The Garden State is sowing the seeds of a more prosperous New Jersey.
In 2019, Governor Phil Murphy signed into law the New Jersey Secure Choice Savings Program Act, authorizing the creation of a state-sponsored retirement plan to help more private sector employees save for their golden years. With over 1.7 million private sector workers lacking access to a retirement program in the state, the Secure Choice Program represents a massive step toward closing the savings gap present today.
Though the program is not yet operational, businesses in the state should be aware of the upcoming changes that may soon affect them. In this article, we’ll answer some questions you may have about New Jersey Secure Choice and explain how the program will impact New Jersey business.
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What is New Jersey Secure Choice?
Now in the early stages of implementation, New Jersey Secure Choice will be a new way for employees in the state to save for their retirement.
The program is overseen by a state Board but administered by private-sector partners. New Jersey Secure Choice is an automatic enrollment payroll deduction IRA, meaning participating employees will have contributions automatically deducted from each paycheck and put into a tax-advantaged retirement account. When they reach retirement age, workers can use the savings in their accounts to help pay for their cost of living and supplement their Social Security income.
The program’s goal is to make saving for retirement more manageable and accessible for all New Jersey residents.
How Does New Jersey Secure Choice Work?
As an automatic enrollment IRA program, employee contributions are automatically deducted from each paycheck before taxes are taken out. The program is completely voluntary, so employees are not required to participate if they don’t want to and can opt-out at any time.
If an employee doesn’t choose their own rate, they will be opted into the default savings rate for Secure Choice: 3% of their gross pay. Employees may contribute up to the IRA limit of $6,000 per year to their Secure Choice savings account, or up to $7,000 per year if aged 50 or older.
Which Businesses Have to Use New Jersey Secure Choice?
Both for-profit and non-profit New Jersey employers are required to participate in the program if they meet the following criteria:
- Employed at least 25 workers during the previous calendar year
- Has been in business for at least 2 years
- Does not currently offer a “qualified retirement plan” to their employees
Also of note: Employees who are co-employed by an employee leasing company and a client company will be treated as employed by the client company—and not the employee leasing company—for the purposes of New Jersey Secure Choice.
What Are the Alternatives to New Jersey Secure Choice?
If your business has 25 or more employees and isn’t sponsoring a plan yet, you have several alternative options. You can set up a:
- 401(k) plan (including multiple employer plans or pooled employer plans)
- 401(a) – Qualified Plan (including profit-sharing plans and defined benefit plans)
- 403(a) – Qualified Annuity Plan or 403(b) Tax-Sheltered Annuity Plan
- 408(k) – Simplified Employee Pension (SEP) plans
- 408(p) – Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA Plan
- Payroll deduction IRAs with automatic enrollment
It’s important to consider all available options and research which plan is best for your business. New Jersey Secure Choice may be suitable for your small business, but some businesses could be better served by establishing their own employer-sponsored retirement plan, such as a 401(k).
What Is the Registration Deadline for New Jersey Secure Choice?
Once the Secure Choice Savings Program is operational, private sector employers covered by the Act are required to comply with its provisions. However, this requirement does not go into effect until nine months after the Secure Choice Board notifies the Treasury that the program has been implemented.
At this time, the program is not yet operational.
Who Is Eligible to Participate in the Program?
Any resident of New Jersey who is 18 years or older and has a job is eligible to participate in New Jersey Secure Choice. Both full-time and part-time employees must be offered the ability to participate in their applicable retirement savings plan. Additionally, at least once every year, covered employers must designate an open enrollment period where employees who previously opted out of the program are given the choice to enroll.
Penalties for Non-Compliance with New Jersey Secure Choice
Failure to enroll any employee who has not opted out of the plan, without reasonable cause, constitutes a violation of the Secure Choice program. There is an escalating series of penalties for non-compliance:
- First calendar year with a violation: Written warning
- Second calendar year with a violation: $100 fine
- Third or Fourth calendar year with a violation: $250 for each violation
- Fifth and subsequent years with a violation: $500 for each violation
How Vestwell Can Help New Jersey Small Businesses
Vestwell is a digital retirement plan platform that makes it easier for employers to offer and administer a company-sponsored 401(k) or 403(b). By combining technology with best-in-class retirement plans, Vestwell has created programs that are more accessible, more efficient, and less expensive.
As a 3(16) fiduciary, Vestwell is among the few platforms that can manage the day-to-day administrative work of a 401(k) plan for its clients. With Vestwell, the complexity of plan administration does not have to be a barrier to offering a retirement benefit.
Conclusion – New Jersey is Working to Close the Savings Gap
Though retirement plans are a great way to save money for retirement, many people do not have access to employer-sponsored retirement plans such as 401(k)s. Fortunately, New Jersey Secure Choice is an important step forward in closing the savings gap and helping workers in the state prepare for retirement.
If you think a company-sponsored plan may be a better option for your small business, you can contact Vestwell to determine if you are eligible to receive up to $16,500 in tax credits, which can help cancel out administration costs.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.