The NJ Secure Choice Savings Program is a new law that will require most employers to provide their employees with a retirement plan. This bill was signed into law by Governor Murphy in 2019, and although it was scheduled to begin in March of 2021, the ongoing COVID crisis has delayed the full implementation of the program. This has given business owners a little longer to figure out what retirement plans works best for them and their employees.
Choosing a retirement plan for your employees may seem like a daunting project, but if you’re armed with the proper information it will be more about grinding out the paperwork than teaching yourself retirement planning. Fortunately for you, I’ve gone through the government documents, articles, and press releases that told me everything I needed to understand about the new law; I’m here to reiterate that information to you in the simplest possible way.
What is the NJ Secure Choice Savings Program?
It’s a law that requires employers to establish a retirement saving program for their employees. The intention behind the program is to make saving for retirement much easier for medium- and low-wage workers, as most of their employers have not traditionally offered retirement plans.
Signed into law by Governor Murphy in March of 2019, this plan was intended to go into effect of March 2021. In light of the economic and other disruptions caused by the ongoing COVID crises, the full implementation of that law is currently delayed.
This law has been supported by many state leaders and even organizations like the AARP. The AARP notes that workers are 15 times more likely to save for their future if they are provided an opportunity to do so through their job.
Speaking about what I’ve seen in my own life, this is true. My mother, a 40-year employee of Monmouth Medical Center in Long Branch, took great advantage of the retirement program offered by the hospital and its parent companies over the years.
When deciding to retire, she had amassed a healthy retirement savings that has weathered both the 2008 and 2020 financial crisis. It is entirely due to her employers’ offering of a plan that I’m not among the millions of adult children worrying about their parent’s future on social security.
As noted by Evelyn Liebmann, the Advocacy Director for the NJ AARP noted, “By signing the NJ Secure Choice Savings Program into law, Governor Murphy is ensuring that 1.7 million private sector workers who don’t currently have access to a retirement savings option at work now have the ability to save for retirement out of their regular paycheck.”
Is this Basically a Mandatory Retirement Program?
Yes, that’s exactly what this law is. While the law requires that employers offer a plan, and the State of New Jersey has created a fund to provide alternatives to private investments, it is not required that employers use the state plan.
I repeat: business owners are not forced to give a portion of their employees wages to the state fund.
You won’t be forced to set up a plan with the state, but you will be forced to set up some sort of plan.
Business owners have the option of selecting their own retirement program with their own investment professionals if they are not interested in the state plan. Read further down, there is a subsection that discusses exactly what alternatives there are to using the NJ Secure Choice Savings Program Fund.
Are All My Employees Require to Take Part in This Plan?
No, your employees are perfectly free to opt-out of this program if they choose. Read that carefully, they’re free to opt-out. This means that if you choose the state plan and they never file a form to take part in the plan, they will be automatically enrolled.
As many of us have experienced, dealing with one more form doesn’t seem important until you see a new deduction on your paycheck that wasn’t there last time. This is exactly the situation that will occur, at 3% of their wages/salary for each pay period.
Just make sure to keep them in the loop of what you’re choosing, as in some cases, your choice will affect their paycheck even if they do zilch.
What Does This Look Like for My Employees?
For the state-run plan contributions are set at 3% of each employee’s wages, up to $6,000 annually where it is capped. That said, employees can edit the amount of their contributions to be a lesser or greater amount, but it won’t be permitted past $6,000.
Employees over the age of 50 will be permitted a cap of $7,000 of contributions each year.
Specific restrictions are laid out by the IRS here.
If you should decide on a private plan, their cap will likely be different, and I can’t speak to whatever that number is. As always, speak with your financial professionals to get details like that.
Keep in mind that while the state plan will be mobile, employees would be able to take their retirement fund with them if they get a new job, a plan you choose may not create the same ease of use.
As an Employer, Do I Have to Match Contributions?
No, you don’t have to make any contributions to your employees’ retirement funds. Even that being the case, it’s a stretch to say this is going to be free for you. As with any new law, financial practice, or guideline that you need to learn and abide by, it’s going to cost you something.
Whether this cost takes the form of time, money, or both, I cannot say, that’s for you and your financial professionals to decide together. I can say that the roll-out of similar programs in other states has been met with positive results; Business owners have expressed the process was simple and less time consuming than they had assumed it would be.
When Will this Law Go Into Effect?
This plan is expected to be in full effect by March of 2022. After that point, employers will have nine months to get everything together, up and running.
More Time-Related Information
Once your plan (whichever plan you choose) is up and running, you will be required to offer open enrollment periods no less than once a year.
When hiring new employees, you will be required to get them enrolled within the first three months of their employment.
If these two requirements seem to be at odds with each other, they’re not. Keep in mind that some employees will have opted out from their first opportunity to get enrolled. Time passes, people get older, and they start considering things they hadn’t in earlier years.
That’s great, but it’s not going to be your responsibility to drop everything and get them enrolled right away. The most that is required of you is that you make the necessary information available to your employees so they’re able to sign up during the next open enrollment period.
Who Does This Law Apply To?
It applies to businesses that have been operating for at least two years, and employ no less than 25 people.
Whether you’re a for-profit or non-profit operation is irrelevant in regard to this law. If you’ve got 25 people that get paid by the business, and you’ve been running for more than two years, you’ll be expected to fall in line with the new law.
What Happens if I Don’t Abide by the New Law?
- In the first year you will be given a warning.
- In the second year you will be fined $100 per employee.
- In the third and fourth years you will be fined $250 per employee
- In the 5th and subsequent years the fine will increase to $500 per employee
As you can see, the state tightens the screws on any holdouts to the new law as the years go on.
I would like to think that no one would consider doing this, but there is also a $2,500 fine for any employer that fails to remit contributions. Do it again, and you’re looking at a $5,000 fine in each instance. Beyond the initial fine, there’s all sorts of other laws that could be broken in making such a choice (fraud, embezzlement, etc…).
Beyond that, it’s just the height of distaste to take from someone planning for their future. The only organization that’s allowed to do that is the state itself, although they promised they won’t do that with this fund (I’m not being hyperbolic, check section 4 of the bill: NJ S2891 Sec 4)
What if I Already Offer a Retirement Program?
If you already offer a retirement program you’ve met the requirements of the new law and are officially a good person. This is, of course, assuming that your program is defined by the IRS as (but not limited to) one of the following:
- 401(a)
- 401(k)
- 403(a)
- 403(b)
- 408(k)
- 408(p)
- 457(b)
If this seems like a lot to process, don’t worry, it’s really rather simple. With a little bit of education on this topic, you’ll be able to see that you don’t even need to consider all seven of these plans. Many of them wouldn’t even apply to the type of business you operate, so they could be taken off your list of plans to consider right away.
This whole process is not nearly as bad as it may have seemed when you first heard about it. Yes, there will be a learning curve, and there will be some investment of time and money, but once your business’ retirement plan is set up, it will make for happier employees who know that they’re saving for their future.