New Jersey Secure Choice Program; New Mandatory Retirement Benefit Provisions for the Small Employer

The NJ Secure Choice Program

On March 28, 2019 Governor Phil Murphy signed A4134 into law, the ‘New Jersey Small Business Retirement Marketplace Act’. This legislation requires employers that have been in business for at least two years, with 25 or more employees, to provide and allow their employees to participate in retirement savings programs via automatic payroll deductions and contributions. If no other qualified retirement benefit options are offered by the employer, then employers must enroll in a newly established IRA Savings Plan Fund created under this legislation.

This Fund, known as the New Jersey Secure Choice Savings Program, will be administered by the State of New Jersey, and unless the respective employee opt-out of the program, there will be a 3% payroll deduction from the employees salary that is deposited in the fund with an annual contribution limit of $6,000 (with $1,000 catchup contribution for those age 50 and up). Since this is an IRA product, it will be subject to the IRA limitations of the individual filer (i.e. the employee), and there is no Roth IRA option. In addition, the investment options within the Fund will all be managed by the State of New Jersey.

Plan Administration

The purpose of the law is to allow employees of small businesses to save for retirement, and can be helpful for businesses that do not have a retirement benefit in place. However, there is an administrative burden associated with implementing and managing this plan.

Employers must provide information about the Program to their employees which includes providing enrollment packets to all new employees within 30 days of hire. Employers must also track the eligibility status of their employees, and whether each employee has opted-in or opted-out. For any employees who do not opt-out within 30 days of notification and are eligible for the Secure Choice Savings Program, the employer must set up a 3% payroll deduction and deposit the deductions.

Employers must hold an open enrollment period for the Program every two years. They must also auto-enroll any employee who has not participated for at least one year and track those employees. Employers must submit an employee census to New Jersey Secure Choice Savings annually.

Penalties

There are penalties associated with non-compliance with this plan. After the first year, employers will receive warning notices, and if by the second year there is still non-compliance, the employer may be fined $100 for each employee that is not enrolled and not opted out. By the third and fourth years, the fine increases to $250 for each employee annually.

Other Options

The NJ Secure Choice is not a customized retirement plan and does not provide for any enhanced tax deferral options or opportunities such as profit sharing, custom plan design and eligibility requirements, employer contributions etc. that support and conform to the needs of the business.

The state mandate began on March 28 and the deadline is December 31, 2021. Implementation of retirement plans is no longer an option in NJ, but there are other choices in terms of plan feature and design, that can offer greater flexibility for owners and employees and can be more aligned to employers needs and further the goals of the business. In addition, other options may also ease some of the administrative burdens associated with the new NJ Choice Program.

FHLLP is batting for our clients, so please feel free to reach out and discuss.