With the future of Social Security in doubt, employees of small and medium-sized businesses must rely on their employer to save for retirement. But many employers don't currently offer a way for their employees to contribute to their retirement savings.
In New York, 4.3 million private-sector employees are not offered 401(k) plans, pensions, or other retirement savings options. To address this retirement savings gap, the state government of New York is hoping to change this by setting up retirement programs for employers that do not currently offer a plan.
What is the New York Retirement Plan Mandate?
Governor Kathy Hochul signed legislation back in late 2021 that requires most employers with 10 or more employees to offer retirement savings support to workers. Senate Bill S5395A requires private sector employers without a current retirement plan to automatically enroll their employees in New York State's Secure Choice Savings Plan.
The New York Secure Choice is a state-sponsored retirement savings program that increases access to affordable retirement savings for private-sector workers. Businesses with 10 or more employees (5 or more in New York City) and at least two years of operation are required to provide a qualified retirement plan — such as a 401(k), 403(b), or more — or enroll employees into the New York Secure Choice Program.
What is the New York Secure Choice Program?
The program provides employers a way to set up an Individual Retirement Account, or IRA, for each eligible employee.
The New York Secure Choice Program is New York’s IRA retirement savings program for millions of private-sector workers who don’t currently have any way to save for retirement at work. It was originally suggested that businesses with 10+ employees would be required to start registering their employees on December 31, 2021 — but did not provide further insight on how to do so. However, on January 26, 2022, the New York State Secure Choice Savings Board held its first meeting to lay some foundations for the program.
If you choose this method of compliance with the mandate, your employees will automatically be enrolled in the program at a contribution rate of 3% of gross pay. That said, employees are able to modify their contribution level up or down (up to the government-imposed maximum), or opt out entirely. Employees enrolled in the Secure Choice Program can keep their account if they leave your employment. At the time of writing, the full fee schedule has not been announced.
How the New York State Mandate Retirement Plans Will Affect You
If you are a business with 10 or more employees, and have been in business for more than 2 years, you will be required to offer your employees a qualified retirement savings plan. Within the city of New York, your business is affected with just 5 or more employees and two years of operation.
Compliance deadlines have not been published at the time of writing, but are expected to fall in 2023. If your business is affected but you don’t yet offer a retirement savings plan, now is the time to act.
What are my options?
If you are affected by the mandate, then doing nothing is not an option. Even if you already offer your employees a retirement savings plan, you should check that your specific plan satisfies the mandate. The mandate is likely to be strictly enforced, and you will expose your business to fines and other liabilities if you fail to act. Your employees will likely not be too happy with you, either.
Enrolling your employees in the New York Secure Choice Program might seem like the easy course of action, and of course it is significantly better than doing nothing.
The retirement savings industry has a reputation for being bureaucratic, difficult to navigate, opaque, and expensive to get involved with - and this has indeed been the case, until recent years. Recent innovations in the industry have made retirement plans such as the 401k much more accessible to small businesses. It is now possible to get a high quality 401k plan, administered by a third party, at very affordable prices - no matter the size of your business or number of employees.
So - before you register for the state program, you should understand the options available to small and medium-sized businesses, because they each have significant pros and cons attached.
For example, the maximum your employees can contribute to the New York Secure Choice program is just $6,000 annually ($7,000 if aged 50 or above), and contributions are made post-tax (known as Roth contributions). There is no way for the employer to offer matching contributions, and no way to make tax-deferred contributions. For sake of comparison, the maximum contribution for a qualifying 401k plan is much higher at $20,500 for 2022, and both pre-tax and post-tax money can be used. Employer matches are permitted.
If you are not sure about whether the mandate affects you, or need help navigating the options, we are here to help. Don’t procrastinate - book a free discovery call with us today to get started.