Under the recently-enacted “New York Secure Choice Savings Program” law (“NYS Savings Program”), employers in New York State will now be required to automatically enroll employees in a state-run IRA retirement savings program, unless the employer already offers a retirement program.
The NYS Savings Program
The NYS Savings Program applies to private sector employers (both for-profit and not-for-profit) that have:
- been in business for at least 2 years,
- employed at least 10 employees in New York State, and
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do not already offer a qualified retirement plan (including defined benefit plans and 401(k)/403(b) plans).
If the employer offers a 401(k)/403(b) plan, the new law’s mandates are not applicable. An employer may not terminate its qualified retirement plan for purposes of participating in the NYS Savings Program.
The default employee contribution rate is 3%, but employees may opt out of coverage or elect a different contribution rate, up to the applicable IRA limits. Employers have no obligation under the NYS Savings Program to make any contributions to employees’ retirement accounts – that is, there is no required employer match.
The law is effective immediately, but employers are not required to enroll employees until after the State’s Secure Choice Savings Board opens the program for enrollment. At that time, covered employers will have up to 9 months to enroll their employees.
Interaction with NYC Retirement Security for All Act
Per our previous Client Alert, earlier this year, New York City passed a similar law establishing a universal retirement savings program, referred to as the Retirement Security for All Act (“NYC Act”). The NYC Act covers New York City employers with at least 5 employees, and sets the default contribution rate at 5%.
In light of the new NYS Savings Program, the NYC Act may not ultimately take effect, as the NYC Act provides for its discontinuation if the State established a retirement savings program that requiring contributions by “a substantial portion” of employers who would otherwise be covered by the NYC Act.
Next Steps for New York Employers
While we wait for the State’s Secure Choice Savings Program to open, employers without a retirement program may want to consider adopting one. By offering a retirement plan, an employer can avoid the State and City mandates. An employer’s options include:
- Establishing its own 401(k) plan (or 403(b) plan for non-profits). This has become streamlined with IRS pre-approved plans. The employer selects from a checklist (adoption agreement) to pick its plan design.
- Participate in an Association Retirement Plan, which pools unrelated employers that work in the same industry or region.
- Participate in a Pooled Employer Plan, which is similar to an Association Retirement Plan, but under the 2019 SECURE Act, unrelated employers can join together even if they are not in the same industry or region.
- Participate in a plan sponsored by a Professional Employer Organization (“PEO”), which can also provide human resources and payroll support, along with benefit plan offerings.
- Participate in a multiemployer plan for employees covered by a union contract.
Many of these options allow for employee retirement contributions to be integrated with payroll (avoiding the burden of manual payroll adjustments and potential for error). In addition, the IRS limits for these retirement plans are substantially higher than the IRA limits, offering employees additional opportunities to save their own money for retirement. In 2021, the maximum 401(k) contribution is $19,500 ($26,000 if you’re age 50 or older), while the IRA limit is $6,000 ($7,000 if you're age 50 or older).
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If you have questions or would like additional information, please contact our Labor & Employment attorneys or the primary EGS attorney with whom you work.
