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United States: New York state to mandate retirement plan enrollment

Retirement|Total Rewards|Health and Benefits
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By Gary Chase | November 24, 2021

New York state will require most private employers to offer a qualified retirement plan or enroll their employees in a state-managed program.

Employer Action Code: Act

Legislation signed into law on October 21, 2021, will require certain employers to enroll their New York state (NYS) employees in a new state-managed retirement savings program funded by employees. In the absence of a federal requirement, NYS is following in the footsteps of several other states and cities (including the states of Illinois, Oregon, California, Connecticut, Maine, Maryland, New Jersey, Colorado and Virginia; and the cities of New York and Seattle) that in recent years have established similar mandates to promote retirement savings for employees.

Key details

  • Participation in the New York State Secure Choice Savings Program is mandatory for all employers that 1) had at least 10 NYS employees during the entire prior calendar year; 2) have been in business for at least two years; and 3) have not offered a qualified retirement plan, such as a 401(k) plan, during the prior two years.
  • Participating employers must 1) automatically enroll their NYS employees in the program unless an employee has opted out, 2) withhold and transfer after-tax employee contributions to the program, and 3) provide informational materials to new employees at the time of hire and annually in advance of a program enrollment period (for employees who have opted out). Employers must set up a payroll withholding/transfer arrangement no later than nine months after the program opens for enrollment (date not specified in the legislation).
  • Employees will be automatically enrolled to make a 3% payroll deduction but will have the option to change their contribution amount or elect not to participate. Contributions under the program will be held in a Roth individual retirement account (IRA) and will be subject to the annual contribution limit that applies to IRAs ($6,000 in 2022).

Employer implications

The date that covered employers will need to establish the contribution arrangement is not clear. Although the legislation is effective immediately, the arrangement would not need to be established for up to nine months after enrollment is opened by the board that administers the program; however, it is not yet known when the board will open enrollment. Affected employers should begin to consider whether they will be subject to the NYS program, and if so, how they would comply with the new requirements.

It’s also unclear how the NYS program will interact with a similar mandate established by New York City (NYC) earlier in 2021. While the NYC legislation calls for its program to be discontinued in the event the state establishes a mandatory program that covers "a substantial portion of employers" who would be covered by the NYC law, the NYC requirement applies to employers with five or more employees (while the NYS law applies to employers with 10 or more employees). Presumably this will be clarified by future guidance.

In broader national terms, the development of this and similar mandates by some states and cities is arguably indicative of a wider change in employee benefits across the U.S. labor market, under which state and city governments are increasingly enacting laws and regulations that require employers to provide various benefits such as paid sick or maternity leave if they don’t already do so. The trend suggests that the number of state and local mandates will continue to increase in the absence of federal legislation.

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