New York Enacts Mandatory Self-ARI Law | Hodgson Russ LLP
In an effort to help more of its residents save for retirement, New York City recently passed a law requiring most employers to offer a qualified retirement plan or participate in the retirement savings program. newly created by the city. While a number of states have passed similar legislation, New York joins Seattle as the only city to take this step. However, it seems likely that more states and cities will follow. Below is a description of several of the key features of this new law.
Which employers does this apply to?
This law applies to employers who meet the statutory definition of a “covered employer”. As defined in the law, “covered employers” are employers who: 1) employ at least five employees whose regular duties are performed in New York; 2) employed five or more employees continuously during the preceding calendar year; 3) has been in continuous operation for at least two years; and 4) has not offered or maintained a qualifying pension plan in the past two years.
What must covered employers do?
Covered employers have two main tasks: enrolling covered employees in the retirement savings program and, if the covered employer is a participating employer, remitting funds deducted from each participant’s earnings.
Is there a penalty for covered employers who do not comply?
Yes. Depending on the violation, employers could be subject to a civil penalty ranging from $ 100 to $ 1,000 for each violation.
Who are the covered employees?
“Covered Employee” means any employee: 1) 21 years of age or over; 2) who is employed by a covered employer and who regularly works at least 20 hours per week; and 3) whose regular duties are in New York. Covered employees must be automatically enrolled in the program, but they have the option of opting out.
Where are employee contributions invested and what is the authorized amount?
All participants will contribute to their own IRA, which can be Traditional or Roth. The New York City Comptroller and the Retirement Savings Board are responsible for establishing an investment strategy and policy. While specific investment details are not yet known, the law expressly allows investments to include stocks of mutual funds and exchange traded funds, publicly traded stocks, and fixed income securities. However, this list is not exclusive and other investments may be chosen by the controller and the board. Finally, participants are allowed to allocate the assets of their IRAs among the available investment options, but a default investment option will be designated by the board of directors for participants who do not make an investment choice.
The default contribution rate is 5% of a covered employee’s salary, but employees can increase or decrease this amount at any time. Contribution amounts are subject to the limits established by federal law for the respective account type.
Who runs this program?
The new retirement savings commission, made up of three members appointed by the mayor, and the comptroller of New York City share responsibility for administering this program. In addition, they both have the power to promulgate rules to implement this program.
Who pays for this?
Administrative costs associated with this program will be the responsibility of the participants and not of the employers.
When must covered employers comply?
This law comes into force on August 9, 2021 (90 days after the date of promulgation). However, the board has up to two years to get the program going. If a covered employer does not want to participate in the program, they should move to a qualifying pension plan so that it no longer meets the definition of a covered employer.
Is it a good idea for cities to adopt this kind of legislation?
Time will tell us.