New Jersey Requires Small Employers to Offer Retirement Plans: Compliance Deadlines Approaching
New Jersey implemented a new law that requires employers with 25 or more employees to implement a retirement plan. Employees must participate in (i) the state-sponsored plan called RetireReady NJ; or (ii) their employer’s qualified retirement plan. Penalties apply for non-compliance.
Who It Applies To
- Businesses with 25 OR MORE employees in the ENTIRE PREVIOUS YEAR;
- That does NOT currently have a “qualified” retirement plan; and
- Have conducted business in New Jersey for AT LEAST 2 YEARS.
“Employee” is someone 18 years or older, resides in New Jersey, employed by an employer in the State, and wages are subject to withholding. “Employer” means any person or entity engaged in a for-profit or non-profit business conducting activities in New Jersey.
Overview: How Does It Work?
- RetireReady NJ is a Roth IRA.
- Employers must offer it to employees through payroll deduction unless they have an alternative plan.
- Contributions are made by the employee, not the employer. The default rate is 3%, but can be as little as 1% or 100%.
- Employees can opt out.
- Investment options range from conservative to aggressive, but the offering is relatively limited.
Alternatives Exist
Several alternatives exist. For instance, employers can adopt a SEP or SIMPLE that may generate a tax credit of up to $5,000 per year for 3 years. These types of plans can be critical in recruiting and rewarding employees.
Deadline to Comply
- 25-39 Employees. Comply by November 15, 2024.
- 40+ Employees. Comply by September 15, 2024.
Penalties
Employers can opt out of the Secure Act or face penalties of up to $500 per year per employee. Employers can only opt out by setting up their own qualified retirement plans, which include, but are not limited to, (i) defined benefit plans; (ii) 401(k) or 403(b) plans; (iii) Simplified Employee Pension (SEP) plans; and (iv) Savings Incentive Match Plans for Employees (SIMPLE). Note also that penalties of up to $5,000 per occurrence apply for mishandling of funds.