New Jersey Businesses and Secure Choice
posted by Fisher 401(k) October 14, 2020 Updated
Saving for retirement is not always easy for workers in New Jersey, this is because up to 47% of them do not currently have access to an employer-sponsored retirement plan (according to Pew Charitable Trusts 2016 Research). In an effort to help more employees get on track for retirement savings, New Jersey has implemented a new law mandating employers to provide a retirement plan for their employees. The New Jersey Secure Choice program is a state-sponsored retirement savings plan for businesses to offer employees in lieu of a 401(k) (or another qualified plan). While the program is meant to be helpful, it’s important for business owners to understand the details of the program in order to determine if it’s the right plan for their business. See below for a list of Frequently Asked Questions about New Jersey Secure Choice.
What is New Jersey Secure Choice?
New Jersey Secure Choice is a mandate requiring all New Jersey employers who have been in business for 2+ years and who have 25+ employees to provide a retirement plan to their employees. The mandate will be effective starting March 2021 and requires business owners to either sponsor a 401(k) plan (or other qualified retirement plan) or adopt the state-run New Jersey Secure Choice retirement plan by the end of 2021.
How does the New Jersey Secure Choice plan work?
The New Jersey Secure Choice plan is a payroll-deducted IRA that is run by the state of New Jersey. If an employer adopts the New Jersey Secure Choice plan, all of their W-2 employees are eligible to participate (including part-time workers). The program is auto-enrolled at 3%, which means that unless employees proactively opt out, they will be automatically enrolled to contribute 3% of pre-tax income into the plan.
What features are included in the New Jersey Secure Choice Plan?
- The New Jersey Secure Choice plan includes the following features:
- Auto-enrollment at 3% (i.e. employees will be automatically enrolled to contribute 5% in the plan unless they proactively opt out annually)
- Annual contribution maximum of $6,000 ($7,000 for those 50 or older)
- Pre-tax contributions (no Roth option)
- Does not allow loans
- Does not allow employer contributions
Do employers have to offer the New Jersey Secure Choice Plan?
New Jersey business owners do have to offer a retirement plan (if they’ve been in business for 2 or more years and have 25 or more employees), but it doesn’t have to be the New Jersey Secure Choice Plan. Business owners who offer a 401(k) (or other qualified retirement plan) are exempt from the mandate. Other qualified retirement plans could include 403(b), SEP IRA, and SIMPLE IRA.
How does New Jersey Secure Choice compare to other plan options?
See how New Jersey Secure Choice compares to other retirement plan options here.
Does New Jersey Secure Choice Apply to All Businesses?
New Jersey Secure Choice applies to any New Jersey employer who has 25 or more W-2 employees and has been in business for 2 years or more. This applies to for-profit and non-profit businesses.
When is the deadline to implement a retirement plan in New Jersey?
The deadline to implement a retirement plan in New Jersey depends on how many W-2 employees your business has:
What are the penalties for non-compliance with New Jersey Secure Choice?
Companies who fail to comply with the New Jersey Secure Choice mandate could be subject to a fee of up to $500 per eligible employee.
Good news, it’s really easy to comply by setting up a 401(k) plan (or another qualified plan)—click here to find out how.
How much does New Jersey Secure Choice cost?
The New Jersey Secure Choice plan cost is up to 0.75% of assets; this fee is deducted from each employee account balance. For example, if an employee has $100K in the retirement plan, up to $750 a year will automatically be deducted out of their balance. There is no direct cost to the employer, but there are some administrative tasks that need to be carried out by the sponsor on an annual basis.
What do employers have to do to administer the New Jersey Secure Choice plan?
- New Jersey Secure Choice creates some administrative burden for the employer. Employers must:
- Submit an employee census to New Jersey Secure Choice annually
- Track eligibility status for all employees
- Provide enrollment packets to all employees 30 days after date of hire
- Track whether each employee has opted in or out
- If employee doesn’t opt out within 30 days of notification, set up 3% payroll deduction
- Answer questions from employees who have been auto-enrolled
- Repeat auto-enroll process annually for all employees who have opted out
- Hold open enrollment every 2 years
- Auto-enroll anybody who hasn’t been participating for at least 1 year (these have to be tracked)
Fisher Investments provides affordable, hassle-free solutions that reduce the administrative burden on employers. Explore your options here.
How to Start a Retirement Plan Toolkit
Starting a retirement plan is exciting. It’s one of the most powerful savings tools the government gives business owners and employees. Complete the form below to download the small business retirement plan toolkit. Inside has important How-To Information, Tools to help you along the way, and Checklists.