According to research, 22% of Americans have less than $5,000 saved for retirement, and 15% have no retirement savings whatsoever. State-mandated retirement plans are being instated across the U.S. in response to this retirement savings crisis.
The New York State Secure Choice Savings Program was established to help the more than 3.5 million small business employees in the state of New York who don’t have access to an employer-sponsored retirement savings plan.
While the Secure Choice Savings Program was originally created in 2018 as a voluntary program, on Oct. 22, 2021, it was amended to require all employees of qualified businesses to be automatically enrolled in the program.
As an employer there are two ways to comply with these laws:
- automatically enroll their employees into a state-sponsored retirement program
- sponsor their plan through a qualifying private plan
Here is what you need to know about the program:
- If you’re an employer in New York, state laws require you to offer the Secure Choice Savings Program if you:
- Had 10 or more employees during the entire prior calendar year
- Have been in business for at least two years
- Have not offered a qualified retirement plan during the prior two years
- The Secure Choice Savings Program is a Payroll Deduction IRA program — also known as an “Auto IRA” plan
- If employers don’t offer a retirement plan, they must automatically enroll their employees into a state IRA savings program at a 3% deferral rate
- Employers are not responsible for selecting the investment options; the program’s board manages the plan
- The state pays the administrative costs associated with the program until it has enough assets to cover those costs itself
- Employees retain control over their Roth IRA and can customize their account by selecting their own contribution rate and investments or by opting out all together
What are some potential drawbacks of the Secure Choice Savings Program?
- Unlike a 401(k) plan which allows both before-tax and after-tax contributions, you won’t receive a tax benefit for your savings in the year you make contributions
- The Secure Choice Savings Program is a Roth IRA, which means it has income limits – If your employees earn above a certain threshold, they will not be able to participate
- New York Secure Choice is not subject to worker protections under ERISA, a federal law that requires fiduciary oversight of retirement plans
- There are no employer matching and/or profit-sharing contributions
- Secure Choice Savings Program offers a relatively limited selection of investments
At this time, a date on which the Secure Choice Savings Program will go into effect has not been set. However, after the program opens for enrollment, you will only have nine months to set up a payroll-deposit retirement savings arrangement.
If you still have questions about the Secure Choice Savings Program or decide that you’d like to explore your retirement plan alternatives, talk to The Legend Group. We can help you get your plan up and running fast and assist you with ongoing plan administration. CONTACT US today!