Illinois Retirement Mandate: What Employers Must Do
The Illinois retirement mandate explained: who must register for Secure Choice, the deadline, per-employee penalties, and when a 401(k) is better.
Illinois employers keep telling me the same story. They search for Illinois Secure Choice, land on a site called My Illinois Savings, and assume they have the wrong page. They do not. The program was renamed in June 2026 when it moved to a new recordkeeping platform (Illinois State Treasurer). Same statute, same obligation, new sign over the door.
The rule underneath has not moved. If you operate in Illinois, had at least five employees there in every quarter of the previous calendar year, have been in business at least two years, and sponsor no retirement plan of your own, the state gives you two compliant options. Facilitate its program, or sponsor a qualified plan. Doing neither carries a penalty assessed per employee.
What follows is who is covered, the deadline and why it returns every year, what noncompliance costs, how the state auto-IRA (an automatic enrollment individual retirement account) works, and the decision that matters most: state program or your own 401(k). I build FirstHR for companies without a dedicated HR person. General information, not tax or legal advice.
The Rule Illinois Imposes
Illinois does not require you to offer a retirement plan. It requires you to offer retirement access, which is a narrower obligation, and the state supplies the vehicle if you decline to.
That distinction is the entire design. A covered employer either sponsors a qualified plan or connects its payroll to a state-run Roth IRA, an individual retirement account funded with after-tax pay. Illinois was among the earliest of the states with mandatory retirement programs, so its enforcement machinery is more developed than most.
What Illinois Secure Choice Actually Is
Illinois Secure Choice is a state-facilitated automatic enrollment IRA overseen by the Illinois Secure Choice Savings Board, with administrative support from the Office of the Illinois State Treasurer. Since the platform migration it operates publicly as My Illinois Savings.
Employees of covered employers are enrolled into a Roth IRA funded by payroll deduction. The account is the employee's personal property rather than a company plan, so it travels with them when they leave.
The Treasurer's office works with private financial firms for recordkeeping, custody, and investment management, and the program charges participating employers nothing (Illinois State Treasurer). The rename matters for one practical reason: correspondence now arrives under an unfamiliar name, and unfamiliar mail gets filed as junk.
Which Illinois Employers Have to Register
You have to register if all three of these are true: you had at least five Illinois employees in every quarter of the previous calendar year, you have been in business two or more years, and you do not already offer or contribute to a qualified retirement plan. Fail any one and the mandate does not reach you this cycle.
The first test surprises people because it is measured quarter by quarter across the prior year rather than as an average. A business that ran lean for one quarter and staffed up for the other three does not meet it. One that held steady all four does, even at a size the owner thinks of as tiny.
The second test is useful for founders. A new company hiring its first employees in Illinois has two years from its start date before this becomes a question, which is more room than several other state programs allow.
The Deadline, and Why It Returns Every Year
Illinois ran its original rollout in staged waves by employer size, all of which have closed. What replaced them is an annual cycle: the state identifies newly eligible employers from payroll filings, sends an access code, and attaches a November 1 deadline.
| Group | Registration deadline | Status |
|---|---|---|
| The largest covered employers | November 1, 2018 | Closed |
| Large and mid-sized employers | July 1, 2019 and November 1, 2019 | Closed |
| Smaller employers, first tranche | November 1, 2022 | Closed |
| The smallest covered employers | November 1, 2023 | Closed |
| Businesses notified before January 1, 2026 | Already passed | Register or certify now |
| Businesses newly notified this cycle | November 1, 2026 | Open |
Two things follow. If your business was covered during an earlier wave and never registered, you are not waiting for a deadline, you are past one. And growth creates the obligation quietly: clear the headcount test in every quarter of a calendar year and the state sees it in the wage data you already file.
What Missing It Costs
Section 85 of the Illinois Secure Choice Savings Program Act sets $250 per employee for the first calendar year of noncompliance and $500 per employee for each subsequent calendar year. Those years do not have to be consecutive to reach the higher tier.
Enforcement sits with the Illinois Department of Revenue rather than with the program. The program notifies the department of noncompliant employers. The department then determines the total employee count from employer-reported data, notifies the employer, and demands payment, with an administrative hearing route for protests (Illinois Department of Revenue).
The Illinois Department of Revenue began issuing penalty assessment letters in February 2023, according to its enforcement bulletin. Under the Act, a proposed assessment becomes final 120 days after it is issued unless the employer protests it or comes into full compliance first. Because the department uses data you already submit, not registering does not make you invisible.
