New Jersey Secure Choice Savings Program
State-mandated retirement plans are increasingly popping up across the country. Currently, California, Illinois, Massachusetts, Oregon, and Washington already have retirement legislation active. Other states, such as Colorado, New Jersey, New Mexico, Seattle, Virginia, and Vermont have similar legislation passed. While their requirements are not yet active, implementation is scheduled - some beginning at the end of this year, and others not taking place until 2023. Finally, the states of Connecticut, Maryland, Maine, and New York also have legislation passed – but no clear implementation dates have been outlined.
Why Require A State-Ran Retirement Plan?
According to the National Institute of Retirement Security, 57 percent of working-age households have no retirement assets. Moreover, of those that do, only half an adequately prepared for a comfortable retirement – thus relying on Social Security for half of their retirement income. It’s no surprise that the looming retirement savings crisis exists for these reasons.
How Do These Plans Work?
There is a common misconception that plans must be offered as a 401(k). However, the majority of these plans will serve as Roth IRAs, which have a few key differences with a 401(k):
- 401(k)s have a higher annual contribution limit vs Roth IRAs
- Roth IRAs are after-tax, whereas 401(k)s offer pre-tax & after-tax contribution options
- Employers cannot match Roth IRA contributions, but can match 401(k) contributions
California, Illinois, New York, and Oregon are offering these Roth IRAs.
The New Jersey Secure Choice Program:
NJ Secure Choice is a state-sponsored retirement plan, aimed to close the retirement savings gap. The Program allows employees to contribute a portion of their pretax earnings to an individual retirement account (IRA) via payroll deductions. They are automatically enrolled at a 3% contribution rate, unless the employee changes said rate or opts out. Kulzer & DiPadvoa P.A. explained, “The program gives workers in New Jersey the option to invest the amounts withheld by their employers and remitted to New Jersey in a state-administrated Individual Retirement Account”. Contributions are capped at $6,000 annually, as required by IRS guidelines.
This Program applies to for-profit and non-profit employers in the public sector who have 25 or more employees and have been in business for more than two years. While businesses with fewer than 25 employees are not required to participate, they may choose to do so.
As it currently stands, this law is set to begin in March 2022, after a brief extension was granted due to COVID-19. Roll out is expected to take nine months - employers thereafter will have a grace period of 12 months if needed. This program imposes penalties on non-complying employees with a warning of up to $500 per employee.
Three Subjects Employers Must Follow Are:
- Notice Requirement: For the first six months the board will have a process in which employers can register for the program and employers must have a packet to give to their employees that was prepared by the board.
- Payroll Processes: Employers must have a retirement savings arrangement more than nine months after the board opens for enrollment. Any employees must be opted in unless they have opted out of the program.
- Enrollment Of Employees: No later than three months following the date of hire, employers must enroll an employee hired more than 6 months after the Board opens the Program for enrollment.
GMS believes that employees should have options to receive a great retirement plan no matter how big or small your wage is. Our office in Cherry Hill, New Jersey is ready to help small businesses receive the best plan catered to their needs. We know that figuring out which plan is best for you can be stressful but offering a retirement plan is important when recruiting and retaining quality employees.
To learn more about our savings plans, contact us today.