New York Gov. Kathy Hochul enacted a self-IRA law, effective October 21, that requires some New York employers to offer their employees a qualified pension plan or join the IRA program. managed by the state. The new law changes the New York Secure Choice Savings Program, a voluntary IRA program that has been in place since 2018 and is administered by the New York State Secure Choice Savings Program Board.
In its updated form, this program aims to promote greater retirement savings for employees of small businesses who may not have access to employer-sponsored pension plans by requiring employees to opt out of the participation. Earlier this year, New York City enacted a similar automatic IRA law applicable to city employers with five or more employees. City law, however, may not go ahead if the city determines it is in conflict with the new state law.
The new law applies to employers with at least 10 employees in the state at any time during the previous calendar year. The employer must have been in business for at least two years and not have offered a qualifying pension plan in the previous two years. However, employers who have already set up a qualified retirement plan, such as a 401 (k) or 403 (b) plan, cannot terminate their existing plan to participate in the program.
Unless an employee withdraws, New York State law requires participating employers to automatically enroll their employees in the program and contribute 3% of their after-tax compensation. Participating employees can choose to contribute more or less than 3%, but the program is limited to contribution limits for IRAs. For 2022, the limit is $ 6,000.
Participating employees can choose their investment options, change their contribution level and terminate their participation at any time. For employees who have opted out of the program, employers can designate an open enrollment period to enroll, or an earlier date if the program allows. Participating employers have no responsibility for an employee’s decision to participate, an employee’s investment decisions, or the investment decisions of the program board.
An employer who meets the program’s criteria must distribute information materials at least one month before enrolling employees that include program rules, how to access financial literacy programs, and a statement that the fund’s program is not guaranteed by the state. Employers have up to nine months after the state opens the enrollment program to set up payroll deposits for its employees.
New York State joins a growing number of states with auto-ARI programs: California, Colorado, Connecticut, Illinois, Maine, Maryland, New Jersey, Oregon, and Virginia. Several other states offer voluntary state-run ARI programs: Massachusetts, Vermont, Washington, and New Mexico. (Seattle is the only other city in the country, outside of New York, to have passed an Auto IRA law.)
The New York Department of Taxation and Finance will oversee the development and implementation of the program, although it has not yet promulgated any regulations. Morgan Lewis is closely monitoring developments in the state.