New York employers who do not sponsor their own retirement plans will soon be required to automatically enroll their employees in the New York State Managed Savings Plan. Lawmakers initially created New York State’s Secure Choice Savings Program in 2018 as a voluntary retirement savings program, allowing private sector and nonprofit employees to participate through deductions. automatic payroll. But last month, Governor Kathy Hochul enacted an amendment requiring private employers to automatically enroll their employees in the Program, in order to help employees who do not yet have access to an employer-sponsored retirement savings plan. Now that private employers will be required to participate in the program, here’s what employers need to know.
Who does it apply to?
The program applies to New York State not-for-profit and for-profit employers who meet the following requirements:
- The employer has not previously offered its employees a qualifying retirement plan, including, but not limited to, a 401 (a), 401 (k), 403 (a), 403 (b), 408 (k), 408 (p) or (457 (b), within the past two years;
- The employer has at least 10 employees in the state during the previous calendar year at any time; and
- The employer has been in business for at least two years.
If these three conditions are met, an employer’s participation in the program is compulsory. Employers who already offer a qualified pension plan such as a 401 (k) are prohibited from terminating their existing plan in order to participate in the program.
Although the program requires employers who meet the above criteria to automatically enroll their employees in the program, employees can choose to opt out of the program at any time. An employee who withdraws from the program but later wishes to participate will have to wait until an annual open registration period to do so.
The program covers all employees 18 years of age or older who work in New York City, regardless of the number of hours the employee worked. As a result, the program is open to full-time and part-time employees.
How does the program work?
The program is an automatic payroll deduction IRA managed by the program board, which is responsible for selecting investment options in the program. The government pays the administrative costs associated with setting up and running the program until it has sufficient assets to cover these costs on its own. At this point, all costs must be paid from program funds.
Employees participating in the program can select a specific contribution amount to be paid into the program (either as a percentage of salary or as a certain amount within IRS limits). For employees who do not choose to opt out or select a specific contribution amount, the default election deferral is set at 3% of their salary. Retirement savings accounts created for individuals will be Roth IRA accounts, which means that the money put into the account will be after deducting taxes on that income.
What Should Employers Do?
Under the Program, the employer’s obligations are strictly administrative. Employers covered by this law must:
- Make information documents for government employees available to employees;
- Automatically enroll each employee in the program unless they unsubscribe;
- Set up the retirement savings system with payroll deposit to allow employees to participate in the program; and
- Manage employee contributions to the program.
It is important to note that participating employers are not program trustees. As such, employers are exempt from any liability for benefits paid and returns on investment among program participants. The New York Secure Choice Savings Program Board serves as the program trustee and is solely responsible for the design and operation of the program.
Next Steps for New York Employers
Although the law came into effect when Governor Hochul promulgated it on October 21, it is not known when the program will be open for enrollment. This is not expected to happen until 2022. Therefore, you are not required to take immediate action. Once the program is open for registration, you will have nine months to set up the payroll filing system. You should be on the lookout for additional details regarding the program’s opening date for registration, as well as any regulations that are issued.
Henry thomson smith contributed significantly to the development of this Insight.