Mandated retirement savings plans have landed in New York. As of October 2021, New York became the latest state to require private sector employers to provide their employees with a retirement savings plan. Whether you work in New York or employ at least 10 people within the state, this is big news.
Here’s what it means for you.
Who is Mandated to Offer a Retirement Savings Plan
You must offer your employees a retirement savings plan if you meet these criteria:
- You employ at least 10 people within the state of New York, and
- You’ve been in business for at least two years.
If you do meet this criteria and don’t already offer your employees a way to save for retirement, don’t panic. There has not been much guidance from the state regarding qualifying plans, however here are options that may work for you.
- Icon IRA. Icon is the easiest, most affordable way to offer a retirement savings plan to your employees. We’re a low-cost, payroll IRA so employees’ contributions are automatically subtracted from their paychecks and deposited into their retirement account. We also take care of plan management so there are no testing or filing requirements. And bonus? Your plan is set up in minutes, no mountain of paperwork required. IRAs are also open to all employees regardless of employment status (i.e. full-time vs. part-time), so if you have multiple classes of employees, you can comply with the New York state mandate and offer the same retirement account to everyone. This isn’t true with a 401k.
- 401k. The 401k is the retirement savings account most people are familiar with. However, they’re difficult and expensive to set up and come with legal risk as ERISA regulations require employers who offer these types of accounts to fulfill a fiduciary responsibility to their employees. To adopt a 401k plan, you must: develop and adopt a written plan, arrange a trust fund for the plan’s assets, develop a record keeping system, and provide information to your employees. Then, you must monitor the 401k administrator to ensure it’s managing the plan in the best interest of your employees for a reasonable fee, or else face the possibility of expensive lawsuits. Another catch to this type of account is: 401ks are typically only available to full-time employees. So if you have multiple classes of employees, and your part-time workers are working at least 20 hours a week, you can’t offer them a 401k, but you have to offer them another option.
- NY State Secure Choice Savings Plan. If you haven’t chosen another retirement savings plan for your employees the law states you must automatically enroll them in New York’s state retirement plan. This savings plan was created in 2018 as part of the state’s 2018-2019 spending budget and up until now, participation has been voluntary. Now, it’s compulsory if your employees aren’t offered another retirement savings option. The state’s plan is also an IRA but unlike Icon, it requires a fair amount of paperwork to set up and is not user friendly for employees. Unless employees choose another contribution amount, 3% of their wages will be automatically withdrawn from their paychecks and deposited into their Secure Choice Savings account. Employees are automatically enrolled in the retirement savings plan within 14 days of starting, but can opt out at any time.
If you don’t offer your employees a retirement savings plan, the penalties are hefty:
- 1st offense – $250 per uncovered employee.
- 2nd offense (within 2 years) – $500 per uncovered employee.
- Subsequent offenses (within 2 years) – $1000 per uncovered employee.
This legislation applies to both for-profit and nonprofit private sector companies. If your company is located in New York City, or if you employ 5 or more people within in NYC who are over the age of 21, work 20 hours or more a week and you’ve been in business for more than 2 years, you might be wondering how the state law interacts with the city’s Retirement Security for All Act, that was passed in May of 2021. The answer is: it’s too soon to tell.
The city’s law contains language stating officials won’t implement the law if New York state passes its own version of a retirement savings mandate that covers the majority of people. The likelihood is that the New York state law will supersede NYC’s mandate, but we’ll continue to follow this story and when and if there’s news, we’ll let you know.
If You Work in New York State
Congratulations! As long as your employer meets the above-stated criteria, it’s now required to offer you a retirement savings plan. Here’s what you need to know based on the type of plan you’re offered.
- Your 2021 and 2022 annual contribution amount is $6,000 if you’re under the age of 50. Aged 50 or older? You can contribute up to $7,000 a year.
- You always have access to this account regardless of where you work and you can manage it from an app on your phone.
- Icon provides you with guided investment options based on your answers to a short survey. If your investment and savings strategies change.
- Your contributions are tax-deductible in the year you make them.
- Your contributions are automatically deducted from your paycheck, enabling you to “pay yourself first”.
- Regardless of how much you work, you’re eligible to contribute to your Icon IRA.
- Your annual contribution amounts are $19,500 for 2021 and $20,500 for 2022 if you’re under the age of 50. If you’re aged 50 or older, you can contribute an additional $6,500 per year.
- Your contributions are tax-deductible in the year you make them.
- These types of plans tend to charge high fees which can eat into your savings over the long term. Make sure to read your plan documents to make sure the fees your 401k administrator is charging are reasonable. If not, notify your employer.
- Your investment options might be limited, depending on the type of plan your employer put in place. You will have to read the plan literature to learn which are in line with your current investment and savings strategy.
- If you leave your employer, you can: leave your money where it is, complete a rollover to the 401k your next employer offers (if they offer one), roll your money over to an Icon IRA, or cash out.
- These types of accounts are typically only available to full-time employees.
New York State Secure Choice Savings Plan
- This is a payroll IRA so your annual contribution limit is $6,000 for 2021 and 2022 if you’re under the age of 50. Aged 50 or older? You can contribute up to $7,000 a year.
- Your employer will automatically enroll you in this retirement savings plan and if you don’t choose another contribution amount, 3% of your wages will automatically be deducted from your paycheck and contributed to your account.
- You can opt out of this plan at any time.
- If you opt out, you can only opt back in during the next open enrollment.
- You will have to read the plan literature to choose the investment options that are inline with your investment and savings strategies.