On May 11, the City Council of New York enacted a local law to establish a retirement savings program for certain employees of private businesses.
What are the details?
The new law creates a mandatory auto-enrollment payroll deduction individual retirement account (IRA) program for employees of private sector employers in New York City that do not offer a retirement plan and employ five or more people.
The program provides for a default employee contribution rate of 5 percent but employees may adjust this rate up or down or opt-out of at any time.
As contributions are made to IRAs, contributions are capped at the annual federal IRA maximum, currently $6,000 (or $7,000 if age 50 or above).
Much like requirements under the Employee Retirement Income Security Act (ERISA), employers must remit funds deducted from the earnings of each participant for deposit in IRAs on the earliest practicable date (consistent with applicable rules).
The IRAs are portable and thus employees retain the accounts when they move jobs. Employees may roll the accounts over into employer plans where eligible.
The law does not provide for any employer contribution and does not provide for contributions by New York City.
How will the Program be Administered?
A retirement savings board will be established to oversee the program. The board will consist of three members appointed by the Mayor.
The board will have the power:
- To determine the start date of the program.
- To contract with financial institutions and administrators.
- To minimize fees and costs associated with the administration of the program.
- To create a process for those not employed by a covered employer to participate.
- To conduct education and outreach to employers and employees.
The board will work with the Comptroller to select the investment strategies and policies and must report annually on its activities and actions.
When do employers need to comply?
The new law takes effect 90 days after enactment, but the board has up to two years to implement the program.
Affected employers need not take any immediate action, but they should continue to monitor developments in this area to ensure that they are prepared to comply when the program is ultimately implemented.
Are there any penalties for failing to comply?
Yes. The legislation provides for per employee penalties that escalate with multiple violations. Penalties for failure to comply with recordkeeping requirements may also apply. And actions may be brought against employers who fail to enroll employees or who fail to timely remit employee contributions under the program rules.
Is the program covered by ERISA?
The law enacting the program provides specifically that the program is not intended to be a retirement program covered by ERISA.
Conveniently, the program comes just following a decision by a three-judge panel in the U.S. Court of Appeals for the Ninth Circuit that affirmed a district court's dismissal of a challenge to California's CalSavers program. The panel held that ERISA does not preempt the California law that creates CalSavers, a state-managed mandated IRA program for eligible employees of certain private employers which do not provide their employees with a tax-qualified retirement plan.
This decision bolsters the position taken by New York City (and the many other state and local jurisdictions that have enacted mandatory IRA-based retirement plans in recent years) that such plans and programs are not covered by ERISA.
Melissa Ostrower, Robert R. Perry and Richard I. Greenberg are principals in the New York City office of law firm Jackson Lewis. © 2021 Jackson Lewis. All rights reserved. Reposted with permission. This article was slightly edited from the original.