New Jersey Secure Choice Act: What employers need to know
In recent years, many states have established state-mandated retirement programs to help businesses provide retirement benefits to their employees and help people save for their futures. States that have introduced state-sponsored retirement programs include California, Illinois, Oregon, Washington, New York, and New Jersey.
Currently, 1.7 million workers in New Jersey do not have access to a retirement savings benefit through their employer. To close that gap, New Jersey's governor signed a state-sponsored retirement plan into law in March 2019, known as the New Jersey Secure Choice Act. The program lets employees save for retirement with an Individual Retirement Account (IRA).
Below we'll explain what business owners in New Jersey need to know about the program, including:
- Is the New Jersey Secure Choice Act mandatory?
- How does the program work?
- What deadlines do business owners need to meet?
- What are the qualifying alternatives to the New Jersey Secure Choice Act?
Let’s dive in:
How does the New Jersey Secure Choice Act work?
Employers must enroll eligible employees into the New Jersey Secure Choice Act program through an automatic payroll deposit, unless an employee opts out. The standard rate of contribution is 3% and employees can change their contribution level once a year.
Is the New Jersey Secure Choice Act retirement mandate mandatory?
Yes, the New Jersey Secure Choice Act is mandatory for:
- Employers who have at least 25 employees;
- Employers that have been in business for at least two years, and;
- Employers who have not offered a qualified retirement plan in the previous two years.
While the program is mandatory for employers, eligible employees can opt out at any time. Employees are eligible for the plan if they are 18 years or older, live in New Jersey or are employed by a New Jersey employer, and their wages are subject to tax withholding.
Are there penalties for employers that don't comply with the New Jersey Secure Choice Act?
Yes — an employer could face fines if they don't enroll an eligible employee who hasn't opted out of the program. Fines can include a written warning in the first year and a $100 fine in year two. In years three and four, employers could receive a $250 fine for each employee who wasn't enrolled in the program or didn't opt out.
Employers can avoid penalties by enrolling eligible employees in the state-mandated program or by signing up for a retirement plan provider like Guideline.
What deadlines do I need to know?
While the mandate became law in 2019, the board is still working to launch the program. For the most up-to-date deadline information, check New Jersey's program website or sign up for e-notifications from the state about the program.
How much will the New Jersey Secure Choice Act cost?
The state program plans to keep administrative fees low. These fees are taken from employees' accounts and can't exceed 0.6% of the fund's total balance. The program is free for employers.¹
What alternatives can I consider?
To meet the mandate, New Jersey employers can offer a qualified retirement benefit, like a 401(k). 401(k) plans have many benefits, including:
- Because 401(k) plans have higher contribution limits, employees can save more money with an employer-sponsored 401(k) than with a state-mandated IRA.²
- Employer contributions can boost employee participation.
- Plus, employer contributions are tax-deductible.³
- 401(k) plans are flexible and can be customized to suit your business needs, unlike one-size-fits-all state programs.
- A 401(k) plan can give your company a competitive advantage in the job market, making it easier to attract and retain talented employees.
- An impactful retirement benefit can boost employee engagement and improve their overall financial well-being.
As an employer, you have several options to comply with the new mandate. You can choose either to enroll your employees in the New Jersey Secure Choice or offer your own company-sponsored retirement benefit, like Guideline 401(k). The decision is yours — and either way, you'll be helping your employees save for their future.
Guideline has prepared this summary from third-party sources as of August 2023. The information herein is considered to be reliable at the time of writing, may not necessarily be all-inclusive, is not guaranteed as to accuracy and is subject to change at any time without notice. The information provided herein is general in nature and is for informational purposes only. It should not be used as a substitute for specific tax, legal and/or financial advice that considers all relevant facts and circumstances. You are advised to consult a qualified financial adviser or tax professional before relying on the information provided herein. Deadlines, fees, and other program details are subject to change by the state without notice and should be checked prior to making any decisions. If you already offer a qualified employer-sponsored plan, exemptions may be required. For more program details go to https://nj.gov/treasury/securechoiceprogram/
¹ The first three years after the establishment of the program annual administrative fees may be set at not more than 0.75 percent of the fund’s total balance. Administrative fees shall include any investment fees incurred. For more information go to https://pub.njleg.state.nj.us/Bills/2018/PL19/56_.PDF.
² Subject to IRS cost-of-living adjustments. In 2023, individuals can contribute up to $22,500 between their traditional 401k and Roth accounts. If you’re 50 or older, you can contribute an additional $7,500 ($30,000 in total). Individuals can contribute up to $6,500 between their traditional IRA and Roth IRA accounts. If you’re 50 or older, you can contribute an additional $1,000 ($7,500 in total)
³ You should consult a tax professional to determine what types of tax credits or deductions your company is eligible to claim.