On October 21, Governor Kathy Hochul signed legislation (S.5395-A/A.3213-A) ensuring retirement plan options for private sector employees. The legislation enacted in 2018 as part of the 2018-19 state budget, the Secure Choice Savings plan is a self-sufficient retirement savings program in the form of an automatic enrollment payroll deduction individual retirement account (IRA). The program is overseen by the New York State Secure Choice Savings Board, composed of nine appointed members. The Department of Taxation and Finance will oversee the development and implementation of the program as the board sees fit.
The legislation requires private sector employers who do not offer a qualified retirement plan (e.g., 401(k), 403(b), or 457(b)) to automatically enroll employees in New York State’s Secure Choice Savings Plan. The law went into effect immediately; however, employers will have at most nine months after the board opens the program to implement the required payroll deposit arrangement for employees.
Which Private Employers Are Covered Under the Law?
The law considers “employer” to mean a person or entity that:
- Has at all times during the previous calendar year employed at least ten employees in the state;
- Has been in business at least two years; and
- Has not offered a qualified retirement plan in the preceding two years.
The law applies to both for profit and non-profit employers.
How Much Can Employees Contribute?
Employees will have the option to select a contribution level which may be expressed as a percentage of their wages or a flat dollar amount up to the allowable annual IRS contribution limits.
Employees who fail to elect a contribution level will default to an automatic contribution of three percent of their wages.
The deduction of contributions from an employee’s wages will not begin until 30 days after the employee has been enrolled in the program.
Can Employees Opt-Out?
Yes. Employees are able to opt-out of the program at any time. Employees who opt out may also opt back in but must wait to enroll during the annual open enrollment period or at an earlier time if permitted by the program. This annual enrollment period is to be established by the board.
Are Employers Required to Make Contributions?
No. However, employers are required to facilitate employee access to the program by taking a payroll deduction for the employee’s IRA. Further, employers will not have any liability for an employee’s decision regarding whether to participate in, or opt out of, the program or for the investment decisions of the board or of any enrollee.
Are There Any Notices Required?
Informational materials must include a form for an employee to note their decision to opt out of the program or participate in the program with a level of employee contributions other than three percent. Employers will be required to supply informational materials to new and existing employees. For new hires, the informational materials must be provided at the time of hire and for existing employees, informational materials must be provided at least one month prior to the participating employers’ facilitation of access to the program.
The required informational materials are to be developed by the state.
How Will the State’s Program Interact with New York City’s (NYC’s) Program?
On May 11, 2021, NYC also enacted (Int. 888-A/Int. No. 901-A) a retirement savings program which created a mandatory auto-enrollment payroll deduction IRA program for employees of private sector employers in New York City that do not offer a retirement plan and employ five or more people.
The program provides for a default employee contribution rate of five percent; however, employees may adjust this rate up or down or opt-out of at any time.
The Act was scheduled to become effective on August 9, 2021, but the logistics of the program have yet to be established.
Notably, the law includes a clause for discontinuance of this program, if certain conditions are met, one of which is the state having established 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 or other method of contribution”. It is currently unclear if the NYC program will be discontinued as a result of the statewide program being established.
There are several things that will need to take place prior to the program beginning, first of which is the formation of the board. Additionally, the board will, among other things, have to evaluate and establish or authorize the process for how the program will function, prepare informational materials, and issue guidance before the program goes live.
In the interim, employers who do not offer a retirement plan should be reviewing their payroll processes and procedures to prepare to comply with the payroll deduction requirements. Because employers will be required to provide informational materials to employees about the program, documents such as new hire checklists may also need to be updated. The law may also introduce some additional recordkeeping requirements for employers as it relates to deduction forms, opt out forms, etc., so employers will want to be mindful of these potential obligations and ensure they are incorporated into the business’ existing recordkeeping process and procedures.
HR Works will continue to monitor this topic and provide updates as new information becomes available.