Creates Automatic Payroll Deduction IRA for Employees Without a Retirement Savings Plan
Saving for the future is becoming easier for many New Jersey workers thanks to a bill sponsored by Assembly Democrats Roy Freiman, Raj Mukherji and Carol A. Murphy that was signed into law today.
The law (A-4134) establishes the “New Jersey Secure Choice Savings Program Act” and creates an automatic enrollment payroll deduction Individual Retirement Account (IRA) for private sector workers without access to a retirement savings plan through their employer. It is designed to promote retirement savings for employees in a convenient, low cost and portable manner.
“When companies do not offer automatic savings deductions, employees are less likely to save,” said Freiman (D-Somerset, Mercer, Middlesex, Hunterdon). “In fact, only 5 percent of employees save for retirement on a consistent basis without a payroll deduction. “I am glad to see this bill being enacted into law so we can now encourage more employees to make a bigger investment into their future by saving.”
According to AARP:
·Over half (1.7 million) of New Jersey workers have no access to a retirement savings plan through their employers.
·72% of workers employed by businesses with fewer than 100 employees do not have a pension or retirement plan.
·The average Social Security benefit for a 65+ family is approximately $19,000 a year although, on average, older New Jersey families spend $23,000 a year on food, utilities, and health care alone.
Under the Secure Choice savings program, employers can easily offer their employees a retirement benefits package. Participating employers will simply need to establish a payroll deduction for their employees’ savings to be deposited into a Secure Choice IRA, and provide employees with an information packet about the different investment choices available through the program. Employees will be automatically enrolled in a default retirement savings program, but given several retirement savings strategies to choose from and have the option to opt out anytime they choose. Employees are also allowed to change investment strategies or savings rates should their financial circumstances change.
“Since a Secure Choice IRA is not connected to a specific place of employment, which can be temporary, there is more flexibility,” said Mukherji (D-Hudson). “A savings plan of this kind is transferable and can follow an employee throughout their career, which is very appealing.”
“Saving through a payroll deduction IRA allows workers to take proactive steps in securing their financial well-being for the future,” said Murphy (D-Burlington). “I know few people who have saved and wish they had not, but I know several people who haven’t saved and regret it immensely.”
The funds established by Secure Choice will be separate and apart from all public money and will not be comingled with State funds. In addition, since Secure Choice funds are not employer sponsored benefit plans, they will not be subject to Employee Retirement Income Security Act (ERISA) rules.
The law was introduced in June 11, 2018 and passed by the full Senate 29-6 on February 21. The full Assembly passed the legislation 54-20-1 on February 25. It takes effect immediately.