On May 11, 2021, the City Council of New York enacted a local law to establish a retirement savings program for certain employees of private entities. The “Retirement Security for All” legislation creates a mandatory auto-enrollment payroll deduction individual retirement account (“IRA”) program for employees of private sector employers in New York City which (i) do not offer a retirement plan and (ii) employ five (5) or more employees.
The program provides for a default employee contribution rate of 5% (but employees may adjust this rate up or down or opt-out of at any time). As contributions are made to IRAs, contributions are capped at the annual federal IRA maximum (currently $6,000; $7,000 if age 50 or above). Much like requirements under the Employee Retirement Income Security Act of 1974 (“ERISA”), employers must remit funds deducted from the earnings of each participant for deposit in IRAs on the earliest practicable date (consistent with applicable rules).
The IRAs are portable and thus employees retain the accounts when they move jobs. Employees may roll the accounts over into employer plans where eligible. The law does not provide for any employer contribution and does not provide for contributions by New York City.
A retirement savings board will be established to oversee the program. The board will consist of three members appointed by the Mayor.
The board will have the power:
- To determine the start date of the program
- To contract with financial institutions and administrators
- To minimize fees and costs associated with the administration of the program
- To create a process for those not employed by a covered employer to participate
- To conduct education and outreach to employers and employees
The board will work with the Comptroller to select the investment strategies and policies and must report annually on its activities and actions.
The new law takes effect 90 days after enactment (from May 11th), but the board has up to two years to implement the program. Affected employers need not take any immediate action, but they should continue to monitor developments in this area to ensure that they are prepared to comply when the program is ultimately implemented.
Furthermore, the legislation provides for per employee penalties that escalate with multiple violations. Penalties for failure to comply with recordkeeping requirements may also apply. And actions may be brought against employers who fail to enroll employees or who fail to timely remit employee contributions under the program rules.
New Jersey Enacts “Secure Choice” Retirement Mandate
This past March, New Jersey enacted a similar program for both non-profit and for-profit employers. The “New Jersey Secure Choice” retirement mandate requires employers with 25 or more employees who have been in business for at least two years to offer employees a savings program to help them prepare for their future retirement. Both non-profit and for-profit employers are subject to the mandate, and employers of any size, even those with fewer than 25 employees, can participate if they so choose—though they won’t be required to do so. Employers who don’t offer another qualified retirement savings vehicle, like a 401(k), that have been in business for more than two years and have at least 25 employees will be required to comply with Secure Choice regulations.
The mandate requires employers to enroll their employees into an IRA, known as the New Jersey Secure Choice Savings Program Fund, through automatic payroll deduction. An employee will default to an automatic IRA contribution of 3% of wages unless the employee opts out of the program or elects a different contribution percentage.
Implementation of New Jersey’s Secure Choice program and the beginning of employee enrollment were set to begin on March 28, 2021. However, the program’s legislation allows the Secure Choice Savings Board to extend the timeline by up to 12 months if necessary. Based on current information, it is expected that the state will extend this timing for twelve months to March, 2022. Once the program is up and running, employers will have nine months to comply with the enacted legislation and assume program responsibilities.
Employers who fail to comply with Secure Choice legislation or fail to enroll employees into the program in a timely manner will be subject to a variety of penalties, getting more severe over the course of Secure Choice’s implementation. If an employer collects contributions but fails to deposit any portion of the contribution, for example, they’ll be subject to a $2,500 fine for the first offense and up to $5,000 for subsequent offenses.