On May 11, the New York City Council enacted local law to establish a retirement savings program for certain employees of private companies.
What are the details?
The new law creates a mandatory, self-enrolling individual retirement account (IRA) program for private sector employers in New York City who do not offer a pension plan and employ five or more people.
The program provides for a default employee contribution rate of 5%, but employees can adjust that rate up or down or opt out 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 you’re 50 or older).
Much like the requirements of the Employees Retirement Income Security Act (ERISA), employers must remit funds deducted from each participant’s income for deposit into IRAs on 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 into employer plans when they are eligible.
The law does not provide for any contribution from the employer and does not provide for any contribution from the City of New York.
How will the program be administered?
A retirement savings board will be set up to oversee the program. The board of directors will be composed of three members appointed by the mayor.
The board of directors will have the power:
- To determine the start date of the program.
- To contract with financial institutions and administrators.
- Minimize the fees and costs associated with administering the program.
- Create a process for those who are not employed by a covered employer to participate.
- Carry out education and awareness activities with employers and employees.
The board will work with the controller to select investment strategies and policies and must report annually on its activities and actions.
When do employers have to comply?
The new law comes into force 90 days after its enactment, but the council has up to two years to implement the program.
Affected employers do not need to take immediate action, but they should continue to monitor developments in this area to ensure they are ready to comply when the program is finally implemented.
Are there penalties for non-compliance?
Yes. The legislation provides for penalties per employee which escalate in the event of multiple violations. Penalties for non-compliance with record keeping requirements may also apply. And actions can be taken against employers who fail to enroll employees or who fail to make timely 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 three-judge panel of the United States Court of Appeals for the Ninth Circuit that upheld a district court’s dismissal of a challenge to the program. CalSavers of California. The panel found that ERISA is without prejudice to 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 retirement plan.
The move reinforces 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 these plans and programs are not covered by the ‘ERISA.
Robert R. Perry and
Richard I. Greenberg are directors of the New York office of the law firm Jackson Lewis. © 2021 Jackson Lewis. All rights reserved. Republished with permission. This article has been slightly modified from the original.