Under a recently enacted law, many New York employers may soon be required to participate in a state-run retirement savings program. The effective date of that requirement depends on when the “Secure Choice Savings Program” is established by an administrative board of political appointees. Nine months after the administrative board establishes the program, private sector employers will be required to participate if they had ten employees in New York during the previous calendar year, have been in business for two or more years, and do not sponsor or otherwise offer access to a qualified retirement plan (such as a 401(k) or 403(b) plan). Payroll deductions under the program will be routed to Roth (after-tax) IRAs and invested in one of the investment options selected by the administrative board.
Program Requirements
Employers that are required to participate in the program must:
Distribute a disclosure form and an election form that employees can use to either opt out of participation or specify a contribution level other than the default level of three percent. The forms, which will be drafted by the administrative board, must be given to existing employees one month before participation in the program begins and then to new employees at the time of hire.
Permit employees to change their contribution level at any time (unless the administrative board makes a rule about the frequency of election changes).
Allow employees who opt out of participation to enroll at least once a year during a designated open enrollment period.
Begin making payroll deductions for deposit in the program no earlier than the 30th day after the employee is enrolled in the program. (Employer contributions are not required.)
The law states that employers are not fiduciaries and are not responsible for administration of the program or investment performance. Presumably, employers will be liable for mishandling payroll deductions or enrollment elections or failing to provide the required disclosures. It is not clear whether employers will be responsible for determining whether participating employees are eligible to make Roth IRA contributions (which are subject to an income limitation).
Effective Date
Affected employers must establish a payroll deposit retirement savings arrangement within nine months after the board that administers the program announces it is open for enrollment. Even though the Secure Choice Savings Program was established as a voluntary program in 2018, it is unclear when that will be. Presumably, information from the administrative board or the New York Department of Taxation and Finance is forthcoming.
New York City enacted a mandatory retirement savings program earlier this year that applies to employers with five or more employees whose regular duties occur in the city. That program is not expected to be implemented now, as the city’s law states that the program will not be implemented if a “substantial portion” of the employers covered under the city law are required to participate in a payroll deduction retirement savings program under New York state law. However, it is possible that New York City will enact a revised law that applies only to employers with between five and ten employees.
National Context
Several other states have enacted similar state-run auto-enrollment IRA programs. The question whether such programs are preempted by ERISA remains unsettled. In the only decision on the question by a federal court of appeals so far, the Ninth Circuit held earlier this year that California’s “CalSavers” program is not preempted by ERISA. The Supreme Court has not yet indicated whether it will review that decision.
There is interest on Capitol Hill in a national retirement savings mandate. Enacting such a mandate is reportedly a priority of House Ways and Means Committee Chairman Richard E. Neal, and an auto-enrollment IRA requirement that would have applied to employers with more than five employees was included in the 2021 budget reconciliation bill before it was dropped during the ongoing negotiations.