New York State Enacts Mandatory Auto IRA Law
CLICK HERE for a printable overview sheet of the information below.
NYS Secure Choice Savings Program
On October 21st, New York joined the ranks of states mandating that certain employers either offer a qualified retirement plan or join a state-facilitated retirement savings program. Below is a description of many of the key features of the New York State Secure Choice Savings Program.
Which employers does this apply to?
This Secure Choice Savings plan applies to for-profit and non-profit employers in New York state that meet the following requirements:
- The employer had, at all times during the previous calendar year, at least ten employees in the state.
- The employer has been in business for at least two years.
- The employer does not offer a qualified retirement plan such as a 401(k) or 403(b).
All three of these requirements have to be met in order for an employer’s participation in the program to be mandatory.
This means if an employer had less than 10 employees at any point during the previous year, participation in the program isn’t compelled. Likewise, if an employer has been in business for more than two years and has at least ten employees, participation isn’t required if the employer already offers a qualified retirement plan to its employees.
The legislation contains a provision prohibiting an employer from terminating the employer-sponsored retirement plan for purposes of participating in the Secure Choice Savings Plan.
What must participating employers do?
A participating employer’s duties under the program are designed to be purely administrative. As such, participating employers must:
- Set up a payroll deposit retirement savings arrangement,
- Automatically enroll each employee who does not opt out of the program,
- Withhold and remit employee contributions to the program, and
- Disseminate the state’s employee informational materials.
What are the advantages of using Lawley Retirement Advisors VS. NYS?
Lawley Retirement advisors are professional advisors. They know this industry and have the power & flexibility to tailor plan designs and implement innovative retirement programs.
- Tax credit of up to $5,000 for startups for 3 years
- Additional $500 tax credit for including auto enroll for 3 years
- Total potential credit of $16,500
- Flexible plan design – unlike NYS plan
- Investment managed by professionals vs. NYS managing the lineup
- Easy administration
- Education for employees
- Cost savings as plan grows
When must participating employers join the program?
The legislation became effective immediately. Additionally, participating employers must setup their payroll deposit arrangements within 9 months of the program opening for enrollment. However, the board (more on them below) may delay implementation of the program by up to 12 months if they determine it is necessary. All of this is to say that it’s currently unclear exactly when employers will have to enter the program.
Is there a penalty for employers who do not comply?
The legislation itself does not identify a penalty for noncompliance. Nonetheless, regulations will be issued to implement this program and it is likely these regulations will address penalties for noncompliance.
So who are the employees that must be enrolled?
This program covers all employees in the state who are at least 18 years old and who earned wages working for an employer in the state.
Interestingly, the program does not distinguish between part-time and full-time employees, so all must be included. Nonetheless, employees can opt out of participation in the program at any time.
Who is running this program?
The program is to be run by the seven member New York Secure Choice Savings Program Board. This Board is a fiduciary of the program and they are tasked with designing and operating the program. The implementing legislation provides just a general framework for the Board to work within and leaves the Board to make many important decisions such as the investment options offered to the participants.
Where are employee contributions invested and how much is permitted?
As mentioned above, the Board is tasked with selecting the investment options in the program. At this point these investment options aren’t known, but multiple options will be available and they will differ in terms of cost and risk profile to appeal to a broad range of savers.
For employees who do not elect a deferral amount, the default election will be 3% of wages. Additionally, the individual retirement accounts created under this program will be Roth, which means they will be after-tax contributions.
Who is paying for this?
The legislation allows the state to pay administrative costs associated with the creation and management of the program until the program has sufficient assets to cover these costs itself. At that point, costs associated with the program, including any repayment of start-up funds provided by the state, must be paid out of money deposited in the program.
Why is New York state doing this?
There is a retirement savings crisis in the US, and this is especially severe among employees of small employers. This program is designed to make retirement saving easier for employees who do not already have access to an employer-sponsored retirement savings program.
Will this impact the NYC auto-IRA law?
This is unclear, but it seems likely. The NYC legislation, however, provides that if the state enacts a retirement savings program that “requires a substantial portion of employers who would otherwise be
covered employers to offer to their employees the opportunity to contribute to accounts through payroll deduction” the NYC program will be discontinued.
The uncertainty stems from the fact that the NYC program applies to employers with 5 or more employees in NYC while the state program applies to employers with 10 or more employees in the state. Despite this difference, it seems likely the NYC program will be discontinued in light of the new mandatory state program because the state program applies to most employers covered by the NYC program.
Consider some key differences between the New York State Secure Choice Program and some other available options:
| Secure Choice | 401(k) | SIMPLE IRA | SIMPLE 401(k) | |
|---|---|---|---|---|
| Employer Match/Contributions? | No | Optional | Mandatory | Mandatory |
| 2022 Employee Contribution Limit | $6,000 | $20,500 ($27,000 for 50+) | $14,000 ($17,000 for 50+) | $14,000 ($17,000 for 50+) |
| Contribution Options | None | None | None | None |
| Who Selects Investment Menu? | State Board | Employer/Advisor | Employer/Advisor | Employer/Advisor |
| Flexible Plan Design? | No | Yes | Limited | Limited |
| Business Tax Credit Possible? | No | Yes | Yes | Yes |
