The New York State Senate passed the NY State Secure Choice Retirement Savings Plan legislation in June 2021, taking effect immediately. In short, the New York State's Secure Choice Savings plan is a self-sufficient retirement savings program in the form of an automatic enrollment payroll deduction IRA. The timeline of the plan's implementation will be sometime in July of 2022, with the exact date still unknown at this time. Here are relevant details of the plan that employers need to know:
The New York State Secure Choice Savings Board will oversee the Secure Choice retirement savings plan program. In contrast, the NY Department of Taxation and Finance will oversee the development and implementation of the program as the board sees fit.
What size businesses must participate?
The new legislation applies to business with a minimum of ten employees that has been in business for at least two years and who do not offer an employer-sponsored retirement savings plan such as a 401(k) or 401(b) before the employer's participation in the plan is mandatory.
How will employees be impacted?
Employees who do not currently have an employer-sponsored retirement savings plan will automatically enroll in the Secure Choice Retirement Savings Plan. What else is relevant to employees?
- Employee contributions are through automatic payroll deduction
- The first contribution is made on the 30th day after the employee enrolls
- The employee contribution amount will be 3% for their initial enrollment, but they can change the contribution amount
- Employees can choose to opt-out of the plan
- Employees that previously opted out can opt-in once a year during the enrollment period
- Secure Choice IRAs will be portable so that employees can take them with them to their new employer
What are businesses required to do for the program?
Once a business is part of the Secure Choice Retirement Savings Program, it must offer an enrollment period at least once per year. Also, the employer must perform the administrative requirements for the plan, which include:
- Setting up a payroll deduction retirement savings arrangement
- Automatically enrolling each employee who does not opt-out
- Withholding and remitting employee contributions to the program
- Disseminating the state’s employee informational materials
While helping employees save for retirement is essential for their financial well-being, the responsibility of administrating the program to employees, managing payroll deductions, remitting contributions, educating, and opting employees in or out of the plan all fall upon the employer. However, the Secure Choice Retirement Savings Plan is not subject to ERISA regulations, and employers will not be required to perform nondiscrimination testing.
The only way for NY employers without a retirement savings plan to opt-out of the NY State plan is to sponsor a retirement savings plan for their employees. While there are costs to the employer, partnering with a financial firm to establish a 401(k) plan may be an appropriate option to avoid the mandatory requirements of this legislation.
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