In a move to ensure that one-half of New Jersey private sector workers do not continue to be left out of a secure retirement, the state has created Secure Choice. This program acts as a default defined contribution retirement plan for employees of small companies who do not have the resources to offer a 401(k) plan on their own. The legislation, officially titled the “New Jersey Secure Choice Savings Act,” was signed into law by Governor Phil Murphy in March of 2019, with a two-year time frame before becoming effective, which it officially does on March 28, 2021. Based on current information, however, it is expected that the state will extend this timing for twelve months to March 2022.
The Secure Choice legislation requires that Garden State companies which 1) employ 25 or more people, 2) have been in business for at least 2 years, and 3) do not offer a retirement plan to employees, establish a payroll-funded IRA savings plan for employees those who enroll. Once the program is set to start offering employee enrollments, employers will have time to enroll their people in the program.
The Secure Choice program must be offered to all W-2 employees of qualifying for-profit or non-profit employers but does not need to be offered to independent contractors, whose income is reported to them on Form-1099. The employees will be automatically enrolled in the plan with a pre-tax contribution rate of 3%, unless the employees affirmatively opt out of participation, or change their contribution rate. The annual maximum that each employee can contribute is $6,000, except for employees over age 50, who can contribute an additional $1,000. There is no contribution permitted from the employer.
The contributions of all participants in the program will be managed by the New Jersey Secure Choice Savings Board, and fees to administer the program will be capped at .75% of assets and assessed to the participants directly. There is no cost to employers. As of now, the board has not been established.
Employers who meet the criteria are required to 1) offer the program to their employees by providing enrollment packets, and 2) withhold and remit the employee contributions into the program. New employees must be given enrollment information within 30 days of hire. Employers with fewer than 25 employees can also opt to participate, but it is not mandatory. Employers will be subject to penalties after the first calendar year at $100 per employee and these penalties gradually increase per year up to $ 500 per employee for failure to comply with this law. There is also a penalty of up to $2500 if the employer withholds and does not remit the employee contributions.
Overall, this program is designed to give more New Jersey private sector workers the opportunity to save for their own retirement on a pre-tax basis; however, small business employers that currently do not offer a 401K, or any other qualified retirement plan, should consult with their accounting professional to see if it would be better for them and their employees to consider a traditional 401K plan, rather than made to comply with this state plan. Garden State companies and non-profits should keep an eye out for more information on this program over the next year and discuss the requirements with their accounting and legal professionals.
Here's a quick look at the essential points of Secure Choice.