New Individual Retirement Account Program Would Offer Security & Peace of Mind for Employees without a Current Retirement Plan
Assembly Speaker Vincent Prieto and Assemblymen Tim Eustace and Joseph Lagana have introduced legislation to create a unique, new program to help more New Jersey workers plan for retirement.
The bill (A-4275), which is modeled after the first-in-the-nation plan recently signed into law in Illinois,would create individual retirement accounts for employees of firms with at least 25 workers who do not presently have access to an employer-provided retirement plan.
“This truly is a win-win for employees and employers,” said Prieto (D-Bergen/Hudson). “The vast majority of today’s retirees rely primarily on social security payments for income. Meanwhile, retirement savings are a mounting anxiety for more and more workers. Under this program, employees who would otherwise have no private retirement plan will now have access to one. And smaller companies will now have a great incentive tool to help recruit and retain employees without any financial burden.”
The legislation was prompted, in part, by the alarming number of Americans unprepared for retirement as more and more are made responsible for their retirement savings. The sponsors pointed to a report released last summer by the Federal Reserve, which indicated that 31 percent of Americans have zero money saved for retirement and do not have a pension, including 19 percent of people between the ages of 55 and 64.
“This program will create much-needed security and peace of mind for employees who have no retirement plan right now,” said Eustace (D-Bergen/Passaic). “For employers who wish they could offer a retirement plan, but have not had the financial or administrative resources to do so, essentially now all they have to do is integrate the withholdings of participating employees into their regular payroll software.”
The lawmakers’ bill would establish the “New Jersey Secure Choice Savings Program” to create a retirement savings plan for private sector workers in the form of an automatic enrollment payroll deduction Individual Retirement Account (IRA).
“This program is designed to promote greater retirement savings for private sector employees in a convenient, low cost, and portable manner, which is important because an employee can take the plan with them if they leave for a job at another qualifying employer,” said Lagana (D-Bergen/Passaic). “This program offers a lot of personal freedom for employees and doesn’t overburden employers because most of the administrative responsibilities would be done by a state board.”
The program would apply to companies with at least 25 employees that have been in business for at least two years and have not offered a qualified retirement plan in the preceding two years. Smaller employers with less than 25 employees may participate in the program but would not be required to do so.
Under the bill, qualifying employees will be asked whether they want to contribute three percent of their salary to a retirement account. The money would then be deducted from their check just like taxes, unless they decline enrollment, and go into an IRA.
The bill would create a seven-member board to implement the program, establish a process for enrollment and oversee the fund, which would include the state Treasurer, Comptroller, and Director of the Office of Management and Budget, or their designees; two public representatives with expertise in retirement savings plan administration or investment, or both, one of whom shall be appointed by the Senate President and one of whom shall be appointed by the Assembly Speaker; a representative of participating employers; and a representative of enrollees, both of whom shall be appointed by the Governor and subject to the advice and consent of the Senate.
The bill also creates the New Jersey Secure Choice Savings Program Fund from funds received from enrollees in the program, which would be used exclusively for the purpose of paying benefits to the enrollees, for the cost of administration of the program, and for investments made for the benefit of the program.
The bill would require the board, prior to the opening of program enrollment, to design and disseminate to all employers an employer information packet and an employee information packet, which must include background information on the program and appropriate disclosures for employees. The employee disclosure form must explain the following:
1. the benefits and risks associated with making contributions to the program;
2. the mechanics of how to make contributions to the program;
3. how to opt out of the program;
4. how to participate in the program with a level of employee contributions other than three percent;
5. the process for withdrawal of retirement savings;
6. how to obtain additional information about the program;
7. that employees seeking financial advice should contact financial advisors; that participating employers are not in a position to provide financial advice; and that participating employers are not liable for decisions employees make pursuant to this act;
8. that the program is not an employer-sponsored retirement plan; and
9. that the program fund is not guaranteed by the state.
Employees will have the ability to select a contribution level and an investment option and may change these choices quarterly, subject to rules and regulations promulgated by the board. If an employee fails to select a contribution level, then the employee will contribute three percent of their wages to the program. If an employee fails to select an investment option, that employee shall be placed in the investment option selected by the board as the default investment option. Employees may terminate their participation in the program at any time in a manner prescribed by the board.
Following the initial implementation of the program, participating employers must designate an open enrollment period each year during which employees who previously opted out of the program may enroll.
The bill provides that the program must be implemented, and that enrollment of employees must begin, within 24 months after the effective date of the bill. No later than nine months after implementation of the program and the opening of enrollment, each employer covered by the bill must establish a payroll deposit retirement savings arrangement to allow its employees to participate in the program.
Any financial liability for the payment of retirement savings benefits in excess of funds available under the program shall be borne solely by the entities with whom the board contracts to provide insurance to protect the value of the program.
The bill requires the board to annually submit, to the governor and the legislature, an audited financial report and another report summarizing the benefits provided by the program, the number of enrollees in the program, the percentage and amounts of investment options and rates of return.