NJ Secure Choice Savings Retirement Program Mandate

What Is the NJ Secure Choice Savings Retirement Program Mandate?

The NJ Secure Choice Savings Retirement Program is a mandate enacted by the State of New Jersey to allow employees to save for retirement. It is a response to the lack of retirement savings access for an estimated one million employees in the state.

NJ Governor Phil Murphy signed the law in March 2019. It requires companies to sponsor their retirement savings plan for employees or enroll under the state-run Secure Choice Savings Program.

New Jersey is one of the 16 states across the US to mandate retirement savings for employees in their respective jurisdictions to provide them with access to a more secure financial future.

The state’s program was expected to start in 2022, with employers needing to provide the option by 2023. However, a final implementation date has not been set by state authorities.

Who Is Affected by the NJ Secure Choice Savings Retirement Program Mandate?

The program affects all private for-profit and nonprofit organizations, companies, and businesses operating in New Jersey for at least two years and has 25 or more employees. Those with less than 25 workers may also participate but are not obliged.

Companies in the state that have not offered a qualified retirement savings program on their own in the last two years are covered in the mandate.

How Does the NJ Secure Choice Savings Program Work?

Eligible companies can sponsor their retirement savings plan or enroll under the NJ Secure Choice Savings program, which is set up like an individual retirement account (IRA).

Employees who elect to participate are automatically deducted 3% of their annual salary as contributions. This initial payroll deferral can be modified by employees later according to their financial situation and retirement savings goals.

Participants can save higher or lower percentages up to a maximum of $6,500 in 2023, with $1,000 in catch-up contributions for workers 50 or older, following Internal Revenue Service (IRS) annual limits for IRA contributions.

Employees cannot borrow or take loans against their Secure Choice Savings IRAs. They must pay a 0.75% annual maintenance fee in the first three years and 0.6% afterward. Matching or profit-sharing contributions from employers are also not allowed.

Note that employees can opt-out and not participate in NJ Secure Choice Savings. Participant IRAs under the program are portable, meaning employees can take their accounts with them when they change jobs.

The program is managed by the Secure Choice Savings Board, composed of the office of the state treasurer, the office of management and budget, the comptroller, a representative of business trade organizations, and a representative for employees.

The Board takes on the fiduciary responsibility over the investments and overall management of the Secure Choice Savings Program.

Employer Responsibility for the NJ Secure Choice Savings Program

Eligible businesses and organizations who elect NJ Secure Choice Savings as their retirement savings plan incur no costs to start the program.

Employers are responsible for offering the plan to workers within 90 days of employment and automatically deducting 3% of pre-tax salary from participating employees. Companies must facilitate the payroll deductions and deposit them promptly to the state.

Employers must also provide relevant program information to all employees, offer enrollment yearly, track employees who opt out and comply with annual employee census requirements by the Secure Choice Savings Program.

Lastly, employers are prohibited from making matching or profit-sharing contributions on behalf of their employees under NJ Secure Choice Savings.

Noncompliance Penalties to the NJ Secure Choice Program

Once fully implemented, eligible businesses and organizations that fail to offer a retirement savings plan to employees within nine months of program implementation will be charged specific penalties.

A written warning will be given after nine months. For the second year of noncompliance, eligible organizations will be charged $100 per employee. The penalties increase to $250 per employee in the third and fourth years.

Noncompliance for the fifth year and beyond will result in eligible companies paying a hefty $500 fine per employee.

Managing Retirement Plans under NJ Secure Choice Program

As mentioned, the program comes at no cost to employers. Even though it is a state-run program, it also does not use taxpayer money in the long term since the participating employees shoulder administrative and other expenses.

The law also provides several investment options to grow participant savings and increase potential retirement benefits.

The Act stipulates that the Secure Choice Savings Board may establish a target-date fund based on the employee's age as the default investment option.

Other possible investments include a growth fund, an annuity fund, a life-cycle fund, a conservative principal protection fund, a stable and low-risk secure fund, and a capital preservation fund.

It is clear from the provisions of the law that the NJ Secure Choice Savings Program prioritizes the stability and security of retirement savings over investment returns.

Final Thoughts

With the Secure Choice Savings Program, the State of New Jersey aims to provide employees in its jurisdiction access to a secure financial future by requiring companies with 25 or more workers to offer a retirement savings plan.

Eligible employers can offer their own retirement savings plan or enroll under the IRA of Secure Choice Savings. The program is voluntary for employees in that they can opt out of participation at any time.

Companies who elect Secure Choice Savings IRA as their retirement savings plan must facilitate automatic 3% salary deductions, which employees can later modify. In 2023, the IRS limit is $6,500, with catch-up contributions of up to $1,000 for workers 50 or older.

Noncompliance will result in written warnings or eligible companies paying penalties of up to $100 to $500 per employee, depending on the period.

The Secure Choice Savings Board holds fiduciary responsibility. It will invest the money in different funds prioritizing the stability and security of participants' retirement savings rather than high investment returns.

NJ Secure Choice Savings Retirement Program Mandate FAQs

What is the NJ Secure Choice Savings Retirement Program Mandate?

The law aims to provide secure retirement savings for the over one million employees in New Jersey who do not have access to such plans through their employers. Eligible employers are required to either sponsor their own retirement savings plans or enroll employees under the Secure Choice Savings Program, which is set up as individual retirement accounts (IRAs).

When does the NJ Secure Choice Savings Program launch?

The law was signed in March 2019. It was expected to start in 2022, with eligible employers needing to comply by 2023. However, the official implementation date is yet to be determined by the Secure Choice Savings Program Board.

Who is affected by the NJ Retirement Plan Mandate?

The law covers all nonprofit and for-profit businesses and organizations operating in the State of New Jersey for at least two years, with 25 or more employees, and have not sponsored a retirement savings plan. Employers with less than 25 workers may also participate but are not required.

Are there any exemptions or exceptions to the NJ Retirement Plan Mandate?

Private nonprofit or for-profit organizations, companies, or businesses that already sponsor a qualified retirement savings plan for their employees are exempted from the law, regardless of the number of workers. It also excludes all government agencies.

What are the noncompliance penalties for the NJ Secure Choice Program?

A written warning will be issued in the first year of noncompliance. Succeeding years of noncompliance will entail a $100 to $500 per employee penalty.