On October 21, 2021, Governor Hochul signed legislation ensuring retirement plan security for private-sector employees. The seven-member New York Secure Choice Savings Program Board will run the program.
This law will apply to both for-profit and non-profit employers if the employer satisfies all of the following three conditions:
- The employer had at all times during the previous calendar year at least ten employees in the state of New York,
- The employer has been in business for at least two years, and
- The employer does not have a qualified retirement plan such as a 401(k) or 403(b) offered to its employees.
Employers will be prohibited from terminating the employer-sponsored retirement plan for purposes of participating in the Secure Choice Savings Plan. The program covers all employees in the state who are at least 18 years old and earn wages working for an employer in the state. The legislation does not distinguish between part-time and full-time employees so all must be included. Each employee does have the option to opt-out of the program at any time. If the employee does not elect a deferral amount, the default election will be 3% of wages. Additionally, the account created under this program will be a Roth IRA. The federal contribution limits for Roth IRAs will apply. Pre-tax contributions will not be allowed to be made to this program.
The participating employers will have the following required actions:
- Set up payroll deposit retirement savings arrangement,
- Automatically enroll each employee in the program if they do not opt-out of the program,
- Withhold and remit employee contributions to the program, and
- Provide the employees with informational materials.
The program was designed to NOT be an employer-sponsored retirement plan subject to ERISA. Thus, unlike with a 401(k) plan, for example, participating employers will not have to perform nondiscrimination testing or the like.
The legislation became effective immediately, but it requires employers to enroll employees beginning no later than December 31, 2021. Participating employers must set up the payroll deposit arrangement within 9 months of the program opening for enrollment. The board does have the ability to delay implementation of the program by up to 12 months if the board deems it necessary.
Currently, the legislation itself does not identify a penalty for noncompliance, but it is assumed the regulations issued to implement this program will likely address penalties for noncompliance.
The Board is tasked with selecting the investment options in the program. The investment options are not known at this point, but multiple options will be available, and they will differ in terms of cost and risk profile to appeal to a broad range of savers.
This program run at the state level will most likely impact the New York City law that was passed earlier this year. The NYC legislation provides that if the state enacts a retirement savings program that “requires a substantial portion of employers who would otherwise be covered employers to offer to their employees the opportunity to contribute to accounts through payroll deduction” the NYC program will be discontinued. There is uncertainty, however, as the NYC law applies to employers with five or more employees in the city while the state threshold is ten or more.
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By Kevin Bruot, CPA