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New Jersey Secure Choice Savings Program on the Horizon for 2021

The New Jersey Secure Choice savings program is scheduled to begin in March 2021, but might be delayed by the COVID-19 pandemic. It would require certain-sized businesses to implement a retirement savings program for employees,
An employer discusses his company's retirement plan with an employee.

In 2019, the governor signed the New Jersey Secure Choice Savings Act to help 1.7 million Garden State workers who don’t have access to a retirement plan. The act mandates that businesses – for-profit and non-profit – with 25 or more employees offer a savings program, and even businesses with fewer than 25 employees are eligible to participate. Although the signed bill set a target implementation date of March 2021 for the plan, it is uncertain the program will be ready at that time given the COVID-19 pandemic.

Do other states have state-run, employer-sponsored retirement programs?

Yes. New Jersey is one of 11 states to enact legislation for state-run retirement plans by employers for private employees: California, Colorado, Connecticut, Illinois, Maryland, Massachusetts, New York, Oregon, Vermont, and Washington.

The looming savings crisis in the United States certainly spurred the state to act, but officials in the highest offices in New Jersey also saw an opportunity to help shore up the state’s financial future. Data from an AARP study revealed that more than $190 million could be saved by the state on public assistance between 2018-2032 if lower-income workers increased their future retirement income by $1,000 a year*.

What employers should know about the N.J. Secure Choice savings program

Employers must participate in the New Jersey Secure Choice savings program if they have:

  • 25 or more employees
  • Been in business for at least two (2) years
  • Not offered a qualified retirement plan in the past two years

Of note, employers cannot match contributions by employees in the program. 

The initial pilot period is scheduled to begin in late March 2021, but the Board can extend that for up to 12 months. However, once the start date is firm, employers have nine months to comply and fulfill their responsibilities to the program, including:

  • Offering open enrollment periods at least once a year
  • Enrolling new hires in the program within three months of their hire date
  • Providing employees information about the program
  • Depositing employee payroll deductions

Employers can be subject to penalties for non-compliance based on when they were scheduled to start the program. In the first calendar year, they would get a written warning from the state; the second calendar year brings a $100 fine per employee not enrolled who hasn’t opted out; third and fourth calendar years call for a $250 fine for each employee not enrolled who hasn’t opted out; and the fifth calendar year and all subsequent calendar years could bring a $500 fine per employee not enrolled who hasn’t opted out.

What employees should know about N.J.’s Secure Choice savings program

If you are 18 years of age or older, employed by an employer in New Jersey, and your wages are subject to the state’s Gross Income Tax, you are eligible to participate in the retirement program.

Enrollment is automatic but employees can opt out of the program that includes a default rate of 3 percent that will be withheld from each paycheck. The New Jersey Secure Choice savings program does not include an auto escalation, but participants should know that the first $1,000 of their contributions will be invested in a capital preservation fund. The Board will need to determine the period when an employee can end participation and withdraw the $1,000 without penalty. An employee’s IRA is portable and can move from job to job.

Looking forward

More details, including when enrollment will start, will be forthcoming from the Board, and Paychex will continue to monitor the situation to provide updates. In the meantime, businesses can look at starting a retirement plan such as a 401(k) for employees through a provider such as Paychex that will satisfy the requirement mandated by the law. Providing a benefit such as a retirement plan can help smaller companies compete with larger companies for talent and help younger employees start building a retirement savings.

*AARP Public Policy Institute, 2017

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Maree P Vahue, MBA, QKA, is a professionally accredited Retirement Services Compliance Analyst II for Paychex, Inc. based in Rochester, NY.
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