November 16, 2021
New York state’s Secure Choice Savings Program (the Program), took effect on October 21, 2021, after Governor Kathy Hochul signed it. The bill requires in-state private companies and not-for-profit organizations with 10 or more employees, which do not offer a traditional retirement plan, to automatically enroll their employees in this state-run, payroll-deduction Roth IRA program. When this bill was first enacted in 2018, it was voluntary for employers.
It is worth noting that, just six months ago, New York City passed its own auto-IRA law. While New York City’s (NYC) law in many aspects mirrors the state law, its minimum threshold is only five employees. The NYC law also requires covered employers to automatically enroll employees who are at least 21 years old, work at least 20 hours a week, and have regular duties in NYC.
This article focuses on what the state law mandates. The NYC law specifically provides it will not be enforced if federal or state law preempts it, or if the state provides a similar retirement program “that requires a substantial portion of employers who would otherwise be covered employers” under the city’s program. As the state program is mandatory, and it will likely apply to most employers who would be otherwise covered by the city program, we think it’s unlikely the city law will be effectuated.
WHAT IS THIS STATE PROGRAM?
Secure Choice Savings Program, which is a retirement savings program in the form of Roth IRA, is designed to encourage retirement savings among New York workers who do not have an employer-provided retirement savings plan. A handful of other states, including Oregon, California, Illinois, New Jersey, and Massachusetts, have already established similar retirement savings programs.
The responsibility for operation of the Program shall be administered by the seven-member New York Secure Choice Savings Program Board (the Board). The authority and responsibility for the development and implementation of the Program are delegated to New York State Department of Taxation and Finance.
WHICH EMPLOYERS ARE COVERED BY THIS PROGRAM?
The Program will be mandatory for private companies or not-for-profit organizations in the New York state meeting the following conditions:
- The business has employed at least 10 workers at all times during the previous calendar year;
- The business has been in operation in the state for at least two years; and
- The business has not offered a qualified retirement plan, such as 401(k) or 403(b) plan, in the previous two years.
All three conditions must be met in order to be a covered employer. Therefore, if your business hired fewer than 10 workers for even just a month during the past year, you are not obligated to participate in the Program.
Please be aware that employers cannot terminate their current retirement plans in order to participate in the Program.
WHO ARE THE EMPLOYEES YOU MUST ENROLL?
A covered employee must be at least 18 years old and make earnings in New York state. The statute does not explain if this applies to part-time employees. To be conservative, we suggest you assume it does until a definitive answer is found.
EMPLOYERS’ OBLIGATIONS
Employers will not be considered fiduciaries, such that they will not be liable for any expenses associated with employees’ investment losses.
Although mainly administrative, the duties under the program require participating employers must:
- Automatically enroll qualified employees who do not opt out;
- Create payroll deposit retirement savings arrangements;
- Deduct funds from the participating employee’s earnings and remit them for deposit in the IRA; and
- Distribute state-provided informational materials to both existing and new employees, including a disclosure form that contains certain information mandated in the statute.
While employers must automatically enroll employees in the Program, employees can opt out of the Program, or select, or change at any time, a contribution amount. If employees choose to do nothing, they will contribute 3% of their wages to the Program by default. Employees’ contributions shall be within applicable IRS limits (see Section 219(b)(1)(A) of the Internal Revenue Code).
TIMELINES FOR THE NEW MANDATE
The law became effective immediately upon signing by Governor Hochul on October 21, 2021. However, as of this post, we do not know when the Program will be open for enrollment, as regulations to implement this program are yet to be released.
Within the statute itself, there’re a few dates employers should remember:
First, once the Board opens the Program for enrollment, employers have up to nine months to set up payroll deposit retirement savings arrangements, which will allow each employee to participate in the Program.
Second, no later than one month before a covered employer starts offering the Program, the employer must provide “a form for an employee to note his or her decision to opt out of participation … or elect to participate with a level of employee contributions other than three percent,” and other information listed in the statute. Such information shall be provided to a new employee at the time of hire.
Third, following initial implementation of the Program, the employer must designate an open enrollment period, at least once a year, so employees who previously opted out may enroll in the Program.
Unlike New York City’s auto-IRA program mentioned earlier, which laid out specific penalties for violation of the law, the state statute does not mention compliance or enforcement requirements. We expect these requirements to be issued in the subsequent regulations by the New York Department of Taxation and Finance.
We will regularly monitor and report on further developments of the Program and keep you updated. At the same time, employers that are covered by this new law should begin assessing how to comply with the new law as soon as possible.
Brody and Associates regularly advises management on complying with the latest state and federal employment laws. If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560.
