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Retirement Planning > Saving for Retirement

New Jersey Creates Auto-IRA Program

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New Jersey has joined the handful of states that have created an IRA program featuring automatic enrollment for workers who aren’t offered a contributory retirement plan at their workplace.

The New Jersey Secure Choice Savings Program, signed into law by Gov. Phil Murphy late last week, requires that employers with 25 or more employees participate in a retirement savings program through automatic payroll deductions, but employees will have the ability to opt out if they choose.

The program will be managed by the New Jersey Secure Choice Savings Board, which will include the state treasurer, comptroller, and director of the Office Management and Budget, or their respective designees, plus two public representatives — one from a business trade organization and the other representing enrollees. The board will design the program in accordance “with best practices for retirement savings vehicles,” according to the legislation.

The program must begin to enroll employees within 24 months of its effective date, which was March 28, when the governor signed the legislation. It sets a default contribution rate of 3% per employee and requires that employers enroll new workers within three months of their hiring date.

“Saving for retirement is paramount for all employees, but too often, those who work for small businesses don’t have a simple way to set aside these savings,” Murphy said in a statement. By creating the Secure Choice Savings Program, we are ensuring that every worker in New Jersey will have the opportunity to save for the future. We are creating more opportunities for future retirees and generations of workers to follow.”

Employers covered by the legislation who fail to enroll their employees will be subject to a written warning from the department the first year, then fines of $100 for each employee who are not enrolled, which will eventually increase to $500 per employee for the fifth year of noncompliance. Employers who collect employee contributions but fail to remit them to the state board will face penalties of $2,500 for the first offense and $5,000 for subsequent offenses.

The New Jersey auto-IRA plan is modeled on a plan from Illinois, which also covers employees in companies with 25 or more workers who are not offered a retirement plan at work. To date, Oregon, California, Connecticut, Illinois and Maryland have adopted auto-enrollment IRA plans, and all but Maryland have begun to roll them out.

Oregon’s program is the first to take effect. It began as a pilot in August 2017, and ahead of a mid-December deadline, about 1,800 employers had signed up, according to the report by the Center for Retirement Research. Only one-third of those employees had begun to submit employee contributions by then, but still almost 22,000 employees had saved more than $10 million.

The proliferation of different state auto-IRA programs for employees who aren’t offered a retirement plan at work illustrates the need for a “uniform, national (federal) solution” for those employees, says Brian Graff, CEO of the American Retirement Association, an umbrella organization of several retirement industry groups.

Graff says the ARA is working closely with House Ways and Means Chairman Richard Neal, D- Mass., on a national auto-IRA program and expects one will be introduced later this year. Neal sponsored the Automatic Retirement Plan Act last year, before the Democrats took control of the House of Representatives and he became chairman of its Ways and Means Committee. That bill would have required businesses with at least 10 employees to institute a retirement plan with auto-enrollment.

A spokeswoman for Neal tells ThinkAdvisor that an auto-enrollment IRA bill is “a priority of the chairman’s” and he hopes “to move it at the earliest opportunity.”

Last week Neal, along with co-sponsors who included ranking member Kevin Brady, R- Texas, introduced the Setting Every Community up for Retirement Enhancement (SECURE) Act of 2019. The bill eases the way for 401(k) and 403(b) plans to offer annuities, raises the age for required minimum distributions from those plans from 70 1/2 to 72 and provides tax credits for businesses who set up retirement plans that include automatic enrollment. The bill was passed by the committee today, and a companion bill has been introduced in the Senate Finance Committee.

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