Did you know that according to American Association of Retired Persons (AARP) statistics, about 55 million Americans (nearly one-half of the entire work force) have no access to an employer-sponsored retirement plan to supplement their Social Security savings?

Here is one solution to address these statistics!

Recognizing that some of the small to mid-size business owners do not have the capacity or desire to establish qualified retirement plans to assist their employees in saving for their future, some states have started to step into this vacuum and are proposing legislation to remedy this critical situation.

Just about one year ago on March 28, 2019, New Jersey joined California, Connecticut, Illinois, Maryland, and Oregon when it became the sixth state to enact important legislation requiring ‘certain’ employers (of both for-profit and nonprofit organizations) to offer a state-sponsored individual retirement account (IRA) program with automatic enrollment and pre-tax payroll deduction contributions, with implementation and the beginning of employee enrollment to occur by March 28, 2021.  

Which employers are impacted by this law?

To clarify, the NJ Auto-IRA Law is applicable to specific, that is, ‘certain,’ employers who:

  • Employed no fewer than 25 employees at all times in New Jersey in the previous year 
  • Have been in business for at least two years
  • Have not offered a qualified retirement plan such as a 401 (k) plan or a 403 (b) plan, or a plan sponsored by an employee leasing company or by a professional employer organization that the employer has used in the prior two years

How do the eligible employers comply with this legislation?

Those employers who fit the definition above, and do not wish to establish their own qualified retirement plan, can follow these steps so that they will be prepared to meet the March 28, 2021 deadline:

Obtain and distribute an employee information packet prepared by the New Jersey Secure Choice Savings Board (‘The Board’) to existing employees, and to new employees at the time they are hired, to provide them with details regarding the process for registering for the NJ Auto-IRA Program.

  • Open an account for Payroll Deposit Retirement Savings for Automatic Enrollment no more than nine months after the Program opens for enrollment. 
  • Automatically enroll any employees who have not opted out of the Auto-IRA Program
  • Deposit employee payroll deductions into the New Jersey Secure Choice Savings Program Fund.
  • Offer an open enrollment period at least once annually to enable those employees who originally opted out to have the opportunity to enroll after the initial opening of the Program.
  • Enroll an employee who is hired more than six months after the Program begins, unless the employee opts out prior to the automatic enrollment process.

What if employers don’t comply?

What if they do not enroll eligible employees?

While the deadline for compliance is one year away, employers should be aware of the range of penalties that they could incur if they don’t enroll eligible employees in a timely manner. The penalties will range from a simple warning or alert to a substantial fine of $500 per employee which can increase during implementation if there are multiple violations committed by the employer.

What if they do not properly deposit the contributions?

Employers will also pay a penalty if they collect employee contributions but do not deposit any portion of the contributions into the Auto-IRA Program. The penalties can be onerous for the business owner, as they will start at $2,500 for the first offense before rising to $5,000 for the second and any subsequent offenses.

Enacting the NJ Auto-IRA Law

If you are a New Jersey employer who fits the three criteria above, you may be required to comply with this law once the date for implementation occurs on March 28, 2021. While it is easy to be complacent when looking at a one-year deadline, now is the time to consider the implications and begin to plan for your company’s participation. Feel free to call me at 973—994-9494 or email me at Elizabeth.Harper@SobelCoLLC.com