choice with potentially higher fees for employees; However, employees pay about $ 0.75 per year for every $ 100 in their account depending on their investment. While different 401 (k) plans charge different fees, some plans have much lower employee fees. Fees are a big consideration because they can seriously ruin employee savings over time.

5. Why should I consider a 401 (k) plan instead of Illinois Secure Choice?

For many employers – even for very small businesses – a 401 (k) plan can be a more attractive option for a variety of reasons. As an employer, you have greater flexibility and control over your planning service providers, investments and features so that you can create a plan that best meets your company’s needs and objectives. Also, you will benefit from:

  • Tax Credit Thanks to the C Protection Act, you can now get up to $ 15,000 in tax credit to help reduce the start-up costs of your 401 (k) plan. Also, if you add a qualified auto-enrollment feature, you can earn an additional 500 1,500 tax credit. It is important to note that the proposed Protection Act 2.0 may offer more tax credits.
  • Tax deductions – If you pay for plan expenses such as administrative fees, you may be able to claim them as business tax deductions.

With a 401 (k) plan, your employees may also have more:

  • Choice – You can pay employees, regardless of income, to reduce their taxable income by making pre-tax contributions or post-tax contributions (or both!) Not only that, employees can contribute to 401 (k) plans and an IRA if they Willingly – they give more opportunities for their future than they imagine.
  • Power savings – Thanks to the higher contribution limit of the 401 (k) plan, employees can save thousands of dollars – potentially setting them up for a more secure future. Also, if the 401 (k) plan fee is less than what a person with Illinois Secure Choice might have to pay, it means more employee savings are available for account growth.
  • Freedom of investment ye employees may be able to access more investment options and the necessary guidelines for investing with their confidence. For example: Betterment 500+ provides a low-cost, diversified portfolio worldwide (including focusing on making a positive impact on climate and society).
  • Support – 401 (k) Providers often provide a greater degree of support, such as educational resources on a variety of subjects. Betterment, for example, provides personalized, “always on” advice to help your employees reach their retirement goals and achieve overall financial well-being. Also, we provide your employees with an integrated view of outside assets so they can see their full financial picture – and track their progress toward all their savings goals.

6. What action should I take now?

If you decide that Illinois Secure Choice is the most suitable for your company, check out the website to register.

If you decide to explore your retirement planning options, talk to Betterment. We can help you run your plan faster and faster – and turn ongoing planning administration into a breeze. Also, our fees are much lower than the industry average. This can mean more value for your company – and more savings for your employees. Get started now.

Improvement tax advisors are not, and the information contained in this article is for informational purposes only.

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