By: Jay Freeberg
Private-sector employers that do not offer a retirement plan and have five or more employees must now create a mandatory auto-enrollment payroll deduction IRA program after the New York City Council approved the legislation May 12.
While the law goes into effect 90 days after the date of signing, which was May 12, the Retirement Security Board has two years to set up deadlines and participation requirements. Since failure to comply can result in a civil penalty of no more than $250 per eligible employee or other eligible individuals, we encourage you to contact the Janover team by clicking here to help determine your eligibility, that of your employees, and offer assistance to establish a retirement plan to comply with the new law.
The new law, which covers employers that have operated continuously for two years and have had five or more employers without interruption for the past year, amends the city of New York’s administrative code in relation to establishing a retirement savings program for certain self-employed individuals and employees of private entities. Plans can include:
- a qualified retirement plan under internal revenue code sections 401(a), 403(a), 403(b), 408(k), or 408(p)
- a savings incentive match plan for employees of small employers (SIMPLE IRA Plan or SIMPLE 401(k) plan)
- a simplified employee pension (SEP)
- a salary reduction simplified employee pension (SARSEP)
- a payroll deduction IRA
- the New York state secure choice savings program
Employers are not required to contribute on behalf of participants or incur any administrative fees related to the plan. They must, at a minimum:
- enroll each of their covered participants
- include participants with a process for withdrawals and disbursements
- provide withdrawal options, including lump-sum or periodic payments
- maintain separate records and accounting for each account
- distribute information about the program to employees
- provide reports to participants no less than once a year
The default contribution rate is 5%, which employees can adjust up or down, or opt-out at any time, up to the annual IRA maximum of $6,000 (or $7,000 if age 50 or older). The plan would be portable so when employees can continue to contribute or roll over their accounts into other retirement savings plans if they change jobs.
Eligible employees are those who:
- work more than 20 hours per week
- are older than 21
- have regular duties in the city