How the Auto-IRA Actually Works
Once you upload an employee to the roster, the program takes over. They receive program information and a thirty-day window to customize the account, change the savings rate, or opt out. Anyone who does nothing is automatically enrolled at the default rate.
The escalation detail is worth knowing before an employee asks. The default adds one percentage point each January once someone has been enrolled at least six months, continuing until the rate reaches ten percent. Employees can decline the increase in any year and set their own rate within federal limits.
The Roth default has a payroll consequence. Contributions come out after tax rather than reducing taxable wages, putting them on the opposite side of the pre-tax versus post-tax line from a traditional 401(k) deferral.
The cap on contributions is the IRA limit rather than the far higher plan limit, because the account is an IRA: per the IRS, $7,500 for 2026, with an additional $1,100 catch-up from age 50.
Where Your Responsibility Stops
You never contribute a dollar and you are never a plan fiduciary. That is not a footnote to the design, it is the reason the program exists in this shape.
By keeping employers out of contributions, investment selection, and plan sponsorship, the state keeps the arrangement outside the federal framework governing employer plans. The duties that come with sponsoring a plan yourself, fiduciary responsibility included, do not attach here. What remains is a payroll routine.
All of it slots into an existing process. If you already run payroll deductions, this is one more line item with a tighter remittance clock. You are not responsible for opening accounts, managing fund options, answering investment questions, or processing distributions.
Registering, or Certifying an Exemption
Both paths start the same way: your federal employer identification number and the access code the program sent to your business. Without the code you cannot do either, and the program will resend it to the email on file with the state revenue department.
Dwight SchruteSales3 people
Darryl PhilbinWarehouse1 person
Kelly KapoorCustomer Service1 personSponsoring Your Own 401(k) Instead
The second compliant path is to sponsor a qualified plan, which exempts you from the mandate and gives you a materially different product. The contribution ceiling is the headline difference.
The 2026 employee deferral limit for a 401(k) is $24,500 against $7,500 for an IRA, so an owner who wants to shelter meaningful income cannot do it through the state program. You can also match, which the state program prohibits outright, and a match is the feature most likely to move a candidate comparing two offers.
Cost is the usual objection and it is worth pricing rather than assuming. Per the IRS, an eligible small employer may claim a credit of up to $5,000 per year for three years toward setting up and administering a plan and educating employees about it, plus $500 per year for three years when the plan adds automatic enrollment.
SECURE Act 2.0 raised the startup credit from 50 to 100 percent of eligible costs for employers with 50 or fewer employees who earned at least $5,000. Employers with 51 to 100 such employees still receive 50 percent of their eligible costs, within the same dollar cap.
The trade is real. Sponsoring a plan brings plan documents, provider selection, annual filings, fiduciary duty, and depending on design, nondiscrimination testing, which is why a safe harbor structure is common at owner-led companies.
How to Choose Between Them
Both satisfy Illinois. They are not competing versions of the same product, and the choice usually resolves on the ceiling, the match, and your geography rather than on cost alone.
| Factor | State auto-IRA | Your own 401(k) |
|---|---|---|
| Employee contribution ceiling | IRA limit, $7,500 for 2026 | Deferral limit, $24,500 for 2026 |
| Employer contribution or match | Not permitted | Permitted, and optional |
| Direct cost to the employer | None | Setup and administration, partly offset by federal credits |
| Fiduciary responsibility | None | Yes, including provider and fund selection |
| Setup effort | Under an hour for most employers, per the program | Weeks, with provider selection and plan documents |
| Tax treatment of deferrals | Post-tax Roth by default | Pre-tax or Roth depending on design |
| Coverage across other mandate states | Illinois only | Generally exempts you everywhere at once |
The last row decides it for distributed teams: one qualified plan generally resolves every state mandate at once, while the state route means separate registrations and deadlines layered onto the multi-state payroll work you already do. For a single-state employer with no matching budget, though, the state program is a reasonable answer rather than a consolation prize.
Where Illinois Employers Get Caught
Four patterns, and the first costs the most. Assuming the mandate does not apply because the business feels small is the expensive one: the threshold is low, it is measured against every quarter of the prior year, and the state checks it against data you already file.
Having a plan and never certifying the exemption is second, and it produces the strange outcome of a fully compliant employer accumulating noncompliance notices.
Treating registration as the finish line is third. The roster upload, the seven-day remittance rule, and ongoing maintenance are the recurring obligations, and a registered employer can still drift out of compliance.
Assuming employees will all opt out anyway is last. Opt-out rates change nothing about the obligation, and the penalty is calculated on your employee count rather than on participation.
