Governor Phil Murphy signed the New Jersey Secure Choice Savings Program Act on March 28, 2019, requiring many small to mid-size businesses to offer a retirement plan. If the employer does not offer a qualified retirement plan, such as a 401(k), 403(b), or 457(b) plan, then the Act requires the employer to automatically enroll in the New Jersey Secure Choice Savings Program. Careful consideration surrounding existing qualified retirement plans or the New Jersey Secure Choice Savings Program should be evaluated in tandem with the federal Securing a Strong Retirement Act that is currently being debated in Congress. To learn more about the House Act, continue reading here.
The New Jersey Secure Choice Savings Program Act’s expected implementation date was March 28, 2021; however, the program was allowed a one-year extension to March 28, 2022, due to COVID-19. However, as of today (April 5, 2022) the program is not operational. New Jersey did create a Secure Choice Savings Program website that should provide more details regarding the program. The Act requires that a notice will be posted on the website stating the date the program is operational. Employers will have nine months after the start date is announced to complete the rollout. The Act does require the Board to implement the program in two phases, based on the size of the employer participating, with larger employers being required to implement sooner.
Which employers are impacted by the Act?
“Employer” is defined to include a person or entity engaged in a business, industry, profession, trade or other enterprise in New Jersey. This includes both for-profit and not-for-profit entities. In addition, the employers are subject to the Act if they have:
- Employed 25 or more employees in New Jersey in the previous calendar year,
- Been in business for at least two years, and
- Currently do not offer a qualified retirement plan, including a plan qualified under Internal Revenue Code Section 401(a), 401(k), 403(a), 403(b), 408(k), 408(p), or 457(b)
How do you calculate the number of employees in the previous calendar year?
An employer will be considered to have an employee if the individual is 18 years of age or older, lives in New Jersey or is employed by an employer in New Jersey, and their wages are subject to New Jersey withholding.
Are there penalties if an employer does not comply?
Yes. The amount of penalty depends on the nature of the failure and timing. An employer who fails to enroll any employee who has not opted out of participation in the program is subject to:
- for the first calendar year during which at any point a violation occurs, a written warning by the department;
- for the second calendar year during which at any point a violation occurs, a fine of $100;
- for the third and fourth calendar year during which at any point a violation occurs, a fine of $250 for each employee who was neither enrolled in nor opted out of participation in the program; and
- for the fifth and any subsequent calendar year during which at any point a violation occurs, a fine of $500 for each employee who was neither enrolled in nor opted out of participation in the program.
An employer who collects employee contributions but fails to remit any portion of the contributions to the fund shall be subject to a penalty of $2,500 for a first offense and $5,000 for the second and each subsequent offense.
What are my responsibilities as an employer if the Act applies?
Employers have to either implement New Jersey Secure Choice program by the appointed deadline or offer their employees a qualified retirement plan through the private market. If enrolling in the New Jersey Secure Choice program, the employer will need to:
- Automatically enroll in the program each of their employees who have not opted out of participation in the program no more than nine months after enrollment opens
- Establish a payroll deposit retirement savings arrangement to allow each employee to participate in the program
- At least once every year, designate an open enrollment period during which employees who previously opted out of the program may enroll in the program
How much does the New Jersey Secure Choice program cost employers?
New Jersey offers Secure Choice at no cost to businesses. Employers cannot match contributions under the program. Employers also don’t have to design the plan or manage the investments, but they do have some administrative responsibilities.
What is the contribution level for employees enrolling in the program?
Employees will have the ability to select their contribution level into the fund up to the applicable limit for IRA contributions for the plan year ($6,000 for the 2022 taxable year).
If the employee does not select their contribution level, then 3% of the employee wages will be contributed to the program.
How are the investment options for employees determined under the program?
The Board associated with the program will annually prepare and adopt a written statement of investment policy that includes a risk management and oversight program. Employees will have the opportunity to select from the options provided by the Board. Contributions for employees that do not make an investment election under the program will be placed in the life-cycle fund investment option.
Are there fees that the employees will be subject to under the program?
The Act notes that the State will do its best to keep annual administrative fees as low as possible.
However, in no event can administrative fees exceed 0.6 percent of the fund’s total balance, except that, during the first three years after establishing the program, annual administrative fees may be set at not more than 0.75 percent of the fund’s total balance.
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