In 2019, Gov. Phil Murphy signed into law the New Jersey Secure Choice Savings Act to promote retirement savings by automatically enrolling workers in an IRA that is managed by the state.
The program targets some 1.7 million workers in the Garden State whose employers don’t offer a retirement plan.
And while employees could contribute to IRAs on their own, when they don’t have a payroll deduction, only about 5 percent save for retirement consistently, sponsors of the bill.
The law requires employers with 25 or more employees to establish an automatic payroll deduction for their employees, who will be enrolled at 3 percent unless they opt-out or choose a different contribution level. Smaller employers can offer payroll deduction but are not required to under the law.
The funds will be managed by a board of state officials and members appointed by the governor with the Senate’s consent, and management fees cannot exceed more than 0.75 percent for the first three years and 0.6 percent thereafter.
The state is expected to front the cost of getting the plan up and running, and then the plan will take over those costs and reimburse the state. It could launch within two years.
Neither the state nor the employers contribute to the accounts nor are they intended to bear any financial risk, according to the law.
The New Jersey Business and Industry Association has opposed the program, which the organization warned would burden employers, carry steep startup costs and potentially open the state and employers to liability under the federal Employee Retirement Income Security Act.
If you have any questions, feel free to contact the tax professionals at Potter & LaMarca at 718-227-8000 or via email at firstname.lastname@example.org.