Jun 09 MANY NEW JERSEY EMPLOYERS WILL BE REQUIRED TO PROVIDE RETIREMENT PLAN TO EMPLOYEES OR PARTICIPATE IN NEW JERSEY SECURE CHOICE SAVINGS PROGRAM.
On March 28, 2019, Governor Murphy signed legislation passing the New Jersey Small Business Retirement Marketplace Act. This Act requires employers that do not offer employees a 401(k) or other qualified retirement plan option to automatically enroll their employees in the New Jersey Secure Choice Savings Program (“Secure Choice Savings Program” or “the Program”). The Secure Choice Savings Program requires employers to establish a payroll-funded IRA savings plan for employees who are enrolled in the Program.
There are several limitations with the state plan, including but not limited to:
- Annual contribution maximum is only $6,000 ($7,000 for those 50+)
- Does not allow for employer contributions/profit sharing designs
- Does not allow for Roth contributions
- Limited investment options
- Employees earning over $135k cannot participate
- Potentially more administrative work than a 401(k) plan
As a result, at SAX we are encouraging our clients to consider adopting their own plan, rather than the state provided plan. Implementing a customized 401(k), profit-sharing, or other qualified plan at your company can help you defer taxes and provides greater flexibility for owners and employees.
Employee enrollment in the Secure Choice Savings Program began on March 28, 2021 and employers must enroll their employees in the Program by the end of 2021 or provide a 401(k) or other qualified retirement plan option.
Employers must participate in the Secure Choice Savings Program if they meet the following criteria:
- Do not offer their employees the ability to participate in a qualified retirement plan such as a 401(k) or 403(b) plan
- Are a profit or non-profit employer
- Have employed 25 or more workers during the past calendar year
- Have been in business for at least two years
How does the New Jersey Secure Choice Program work?
All Form W-2 employees are eligible to participate. This includes part-time employees. Unless employees proactively opt-out, they will be automatically enrolled and contribute 3% of pre-tax income into the Secure Choice Savings Program through a payroll deduction.
What actions does an employer need to take to comply with the New Jersey Choice Savings Program mandate?
Employers must provide information about the Program to their employees. This includes providing enrollment packets to all new employees within 30 days of hire. Employers must track the eligibility status of their employees, and whether each employee has opted-in or opted-out. For any employees who do not opt-out within 30 days of notification and are eligible for the Secure Choice Savings Program, the employer must set up a 3% payroll deduction and deposit the deductions. Employers must hold an open enrollment period for the Program every two years. They must also auto-enroll any employee who has not participated for at least one year and track those employees. Employers must submit an employee census to New Jersey Secure Choice Savings annually.
Penalties for Employer Non-Compliance
Employers may incur a penalty if they do not comply with the Program. In the first calendar year, if the employer does not comply with the Program, the employer will receive a written warning from the State of New Jersey. If an employer does not comply with the Program for a second year, the employer may be fined $ 100 for each employee who is not enrolled in the plan and has not opted-out. If an employer does not comply with the Program for a third and fourth year, the employer will be fined $250 for each employee who is not enrolled and has not opted-out. If an employer still does not comply with the Program by the fifth year or any subsequent year, the employer may be subject to a $500 per employee fine for each employee who is not enrolled in the Program, but has not opted-out of the Program. Employers that collect employee contributions, but do not deposit the contributions to the Program will be subject to a penalty of $2,500 for the first offense, and $ 5,000 for each subsequent offense.
At SAX, our goal is to help you in all facets of your business. One specific area where we have been able to bring value is in providing our clients with custom retirement plan solutions that aim to make the most of available savings and tax sheltering strategies, while helping to attract and retain top employees. We work to make sure the 401(k) plan is working for you.
Please contact your SAX Advisor if you are interested in implementing a retirement plan for your organization or for any questions regarding how the New Jersey Secure Choice Savings Program may impact your business.