New Jersey is Most Recent State to Require Employers to Enroll Employees in Retirement Savings Programs

On March 28, 2019 Governor Phil Murphy signed into law the New Jersey Secure Choice Savings Program Act (“Act”) which establishes a state-run retirement program in the form of automatic employee payroll deductions paid into an IRA. New Jersey joins California, Connecticut, Illinois, Maryland, Oregon and other states that enacted similar programs. The Act applies to all N.J. employers that have at least 25 employees and do not already offer a qualified retirement plan to their employees. 

The Act requires employers to enroll their employees into an IRA, known as the New Jersey Secure Choice Savings Program Fund, through automatic payroll deduction. An employee will default to an automatic IRA contribution of 3% of wages unless the employee opts out of the program or elects a different contribution percentage. The contribution may be pre-tax or post-tax. Contributions are subject to applicable IRS contribution limits (the maximum IRA contribution limit is $6,000 for 2019, or $7,000 if age 50 or older).
To administer the program, the Act establishes the Secure Choice Savings Board comprised of:

• the State Treasurer, the State Comptroller, and the Director of the Office of Management and Budget,
• Two representatives of the general public with expertise in retirement savings plan administration (appointed by the Governor),
• One representative of participating employers (appointed by the Governor), and
• One representative of enrolled employees (appointed by the Governor).

Under the Act, the Board must implement the program, notify the N.J. Treasury Department by March 28, 2021 of its implementation, and create a website to provide relevant program information. After the program is implemented, employers will have nine months to comply with the Act’s automatic payroll deduction mandate or face the assessment of penalties by the Treasury Department. Employers will be able to report compliance with the program on their State income tax returns.

Although there have been legal challenges to similar programs in Oregon and California, thus far these challenges have been largely unsuccessful.

Bottom Line

Covered employers should monitor the N.J. Treasury Department’s website at https://www.state.nj.us/treasury/ for further guidance on compliance with the Act. Once the guidance is released, covered employers (i.e., those with 25 or more employees and no qualified retirement plan) should be prepared to set up the mandatory automatic payroll deductions into the program, and educate their employees on the options available to them under the Secure Choice Savings Program.

For questions on compliance with this legislation or any questions regarding an existing retirement program, please contact Patrick W. McGovern, Esq., Chair of the firm’s Employee Benefits and Executive Compensation Practice Group, at pmcgovern@genovaburns.com, or Ryann M. Aaron, Esq., at raaron@genovaburns.com, or at 973-533-0777.