Illinois business owners deciding which retirement plan to choose should consider the tax benefits, oversight demands, and level of control of both options.


Employees are the heartbeat of your company. From working overtime to filling outstanding orders to referring other employees and customers, your business wouldn’t function without them.

For that level of dedication, it’s essential to choose a retirement option that’s mutually beneficial to both employer and employee. In Illinois, business owners have two main options: The first is a qualified retirement plan like a 401(k), but businesses can also offer a plan through the Illinois Secure Choice Savings Program.

Under the Secure Choice program, Illinois employers who don’t otherwise offer a retirement plan must automatically withhold 5% of an employee’s pay up to the annual maximum IRA contribution limit. The Illinois Secure Choice Savings Program Act applies to employers that a) have conducted business in the state for more than two years, b) have a staff of 25 or more people, and c) don’t offer an alternative qualified retirement plan.

Each plan aims to act in the best interests of employees. Employers that meet the requirements for Secure Choice must implement it or another qualified retirement plan, which means they should carefully examine the pros and cons of each option to identify the optimal choice.

Secure Choice vs. Traditional 401(k)s

When wondering whether to provide a qualified retirement plan like a 401(k), it’s best to know the basics. Employer-sponsored 401(k)s are flexible retirement saving plans that offer both traditional pre-tax investments and after-tax Roth contributions. Annual contribution limits currently are $19,000 — plus another $6,000 for workers who are age 50 or older.

Meanwhile, payments toward the Illinois Secure Choice Savings Program are strictly earmarked for a Roth IRA account. This means contributions are made after taxes and are limited to $6,000 each year — plus another $1,000 for employees age 50 or older.

While the flexibility and contribution limits seem to make 401(k)s a more attractive option, the Secure Choice program is designed to require limited employer input; it also costs nothing to implement. It might also be helpful to look into a SEP IRA or SIMPLE IRA plan for small businesses.

Here are four important questions we believe Illinois business owners should ask when deciding which retirement plan to pursue:

1. Are there tax benefits?

Finding the right retirement plan doesn’t just benefit employees — it can also be advantageous for employers during tax season. Employers that offer qualified retirement plans can mark their contributions to employee accounts as tax-deductible provided those contributions don’t surpass the limits described in Section 404 of the Internal Revenue Code. Employers can also make their own elective deferrals into employee accounts, and any investment gains won’t be taxed until distribution.

The Secure Choice program offers no tax benefits for business owners, and your highest earners might not be able to participate. Limitations apply when income exceeds $122,000 for a single earner or $193,000 for a married couple, and participation is prohibited if income exceeds $137,700 for a single filer or $203,000 on a joint tax return. However, an employer may be able to deduct its contributions to employees’ qualified retirement plans if choosing a 401(k), SEP IRA, or SIMPLE IRA.

2. Do you want to match contributions?

Secure Choice limits the employer’s role in the retirement savings initiative. Aside from handing out materials, adding eligible employees, and processing payroll contributions, there’s little left for employers to do. On the other hand, an employee-sponsored 401(k) allows you to match employee contributions, incentivizing a more aggressive retirement savings plan while providing a popular benefit to your employees.

3. How important is control?

The Secure Choice program is somewhat rigid in that it limits the amount of control a business owner can have. A qualified retirement plan, however, can be molded to fit various needs. A traditional 401(k) can include a Safe Harbor provision to avoid running afoul of IRS discrimination rules, or it might offer a vesting timeline designed to encourage employee retention.

4. How much time can you commit to oversight?

While they offer many advantages, 401(k)s are more complicated and expensive. They also carry far more testing and fiduciary requirements than other plans. With all of these oversight strings attached, small businesses may not find 401(k)s to be feasible.

Secure Choice, on the other hand, costs nothing to implement and doesn’t require much effort from employers, which could be a significant benefit for some small business owners. When considering a retirement package for your employees, you’ll want to consider the time and resources you have to devote to oversight.

No matter which option you land on, it’s important to offer employees a means to contribute today to their retirement tomorrow. Building wealth takes time, and sooner definitely is better in terms of getting started.

Do you want to learn more about the Secure Choice program or how to choose a qualified retirement plan? Visit Pekin Hardy Strauss Wealth Management for more insights or to set up a consultation.


This article is prepared by Pekin Hardy Strauss, Inc. (“Pekin Hardy,” dba Pekin Hardy Strauss Wealth Management) for informational purposes only and is not intended as an offer or solicitation for business. The information and data in this article do not constitute legal, tax, accounting, investment, or other professional advice. The views expressed are those of the author(s) as of the date of publication of this report, and they are subject to change at any time due to changes in market or economic conditions. Pekin Hardy cannot assure that the strategies discussed herein will outperform any other investment strategy in the future; there are no assurances that any predicted results will actually occur.