A growing a number of state and local jurisdictions are enacting laws requiring employers to offer automatic savings program to their employees. This is coming as a result of a potential retirement savings crisis. Many employees have no access to an employer-provided retirement program.
Generally, these types of laws create retirement savings opportunities that do not require the employer to contribute to the plan nor do they impose ERISA fiduciary responsibility on the employer. They typically do require the employer to make a pay-roll deduction available to the employee. Generally, the retirement vehicle is an IRA-type program that is fully portable.
A few years ago, the state of New York passed the Secure Choice Savings Program. This program is voluntary and to date has not been implemented. The New York State Assembly passed a bill to amend the state’s voluntary Secure Choice auto-IRA program to make it mandatory. The bill is headed to the New York State Senate.
NYC has taken matters into its own hands and enacted a local law to establish a retirement savings program for certain employees of a private sector employer. A Retirement Savings Board will be appointed and will determine the implementation date. The Board has up to two years to implement the program.
Private sector employers in New York City who employ five or more employees and have not maintained or offered a retirement plan in the preceding two years must enroll each of their covered employees in the mandatory auto-enrollment payroll deduction IRA program. A covered employee is defined as one who is 21 years of age or over and works at least 20 hours per week.
The default employee contribution rate is 5% up to the current annual IRA maximum limit of $6,000 (or currently $7,000 for those age 50 or above). The employee may adjust the contribution rate up or down or opt-out at any time. Covered employers are not required to contribute on behalf of employees, but they will be required to remit funds deducted from the earnings of each participant for deposit in the program and to distribute program information to employees.
Employers need not take any immediate action, but should continue to monitor developments in this area to ensure that they are prepared to comply when the program is ultimately implemented.