All NY Employers Soon to be Required to Provide Retirement Savings Plan
Employers with 10 or more employees in New York will be required to automatically enroll their employees into a retirement savings program.
The New York Secure Choice Savings Program Act (the “program”) was enacted into law as part of the 2018-19 New York State Budget. The program was designed to create a system where employees that work for employers who do not already offer a retirement saving plan could voluntarily opt in to fund an individual retirement account (IRA) through payroll deductions. The program – as originally designed – never really took off because it was voluntary. However, recently, New York amended the program to make it mandatory for covered employers to enroll their employees into the savings program. Here, we describe the program, as amended, and where it stands.
Coverage and Applicability
Initially, the program applies to for-profit and non-profit employers in New York state that meet the following:
- the employer had at all times during the previous calendar year at least 10 employees in New York,
- the employer has been in business for at least 2 years, and
- the employer does not offer a qualified retirement plan such as a 401(k) or 403(b).
All three of these requirements have to be met in order for an employer’s participation in the program to be mandatory.
A “qualified retirement plan” most often comes in the form of a 401(k) or 403(b), but the definition includes other types of retirement plans too.
The legislation contains a provision prohibiting an employer from terminating a employer sponsored retirement plan for purposes of participating in the Secure Choice Savings plan.Thus, employers who already have a qualified retirement plan in place are not required to participate in the State’s program.
What are Covered Employers Required to do?
A participating employer’s duties under the program are intended to be administrative. Participating employers must:
- set up a payroll deposit retirement savings arrangement,
- automatically enroll each employee who does not opt out of the program,
- withhold and remit employee contributions to the program, and
- disseminate the state’s employee informational materials (which have not yet been published).
This program is designed with the intention of not creating 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 for the plan.
For employees who do not elect a deferral amount, the default election will be 3% of wages. Additionally, the individual retirement accounts created under this program will be Roth which means they will be after tax contributions. Pre-tax contributions are not permitted.
To what Employees does this Apply?
This program covers all employees in the State who are at least 18 years old and who earned wages working for an employer in the State. Interestingly, the program does not distinguish between part-time and full-time employees, so all must be included. Nonetheless, employees can opt-out of participation in the program at any time.
When is this Effective?
This is unclear. The legislation technically became effective immediately, but it calls for enrollment of employees to begin no later than December 31, 2021. The implementing regulations and guidance from the State will need to be issued before the law’s requirements can even take effect. Additionally, participating employers must set up their payroll deposit arrangements within 9 months of the program opening for enrollment. However, the State may delay implementation of the program by up to 12 months if they determine it is necessary.
Operating and Maintaining the Program
The program is designed to be run by a 7-member New York Secure Choice Savings Program Board (the “Board”). This Board is a fiduciary of the program and they are tasked with designing and operating the program. The implementing legislation provides just a general framework for the Board to work within and leaves the Board to make many important decisions, such as the investment options offered to the participants.
It should be noted that participating employers are not fiduciaries under this program. This means they will face no liability with regard to investment returns, program design, and benefits paid to program participants.
Who is paying for this?
The legislation allows the State to pay administrative costs associated with the creation and management of the program until the program has sufficient assets to cover these costs itself. At that point, costs associated with the program–including any repayment of start-up funds provided by the State–must be paid out of money deposited in the program.
Will this impact the NYC auto-IRA law?
This is unclear, but it seems likely. Earlier this year, New York City (NYC) became just the second city to enact a mandatory auto-IRA law. The NYC legislation, however, 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. Thus, there would seem to be pre-emption of the NYC law by the NYS law. However, there is some uncertainty because the NYC program applies to employers with 5 or more employees in NYC while the New York State program applies to employers with 10 or more employees in the State. Despite this difference, there is a possibility that New York City will discontinue its program.
Penalties for Noncompliance
The law does not specify a penalty, however, this might change once implementing regulations or guidance are issued.