New Jersey Requires Employers to Make a Retirement Savings Vehicle Available to Employees
In an effort to close the gap in retirement savings across the state, Governor Phil Murphy signed the New Jersey Secure Choice Savings Program Act (Act) in March of 2019. The Act created the Secure Choice Savings Program (Program), designed to provide a path for more private sector employees save for retirement. In short, the Act requires certain employers in the state to establish a payroll deposit retirement savings arrangement that will permit eligible employees to participate in the Program.
Which employers are subject to the Act?
The Act applies to all persons and entities engaged in a business, industry, profession, trade, or other enterprise in New Jersey, whether for profit or not for profit, that:
have at no time during the previous calendar year employed fewer than 25 employees in the State,
have been in business at least two years, and
have not offered a qualified retirement plan.
“Small employers” – persons or entities above that either employed fewer than 25 employees at any one time in the State throughout the previous calendar year, or have been in business less than two years, or both, may voluntarily participate in the Program. To do so, they will need to notify the New Jersey Secure Choice Savings Board (Board) which has been charged with running the Program.
What kind of “qualified retirement plans” will allow an employer to avoid complying with the Act?
Qualified retirement plans include plans qualified under section 401(a), section 401(k), section 403(a), section 403(b), section 408(k), section 408(p), or section 457(b) of the Internal Revenue Code, or a plan sponsored by an employee leasing company or professional employer organization (PEO).
How do employers enroll in the Program?
The Program is not operational yet (last checked April 4, 2022). The Board is presently working on implementation of the Program. A website has been established for the Program and is expected to soon have more information about the Program, including next steps concerning implementation.
What steps will covered employers have to take to comply?
There are a number of steps covered employers will need to take to comply. Below is a summary:
Establish a payroll deposit retirement savings arrangement not more than nine months after the Board opens the Program for enrollment. Employees enrolling in the program will have the ability to select a contribution level.
Automatically enroll in the Program each of their employees who has not opted out.
Deposit deductions from employees’ payroll into the Program.
Employers are permitted to contract with a third party, such as a payroll service provider or a professional employer organization, to perform the above tasks on behalf of the employer.
When must employees be enrolled in the Program?
Enroll employees hired more than six months after the Board opens the Program for enrollment (and who have not opted out) no later than 3 months following the date of hire.
Do employers have to allow employers to enroll annually?
Yes, as noted, following initial implementation, covered employers must make an annual open enrollment period available to eligible employees to change their elections under the Program. This includes allowing employees who previously opted out of the Program to opt-in.
Will employees enrolled in the Program be able to select their contribution level?
Yes, enrollees will have the ability to select the amount of contributions to make under the Program (which could be $0), expressed either as a percentage of wages or as a dollar amount. Enrollees who do not make an election will be automatically enrolled and set to contribute at 3% of compensation, subject to the applicable limit for IRA contributions for the plan year (for 2022, $6,000).
Can enrollees in the Program change their election?
Yes, but not more than once every calendar quarter, provided that the Board may establish rules for making changes.
Will employers have to select investment options for employees to invest their savings under the Program?
No, the Board will determine these options, and enrolled employees will have the opportunity to select from those options based on rules established by the Board. Contributions for employees that do not make an investment election under the Program will be placed in the life-cycle fund investment option.
Are employers liable for employees’ decisions to participate (or not to participate) in the Program? What about employees’ investment decisions?
No. The Act expressly provides that participating employers “shall not have any liability for an employee’s decision to participate in, or opt out of, the program or for the investment decisions of the board or of any enrollee.” It goes on to clarify that the Program is not an employer-sponsored plan, and the employer is not a fiduciary.
What are the penalties for employers that do not comply?
The penalties depend on the nature of the failure and when it occurs.
An employer who fails without reasonable cause to timely enroll any employee who has not opted out of participation in the Program is subject to the following penalties:
for the first calendar year during which at any point a violation occurs, a written warning,
for the second calendar year during which at any point a violation occurs, a fine of $100;
for the third and fourth calendar year during which at any point a violation occurs, a fine of $250 for each employee who was neither enrolled in nor opted out of participation in the Program; and
for the fifth and any subsequent calendar year, a fine of $500 for each employee who was neither enrolled in nor opted out of participation in the program.
However, an employer who collects employee contributions but fails to remit any portion of the contributions to the fund shall be subject to a penalty of $2,500 for a first offense, and $5,000 for the second and each subsequent offense.
Since the Board is still working on implementation, employers still have time to analyze the Act and how it may affect them. They should monitor the Board’s website for any developments to ensure timely compliance, as applicable.