On May 11, 2021, the New York City Council enacted a local law to establish a retirement savings program for certain employees of private entities.
What are the details?
The new law creates a mandatory auto-enrollment Individual Retirement Account (“IRA”) program for employees of private sector employers in New York who (i) do not offer a retirement plan and (ii) employ five employees or more.
The program has a default employee contribution rate of 5% (but employees can adjust this rate up, down or opt out at any time).
As contributions are made to IRAs, contributions are capped at the federal IRA’s annual maximum (currently $6,000; $7,000 if age 50 or older).
Similar to the requirements of the Employees Retirement Income Security Act of 1974 (“ERISA”), employers must remit funds deducted from each participant’s earnings for deposit in IRAs on the the earlier practicable date (in accordance with the applicable rules).
IRAs are portable, so employees keep the accounts when they change jobs. Employees can transfer accounts to employer plans when eligible.
The law does not provide for any employer contribution and provides for no New York City contribution.
How will the program be administered?
A retirement savings committee will be created to oversee the program. The office will be composed of three members appointed by the mayor.
The council shall have the power:
- To determine the start date of the program;
- Contracting with financial institutions and administrators;
- Minimize fees and costs associated with administering the program;
- Create a process for people not employed by a covered employer to participate; and
- To conduct education and awareness activities with employers and employees.
The board will work with the monitor to select investment strategies and policies and must report annually on its activities and actions.
When must employers comply?
The new law takes effect 90 days after it is enacted, but the council has up to two years to implement the program.
Affected employers are not required to take immediate action, but should continue to monitor developments in this area to ensure they are prepared to comply when the program is finally implemented.
Are there penalties for non-compliance?
Yes. The legislation provides for penalties per employee which increase in the event of multiple violations. Penalties for failure to comply with record keeping requirements may also apply. And actions can be brought against employers who fail to enroll employees or who fail to timely remit employee contributions under program rules.
Is the program covered by ERISA?
The law enacting the program specifically provides that the program is not intended to be a retirement program covered by ERISA.
Ideally, the program comes right after a decision by a panel of three judges in the United States Ninth Circuit Court of Appeals which upheld a district court’s dismissal of a challenge to California’s CalSavers program. The panel found that ERISA is not ahead of California law that creates CalSavers, a state-run mandated IRA program for eligible employees of certain private employers who do not provide their employees with a tax-qualified retirement plan.
This decision reinforces the position taken by New York City (and the many other state and local jurisdictions that have adopted these mandatory IRA-based retirement plans in recent years) that such plans and programs are not covered by the ‘ERISA.
Jackson Lewis continues to navigate the changing landscape of employee benefits.