New Jersey is about to become the eighth state in the U.S. to require many employers to offer their own retirement plan or provide access to a state-sponsored IRA program, joining Oregon, California, Colorado, Illinois, Virginia, Maryland and Connecticut.
Five more states offer voluntary programs: Washington, New Mexico, New York, Vermont and Massachusetts.
The New Jersey Secure Choice Savings Program Act is set to take effect on March 28, 2022, and will impact all New Jersey businesses who have employed at least 25 employees in the state during the previous calendar year, have been in business at least two years, and do not already offer a qualified retirement plan. The Act mandates these businesses offer their full and part-time employees a retirement savings plan in either the form of either a qualified retirement plan such as a 401k or 403b, or through the New Jersey Secure Choice Savings Program.
Small employers with fewer than 25 employees may elect to participate in the program but are not required to do so.
Enactment of the new law may spur many employers to establish their own qualified plans versus participating in the State-sponsored plan, after weighing the pros and cons.
The State-sponsored program is an individual retirement account (IRA) where employees contribute a portion of their pretax earnings via automatic payroll deductions.
Although enacted in March 2019 “for the purpose of promoting greater retirement savings for private sector employees in a convenient, low cost, and portable manner,” the implementation date for the program was extended to March 28, 2022 due to COVID-19, and employers have 9 months thereafter to comply.
Participating employers must automatically enroll all employees who do not opt out of the program at a 3% pre-tax contribution rate, unless the employee requests a different contribution rate.
Participating employers must automatically enroll all employees who do not opt out of the program at a 3% pre-tax contribution rate, unless the employee requests a different contribution rate, according to a recent Fisher Phillips post about program requirements. Once enrolled, employers must provide payroll deposit retirement savings arrangements for their employees and deposit the funds into the program on the employees’ behalf.
Employers do not operate or administer the program and are not considered to be a fiduciary over the program. Participating employers will not have any liability for an employee’s decision to participate in or opt out of the program or have any responsibility for the investment performance of the program. While the program is at no cost to employers, there are certain administrative burdens imposed on employers to comply with the Act.
After the initial implementation of the program, participating employers must designate an annual open enrollment period for employees who previously opted out of the program to enroll. Employers will also be required to report information relevant to compliance with the Act on their state income tax return.
After current employees are enrolled, employers will be required to provide program information to new employees at the time of hire and enroll new employees within three months of the hire date.
An employer who fails to enroll an employee who did not opt out of participation will be subject to a written warning during the first calendar year a violation occurs, a $100 fine for the second calendar year, a $250 fine for each employee who was not properly enrolled for the third and fourth calendar years, and a $500 fine for each employee who was not properly enrolled for the fifth and any subsequent calendar year.
The program is being independently administered by the Secure Choice Savings Board, which, among other things, is required to design and disseminate to all employers both an employer and an employee information packet. The packet will include background information on the program, appropriate disclosures for employees, and other pertinent information.
SEE ALSO:
• What Mandatory Auto-Enrollment IRAs Actually Mean
• Colorado Becomes Latest State to Adopt an Auto-IRA Program
• Most Americans Strongly Support State-Run Retirement Programs
• Colorado, New Mexico First to Partner on State-Run IRA Program
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
