NYS Mandated Retirement Plan Options – A Deeper Dive
12.8.21 | Client Alert
Erica Rice, CPA
Following up on our Client Alert New York State Enacts Mandatory Retirement Plan for Private Sector Employees, we take a deeper dive into the mechanics of meeting the requirements of the New York State Secure Choice Savings Program.1
New York State private businesses, including private not-for-profit organizations, are required to offer employees retirement plan options under legislation signed by Governor Kathy Hochul. The legislation applies to businesses with a minimum of 10 employees and has been in business for at least two years, who do not already offer workplace retirement options such as a 401(k) or 403(b). All three requirements must be met for an employer’s participation to be mandatory. Under the plan, employees currently without retirement options will be automatically enrolled in the NYS Secure Choice Savings Program.
Understanding the Secure Choice Savings Program
Under this program, designed to bolster retirement savings, New York State workers will be enrolled in the state-facilitated Secure Choice Savings Program in an automatic enrollment payroll deduction IRA. The employee does have the option to opt-out. This program will be under the auspices of the New York State Secure Choice Savings Board and be overseen by the New York State Department of Taxation and Finance. Secure Choice IRAs will be portable so that the worker can take them from job to job over a career.
The State Senate had passed the legislation back in June and by the New York General Assembly in May. The measure takes effect immediately and requires that employees be automatically enrolled in the state’s Secure Choice Savings Program to get more people in the private sector saving for retirement. Should the business already provide 401(k), 403(b), or other pension plan options, you are not required to use the Secure Choice Savings Program.
Once a business begins the program, it must offer an open enrollment period at least one time per year thereafter. Any employees who choose to opt-out initially will then have another opportunity to enroll.
Employees will contribute 3% of their wages for the initial enrollment beginning on the 30th day the employee was enrolled. The employee will have the option to change the contribution level.
The requirements for a participating employer under the program are designed to be administrative. Their responsibilities include:
- Set up a payroll deposit retirement savings arrangement,
- Automatically enroll each employee who does not opt-out,
- Withhold and remit employee contributions to the program, and
- Disseminate the state’s employee informational materials.
The program is not designed to create an employer-sponsored retirement plan subject to ERISA. Unlike an employer-sponsored 401(k) or 403(b) plan, participating employers are not subject to perform nondiscrimination testing.
Aside from the initial setup and administrative fees and costs, there will be no additional costs for employers. The legislation allows the state to pay administrative expenses associated with the creation and management of the program until the program has sufficient assets to cover these costs itself. There is no requirement for employers to contribute to the employee’s plan. Employers can pursue that option if they wish to set up a 401(k) plan.
Looking ahead, New York State has joined New Jersey and Illinois to be among ten that have passed legislation initiating state-sponsored retirement programs, while 20 additional states and cities have such programs under consideration.
Berdon LLP New York Accountants