New Jersey enacts Secure Choice retirement savings legislation

New Jersey enacts Secure Choice retirement savings legislation


There are few concepts more recognizable in our country than The American Dream—the idea that success and prosperity can be achieved by anyone through good old-fashioned hard work. There’s also this unwritten expectation in the American workforce: if you work hard enough throughout your entire career, you’ll be rewarded with a financially-secure, comfortable retirement in your golden years.

Unfortunately, this isn’t always the case.

Life has a bad habit of getting in the way of our carefully laid-out plans, no matter how hard we work throughout our career. And as traditional pension offerings have declined in popularity, more and more workers have found themselves struggling just to pay the bills in retirement. Clearly, our workforce needs a little bit of help—and states are stepping in.

Over the course of the last year, the state of New Jersey has been hard at work enacting legislation designed to help workers alleviate some of that commonly-felt financial stress—expanding paid family leave, announcing an upcoming spike in minimum wage, confronting the gender income gap, mandating sick time, and now, addressing the retirement plan coverage gap among small business employees.

Why New Jersey needed retirement mandate legislation

It’s no secret that a large portion of workers nationwide are living paycheck-to-paycheck today, struggling to cover their living expenses and struggling even more to save money for an event that could be decades down the road—retirement. Add in the fact that 1.7 million workers in New Jersey don’t even have access to a retirement savings plan, and the future economy of the state looks bleak [1].

Think about it this way: workers who can’t build their retirement savings while they’re still employed are more likely to live on low incomes during their elderly years and, by extension, are more likely to be dependent on state services and public assistance in retirement. In fact, the AARP estimates that if lower-income workers in New Jersey could increase their future retirement income by just $1,000 per year, the state’s government could save roughly $194 million on public assistance costs between the years of 2018-2032 [2].

As such, the New Jersey Secure Choice Savings Act was signed into law by Governor Phil Murphy earlier in 2019, who said in a press release that “Saving for retirement is paramount for all employees, but too often, those who work for small businesses don’t have a simple way to set aside these savings.” [3]

And he’s not wrong.

Small businesses often choose not to offer any retirement plan options to employees due to concerns about high costs, administrative burdens, and fiduciary liability—and since 53.5 percent of New Jersey’s private sector workers lack access to any type of workplace retirement plan, the state government is stepping in to protect its citizenry and economic future by requiring employers to offer a retirement savings plan for employees to save in [4].

Read more: Why are states beginning to mandate small business retirement plans?

New Jersey Secure Choice savings program details

The New Jersey Secure Choice retirement mandate requires employers with 25 or more employees who have been in business for at least two years to offer employees a savings program to help them prepare for their future retirement. Both non-profit and for-profit employers are subject to the mandate, and employers of any size, even those with fewer than 25 employees, can participate if they so choose—though they won’t be required to do so.

The Secure Choice savings program is set up as a payroll deducted IRA program, where employees are automatically enrolled into the program contributing three percent of their salary. Employees will be able to adjust their contribution percentage during the enrollment period, and they can also opt in or out during designated open enrollment periods.

We know what you’re thinking: do I have to offer Secure Choice to my employees? What if they aren’t interested?

In short, yes. Employers who don’t offer another qualified retirement savings vehicle, like a 401(k), that have been in business for more than two years and have at least 25 employees will be required to comply with Secure Choice regulations.

Complying with New Jersey’s Secure Choice retirement mandate

New Jersey’s state government knew that if it was going to require small business owners to offer a retirement savings program to employees, the program would have to be relatively hands-off for the employer to mitigate potential backlash. As such, the New Jersey Secure Choice Savings Board will take on the majority of the behind-the-scenes work, and costs and fees will be assessed to the participants—not the employer.

Additionally, the Secure Choice Savings Board will provide an easy-to-follow registration process for employers. From there, employers will be responsible for:

  • Distributing information to employees

  • Depositing employee payroll deductions into the program fund

  • Offering open enrollment periods at least once a year

  • Enrolling employees into the program within three months of their hire date, unless they proactively opt out

Employers won’t be expected (or allowed) to provide any matching contributions or invest any additional funds into the program.

You might also be interested in: Why a state retirement plan may not be a good fit for a small business

When is Secure Choice expected to launch?

Implementation of New Jersey’s Secure Choice program and the beginning of employee enrollment are set to begin by late March 2021. However, the program’s legislation allows the Secure Choice Savings Board to extend the timeline by up to 12 months if necessary. Once the program is up and running, employers will have nine months to comply with the enacted legislation and assume program responsibilities.

Employers who fail to comply with Secure Choice legislation or fail to enroll employees into the program in a timely manner will be subject to a variety of penalties, getting more severe over the course of Secure Choice’s implementation. If an employer collects contributions but fails to deposit any portion of the contribution, for example, they’ll be subject to a $2,500 fine for the first offense and up to $5,000 for subsequent offenses.

That being said, the program’s implementation date isn’t set until 2021, so employers don’t need to take immediate action—though it may be in their best interest to consider implementing another qualified retirement plan option in the meantime. Employers who want to avoid dealing with the hassle of Secure Choice in a couple of years may want to consider one of the alternative saving options for employees, like a 401(k).

A 401(k) plan gives business owners more options for flexibility, meaning a 401(k) may be a better fit for reaching business goals. A 401(k) plan allows employers to design a plan that truly fits their needs—whether they need Safe Harbor provisions, want to offer an employer match, or need help lowering their taxable business income. Additionally, 401(k) plans have higher contribution limits than the state plan—helping employees get closer to reaching their retirement goals.

If the New Jersey Secure Choice retirement mandate will affect you in the coming years, remember the state IRA is not your only solution. Contact us today to determine which retirement savings vehicle is the best fit for your business and for your needs: 800.236.7400, Option 1.


 Sources:

[1] New Jersey Small Business Retirement Marketplace Act, Assembly, No. 1341, State of New Jersey 217th Legislature, 2019.

[2] New Jersey Could Save $194 Million by Helping People Save for Their Own Retirement, AARP Public Policy Institute, 2017.

[3] New Jersey becomes latest state to establish Secure Choice savings program, Pensions and Investments, 2019.

 [4] Secure Choice Gives New Jersey Workers the Opportunity to Save, AARP, 2015.