To help the many employees who lack access to a retirement savings plan, Illinois has created a state-sponsored program known as My Illinois Savings. Certain employers are required to participate or offer another qualified plan on their own. Initially, the mandate applied only to businesses with 25 or more employees, but a recent amendment expanded it to those with five or more employees. These employers need to understand how My Illinois Savings works and compares to other plans in the private market so they can make an informed decision about what’s best for their organization.
What is My Illinois Savings?
My Illinois Savings is a retirement savings program that’s part of a larger state-wide retirement mandate. Employers who meet the eligibility criteria must either enroll their employees in My Illinois Savings or sponsor a qualified plan through the private market.
Why is Illinois sponsoring their own retirement plan?
Studies have shown that a large portion of employees do not have a retirement savings plan through their employer and, therefore, lack the funds needed to retire comfortably. My Illinois Savings, like other state-sponsored plans, intends to reverse this trend.
How does My Illinois Savings work?
My Illinois Savings is a Roth Individual Retirement Account (IRA), which means employees contribute to the plan via post-tax payroll deductions. When they experience a qualifying distribution event, such as retirement, they generally can draw from their savings on a tax-free basis.
What are the features of the My Illinois Savings plan?
- Employees are automatically enrolled, but can opt out at any time
- The default contribution rate is 5% of gross pay
- Contribution rates automatically escalate up to 10%
- Loans from the plan are not permitted
What employers need to know about the My Illinois Savings plan
When deciding if My Illinois Savings is right for their business and their employees, employers may want to consider the following:
Eligibility
Businesses are required to participate in My Illinois Savings if they:
- Have been in operation for at least two years
- Employed five or more people in every quarter of the previous year
- Did not sponsor a qualified retirement savings plan in the last two years
Contributions
Employers are prohibited from contributing to My Illinois Savings and employees may only contribute a maximum of $7,500 per year. If they’re age 50 or older, the annual limit is $8,600.
Enrollment dates
The My Illinois Savings enrollment deadline for businesses with more than 25 employees has passed. Employers with 16 to 24 employees have until September 1, 2022 to enroll and employers with 5 to 15 employees have until September 1, 2023.
Penalties
Businesses that qualify for My Illinois Savings and don’t enroll their employees by the appointed deadlines or offer another retirement plan may be fined by the state. The penalty for one year of non-compliance is $250 per eligible employee; each year thereafter is $500 per eligible employee.
Can businesses opt to participate in a different retirement plan?
Yes, businesses that prefer not to participate in My Illinois Savings may sponsor a retirement plan on their own. Qualified options include:
- 401(a) or 401(k)
- 403(a) or 403(b)
- 408(k) or 408(p)
- 457(b)
- Taft-Hartley plan
What are the pros and cons of My Illinois Savings?
For businesses that don’t have the budget or the resources to sponsor a retirement plan on their own, My Illinois Savings may be a good option because:
- Registration is easy
- There are no fees charged to the business
- Employers have a limited role in plan administration
- Retirement plans help attract and retain talent
Yet, even with minimal responsibilities, plan administration can sometimes be burdensome.
What do employers need to do to administer the My Illinois Savings plan?
Businesses that participate in My Illinois Savings generally must perform the following tasks:
- Send an annual employee census to the state
- Track which employees are eligible for the plan
- Distribute enrollment information to new hires within 30 days
- Automatically enroll employees at the default contribution rate
- Track and honor opt out requests
- Process contributions via payroll deductions each pay period
How does the My Illinois Savings retirement program compare to other retirement plans?
ADP designs retirement plans that work better
| Features | My Illinois Savings | ADP 401(k) | ADP SIMPLE | ADP SEP |
|---|---|---|---|---|
| Auto Enroll | Mandatory 5% | Available | Available | N/A |
| Auto Escalation | N/A | Available | N/A | N/A |
| Payroll Integration | Manual via website or FTP | Full integration | Full integration | N/A |
| Investment Option | Limited | Broad range of funds | 65+ options | 65+ options |
| Investment Advice | N/A | Available | Available | Available |
| Taxability | Roth after-tax contributions | Pretax & Roth contributions | Pretax contributions | Pretax contributions |
| Annual Contribution Limit | $7,500 employee contributions + $1.1K catchup (over 50) | $24,500 employee contributions + $8,000 catchup (over 50) + optional employer contributions | $17,000 employee contributions + $4,000 catchup (over 50) + employer contributions | 25% of total compensation up to $72,000 (all employer contributions) |
Frequently asked questions about My Illinois Savings
What are the My Illinois Savings investments and who manages them?
Depending on their savings goals, employees enrolled in My Illinois Savings may invest in a target retirement fund, capital preservation fund, conservative fund or a growth fund. Vestwell, an experienced retirement savings service provider, manages the program.
Is My Illinois Savings mandatory?
Participation in My Illinois Savings is mandatory only if a business meets the eligibility criteria and does not sponsor a retirement savings plan on its own.
What if my business already has a retirement plan?
Employers who offer a retirement plan that is qualified under the Internal Revenue Code are not required to join My Illinois Savings, but must register for exemption.
This information is intended to be used as a starting point in analyzing retirement plans and is not a comprehensive resource of all requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.
Unless otherwise agreed in writing with a client, ADP, Inc. and its affiliates (ADP) do not endorse or recommend specific investment companies or products, financial advisors or service providers; engage or compensate any financial advisor or firm for the provision of advice; offer financial, investment, tax or legal advice or management services; or serve in a fiduciary capacity with respect to retirement plans. All ADP companies identified are affiliated companies.
