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New Jersey Pivots on State-Run Retirement Plan Design

The Garden State will have a new state-run retirement plan for private sector workers — though not the one that might have been expected.

The state Assembly voted after 1:00 a.m. Tuesday, Jan. 12 to cooperate with Gov. Chris Christie’s (R) conditional veto of a bill creating a state-run retirement plan for private-sector workers, 12 hours after the governor handed down his executive veto.

In proposing the alternative, Christie said, “I believe that the approach taken by the Legislature — mandating participation under a threat of fines for not participating — is unnecessarily burdensome on small businesses in New Jersey,” going on to cite concerns that the state would have been required to bear the initial cost of the program (though reimbursable once funds became available), and that “the bill creates yet another government bureaucracy to oversee and implement the program, while there are plenty of private sector entities with particular expertise that can perform this function instead.”

So, rather than a mandated small employer (25 workers or more) payroll deduction IRA design with employee opt-out, the Garden State will create a small business retirement marketplace to close the gap in private-sector retirement savings modeled after one established in Washington state last year. A marketplace was one of three options outlined in an Interpretative Bulletin the Labor Department issued in November at the direction of President Obama.

The bill, renamed via the conditional veto, is now entitled the New Jersey Small Business Retirement Marketplace Act. It calls for the establishment of a retirement plan marketplace targeted at firms that employ fewer than 100 qualified employees (ERISA eligibility) at the time of enrollment, where a majority of which employees are employed in New Jersey.

Marketplace Criteria

Under the proposal made by Christie and approved by the state legislature, the State Treasurer or the Treasurer’s designee is directed to “design and implement” a plan for the operation of the marketplace, and thereafter will “facilitate the connections between eligible employers and approved plans included in the marketplace.”

The firms participating in the marketplace are required to offer a minimum of two product options, including a target-date or similar fund and a balanced fund. The marketplace will offer three options: a SIMPLE IRA, a payroll deduction IRA and a MyRA.

Participating employers will not be assessed an administrative fee or surcharge, and the program is directed not to charge enrollees more than 100 basis points in total annual fees.

Among other things, the bill directs the State Treasurer’s office to:

  • establish a protocol for reviewing and approving the qualifications of all participating financial services firms;

  • design and operate a website that includes information on how eligible employers can voluntarily participate in the marketplace;

  • develop marketing materials about the program; and

  • identify and promote tax credits and benefits for employers/workers related to participating in the program.

The bill Christie vetoed — which had been sponsored by the Democratic leaders in both houses of the state legislature — would have created a Secure Choice Savings Program. Under that program, businesses with at least 25 employees who don’t currently have an employer-provided plan would have been required to automatically enroll workers, who could have opted out. Businesses with fewer employees could choose to offer the plan to their workers. While administered by a seven-member board of state officials, the money would not have been guaranteed by the state, and it didn’t require any state funding, though the Garden State would initially have had to incur the costs of setting up the program.