Nick Anisimov, FirstHR founderThe record below is what that January review looks like on paper: the four quarterly counts kept separate, the other two tests, the conclusion the three of them produce, and the dates the resulting registration or exemption actually happened.
Frequently Asked Questions
What is the Illinois retirement mandate?
It is a state requirement that covered private-sector employers in Illinois give their workers a way to save for retirement through work. There are two ways to comply: sponsor a qualified retirement plan of your own, or facilitate payroll deductions into the state-run auto-IRA program. The source is the Illinois Secure Choice Savings Program Act, and it asks for access rather than funding, because the law itself never requires an employer contribution. An employer is covered when it had five or more Illinois employees during every quarter of the previous calendar year, has operated for two or more years, and does not already sponsor or contribute to a qualified plan. A business that does have its own plan still has to log in and certify the exemption, because the state cannot otherwise tell a compliant employer from a silent one. Skipping both paths exposes the business to a penalty assessed per employee.
What is Illinois Secure Choice?
Illinois Secure Choice is the state’s automatic enrollment retirement savings program for the employees of covered employers, set up by the Illinois Secure Choice Savings Program Act. The Illinois Secure Choice Savings Board oversees it, with administrative and staff support from the Office of the Illinois State Treasurer. Since a move to a new recordkeeping platform in June 2026 it has been publicly branded My Illinois Savings, though the statute and the employer obligation are unchanged. Covered employees are enrolled in a Roth IRA through payroll deduction, at a default rate of 5 percent of gross pay taken after taxes, and the rate rises automatically each year unless they choose otherwise. The account belongs to the employee and follows them from job to job. Employers pay no program fees, make no contributions, and are not plan fiduciaries. What they do is register, keep the roster current, deduct from pay, and remit on time.
How many employees trigger the Illinois mandate?
Five. A business is covered only if it had five or more Illinois employees during every quarter of the previous calendar year. That is stricter than an annual average, because one quarter below five puts you outside the test for that cycle. Only employees whose wages are allocable to Illinois count, so a company with staff in several states counts just its Illinois side. The state works from employer-reported payroll data it already holds, so nothing depends on you declaring yourself covered, and the test runs again every cycle rather than being settled once. Headcount is only one of three conditions. The business must also have operated for two or more years and must not sponsor or contribute to a qualified retirement plan. Once all three hold, the state sends an access code with a November 1 registration deadline.
What is the penalty for not complying in Illinois?
Illinois charges $250 per employee for a business’s first noncompliant calendar year and $500 per employee for every later one, and the later years do not have to be consecutive to reach the higher tier. The Illinois Department of Revenue, not the savings program, enforces the penalty. Once the program reports a noncompliant employer, the department works out the total employee count from the data employers have already reported, issues an assessment, and demands payment. Penalty assessment letters began going out in February 2023. Employers can protest an assessment at an administrative hearing, and a refund claim process exists for penalties that were overpaid. Since the charge is per employee rather than per business, the bill grows with headcount, which is what makes an ignored letter expensive. Registering, or certifying an exemption, is the only way to stop the clock.
Do employers contribute to Illinois Secure Choice?
No, and not even by choice. The program neither requires nor allows employer contributions or matching of any kind. Employers also pay no program fees and carry no fiduciary responsibility for how money is invested or how accounts perform. The employer has no part in opening accounts, running the fund menu, fielding investment questions, or handling withdrawals. Its role is limited to registering, uploading the employee roster within thirty days, keeping that roster current as people join and leave, running the payroll deduction each pay period, and remitting what was withheld within seven days of taking it out of the paycheck. Employers are also barred from advising employees on whether to participate or how much to save. If a matching contribution matters for your hiring, the state program cannot offer one by design, while a plan you sponsor yourself can.
Should I use Illinois Secure Choice or start a 401(k)?
Pick the state program for speed and zero cost, or your own 401(k) for higher limits and a match. The state program is quicker to set up, costs the employer nothing, and carries no fiduciary role, but it is limited to the IRA contribution limit ($7,500 for 2026, plus a $1,100 catch-up from age 50) and cannot include an employer match. A 401(k) permits deferrals up to $24,500 for 2026, supports a match, and may earn federal tax credits toward startup costs for eligible small employers. In exchange you take on plan documents, a provider search, annual filings, and fiduciary duty. Your own plan is usually the better choice if the owner wants to shelter more than the IRA limit, if you compete for staff against employers that offer a match, or if you have employees in more than one mandate state, since one qualified plan generally resolves every state mandate at once while the state route means a separate registration in each.
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