On March 28, 2019, New Jersey Governor Phil Murphy signed A-4134, the New Jersey Secure Choice Savings Program Act, also called the NJ Auto-IRA Act (the “Act”), “for the purpose of promoting greater retirement savings for private sector employees in convenient, low cost, and portable manner.” The implementation date of the Act was postponed to March 28, 2022 due to the COVID-19 pandemic. The Act establishes a state-sponsored “retirement savings program” and requires certain employers that do not offer a traditional retirement savings option to its employees to either start doing so or participate in the State-sponsored program.
As provided by the State’s Secure Choice Program website, the Secure Choice Savings Board (the “Board”) is in the process of implementing the program, which is expected to be completed by the March 28, 2022 deadline. Once the Board notifies the State Treasury that the program has been implemented, employers will have 9 months to comply with the Act’s requirements.
Which Employers are Covered under the Act?
Covered employers under the Act are both profit and non-profit New Jersey employers that: (1) employed at least 25 workers during the previous calendar year; (2) have been in business for at least 2 years; and (3) have not offered a “qualified retirement plan” (i.e., a 401(k) or 403(b) plan) to their employees. Significantly, employees who are co-employed by an employee leasing company or professional employer organization shall be treated as employed by the covered employer (i.e., not by the leasing company or professional employer organization) for purposes of the Act.
Therefore, covered employers must either enroll in the State-sponsored program or offer employees the ability to participate in a qualified retirement plan as defined by the Act. Both full-time and part-time employees must be offered the ability to participate in the applicable retirement savings plan.
Employers with fewer than 25 employees may arrange for their employees to participate in the State-sponsored program, but are not required to do so.
How does the State-Sponsored Program Work?
Employers that decide to participate in the State-sponsored program must “establish a payroll deposit retirement savings arrangement to allow each employee to participate in the program.” The employer then must “automatically enroll in the program each of their employees who has not opted out of participation in the program” at a 3% pre-tax contribution rate, unless the employee requests a different rate. The funds collected must then be deposited into the program on the employee’s behalf.
Further, after the initial implementation, at least once every year, “participating employers shall designate an open enrollment period during which employees who previously opted out of the program may enroll in the program.” Notably, employers “retain the option at all times to set up or provide coverage under any type of employer-sponsored retirement plan.”
Overall, participating in the State-sponsored program imposes no financial costs to employers, but does impose various administrative burdens.
What Happens if a Covered Employer Fails to Comply with the Act?
Unless an alternative qualified retirement plan is offered to employees in accordance with the Act, any covered employer who fails to enroll any employee who has not opted out of participation in the State-sponsored program without reasonable cause shall be subject to:
- For the first calendar year during which at any point a violation occurs, a written warning by the department;
- For the second calendar year during which at any point a violation occurs, a fine of $100 (which appears from the Act’s statutory language to be the total fine that could be assessed against the covered employer, although this is not fully clear);
- 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 State-sponsored program; and
- For the fifth and any subsequent calendar year during which at any point a violation occurs, a fine of $500 for each employee who was neither enrolled in nor opted out of participation in the State-sponsored program.
Moreover, any 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.” Covered employers will be required to report information regarding compliance with the Act on their income tax returns.
What to do Now?
Covered employers should consult the Secure Choice Program’s website noted above for further updates. Once more information is available from the State, employers should speak with counsel and weigh the pros and cons of establishing their own qualified retirement plans versus participating in the State-sponsored plan.