What New Jersey Employers Need to Know About the NJ Secure Act and the Secure Choice Savings Program
Phil Murphy signed into law the NJ Secure Act, originally set to go into effect on March 28, 2021. Due to COVID, the deadline to put the law into effect moved to March 28, 2022. Therefore, last week, the law officially became active.
The law related to the need for New Jersey employers to offer retirement savings plans to employees if they have 25 or more employees (either the NJ Secure Choice Savings program or a private retirement savings program). The mandate allows employers nine months to put their plans into effect. However, nine months is a relatively short amount of time to get your retirement savings program up and running.
What Is the New Jersey Secure Choice Savings Program?
The New Jersey Secure Choice Savings Program is the state-sponsored retirement savings plan option offered to New Jersey employers with 25 or more employees. The plan is meant to help reduce the gap between large and small employers and retirement savings.
As a state-sponsored plan, employers have the right to offer it to their employees or they must offer a private retirement plan. While a private retirement plan may be more beneficial for employees, the state-sponsored plan is cost-free for employers.
Who Is Eligible for the New Jersey Secure Choice Savings Program?
All New Jersey employers who have been in business for at least two years and have not been offered a retirement plan in the past two years can enroll in the New Jersey Secure Choice Savings Program. However, only employers with 25 or more employees are mandated to enroll or offer a private plan to their employees.
Any W-2 employee is eligible to participate in the plan. They can work full or part-time and still contribute to the plan. 1099 contractors and Non-employees are not eligible to participate in the plan.
How Does the Plan Work?
Under the plan, employees must be eligible to enroll within 90 days of beginning a new job. They can deposit up to 3% of their paycheck up to $6,000 a year tax-free ($7,000 annually for employees over 50).
The plan maintains certain stipulations that are quite different than private plans:
- Employers are prohibited from matching employee contributions to the plan.
- Employees are prohibited from borrowing against the plan.
- Plans can be moved with employees from one job to the next.
- Employees must pay a .75% maintenance fee annually.
As a result, employees do not receive the maximum benefits of a traditional savings retirement plan. Under traditional plans, employers match employee contributions up to a pre-determined percentage. Employees have the right to deposit as much money as they choose into a traditional plan. They can also borrow against it if needed (while incurring a penalty).
What Is the Employer Responsibility for the NJ Secure Choice Savings Plan?
Employers have little responsibility when offering the NJ Secure Choice Savings Plan. Employer responsibilities include the following:
- They must offer the plan to any employee who has worked for the company as of their 90th day of employment.
- They must track employees who opt out of the program.
- They must provide program information to all current and new employees.
- They must automatically withhold three percent of pretax earnings for employees who do not opt out of the plan.
- They must deposit retirement benefit deductions with the state.
- They must offer an annual open enrollment period.
- They must submit an employee census to Secure Choice annually
What Are the Penalties to Employers Who Do Not Offer the NJ Secure Choice Savings Plan or an Alternative Plan?
The first penalty to employers who do not offer some type of savings plan to their employees in a business with 25 or more employees is a written warning. However, after the written warning, employers may face the following penalties:
- Year 2 of noncompliance results in $100 per employee
- Years 3 and 4 of non-compliance result in $250 per employee
- Year 5 and beyond results in $500 per employee
Do You Have to Offer the NJ Secure Choice Savings Plan to Your Employees?
You only have to offer the NJ Secure Choice Savings Plan to your employees if you do not offer any other retirement savings plan. As an employer, you have the option to offer private retirement savings plan options to your employees. Employees will receive more benefits from private plans. It will also provide you with additional tax incentives that you cannot receive under the state-sponsored plan.
Furthermore, the NJ Secure Act offers employers tax incentives to offer private retirement savings plans to their employees.
Workplace HCM has partnered with Human Interest to offer NJ employers an affordable alternative to the NJ Secure Choice Savings Plan. Contact or call us today at (856) 334-9711 to learn more.