New Jersey Business Secure Choice
In an effort to help more employees save for retirement, New Jersey has implemented a new law mandating employers to provide a plan for their employees – The New Jersey Secure Choice program. This is a state-sponsored retirement savings plan for businesses in lieu of a 401k or other qualified plan structure.
What is New Jersey Secure Choice?
In 2019, Governor Murphy signed the New Jersey Secure Choice Savings Act to help 1.7 million New Jersey workers who don’t have access to a retirement plan. The act mandates that businesses- for-profit and non-profit- with 25 or more employees offer a savings program. This is very similar to 10 other state-run, employer-sponsored retirement programs for private employees: California, Colorado, Connecticut, Illinois, Maryland, Massachusetts, New York, Oregon, Vermont, and Washington.
How Does the New Jersey Secure Choice Plan Work?
The New Jersey Secure Choice plan is a payroll-deducted IRA that is run by the state. If an employer adopts the plan, all of their W-2 employees are eligible to participate (including part-time workers). The program automatically enrolls participants at 3%, effectively meaning that unless an employee proactively opts out, they will be automatically enrolled to contribute 3% of pre-tax income to the plan.
Who Does the Plan Apply to?
The New Jersey Secure Choice plan applies to any New Jersey employer who has in excess of 25 employees and has been in business for longer than 2 years. For-profit and non-profit businesses are included under the scope of the program.
What Is the Timeline for Implementation?
Although the signed bill set a target implementation date of March 2021 for the initial pilot of the plan, due to the COVID-19 pandemic it is uncertain the program will be ready at that time as the Board can extend the start date for up to 12 months. Once the start date is firm, employers have nine months to comply and fulfill their responsibilities to the program. Under current guidance, for companies with 25+ employees, the deadline to implement a retirement plan is December 31, 2021.
What Are Employers Responsibilities?
Employers with greater than 25 employees must comply with the following responsibilities:
- Submit a census to New Jersey Secure Choice annually.
- Track eligibility status for all employees.
- Track whether each employee has opted in or out.
- Offer open enrollment periods at least once a year.
- Enroll new hires into the program within 30 days of their hire date.
- Provide employees information about the program.
- If employees do not opt-out within 30 days of notification, set up a 3% payroll deduction.
- Deposit employee payroll deductions.
- Repeat the auto-enroll process annually for all employees who have opted out.
What If I Do Not Comply?
Employers can be subject to penalties for non-compliance based on when they were scheduled to start the program. In the first calendar year, employers will receive a written warning from the state; the second calendar year brings a $100 fine per employee not enrolled who has not opted out; third and fourth calendar years call for a $250 fine for each employee not enrolled who has not opted out; the fifth calendar year and all subsequent calendar years could bring a fine of $500 per employee who has not opted out.
How Much Does New Jersey Secure Choice Cost?
The New Jersey Secure Choice plan cost is up to 0.75% of assets; the fee is deducted directly from each employee’s account balance. There is no direct cost to the employer, but there are some administrative tasks that need to be carried out by the sponsoring employer on an annual basis.
How Does New Jersey Secure Choice Compare to Other Options?
Alternative plan options exist for employers to remain in compliance with the act, including, 401k, Simple IRA, SEP IRA. Selecting a different plan provides alternative savings and investment options for participants and employers alike. A chart of some key differentiators is below:
|State Run Plan||401K||Simple IRA||SEP IRA|
|Employee income limits||Employees with income >$135K CAN’T contribute||None||None||None|
|Annual Maximum Contribution||$6,000||$57,000*||$13,500**||$57,000|
|Incremental Owner Contribution Available||No||Yes***||No||Yes***|
|Tax Deferred Contributions||Post-tax only||Pre-tax & Post-tax options||Pre-tax only||Pre-tax only|
|Employer Contributions||Not allowed||Optional||Required (100% match up to 3% or 2% NEC)||Required (same % as owner)|
|Cost||Low Cost||Low Cost||Low Cost||Low Cost|
|Administration||Easy to start; difficult to maintain.||Easiest to start and maintain||Easy to start and maintain||Easy to start and maintain|
|Investment Options||Limited Menu||Extensive Menu||Wide Range||Wide Range|
|*$63,500 if over age 50; **$16,500 if over age 50; ***Up to $356,000 annually via cash balance plan|
What Do I Do Now?
Contact us, and we will connect you to one of our trusted retirement plan advisors to go over the regulation, your options, and the best plan for your business.