Legislation establishing a mandatory auto-IRA retirement savings program for private sector entities in the Big Apple has now been signed into law.
New York Mayor Bill de Blasio on May 11 signed the “Retirement Security for All” legislation, establishing a retirement savings program for private sector employers that do not offer a retirement plan and employ five or more employees. He also signed legislation creating a retirement savings board to administer it.
“Working New Yorkers have been tested like no other due to the pandemic,” de Blasio said in a statement. “With Retirement Security for All, we’re fulfilling our commitment to make New Yorkers more financially secure as they age.” The statement further notes that about 1.5 million private sector employees in New York City have no access to a retirement saving program through their employer.
The New York City Council on April 29 approved Int. No. 888-A sponsored by Council Member Ben Kallos to create the mandatory auto-enrollment IRA program. Under the legislation, the default employee contribution rate will be 5%, which employees could opt out of at any time or adjust down or up to the annual IRA maximum. Savings in the plan will be portable, allowing employees to continue to contribute or roll over their accounts into other retirement savings plans when they switch jobs.
In addition, covered employers are not required to contribute on behalf of employees. However, they will be required to enroll each of their covered employees in the program. They also will be required to remit funds deducted from the earnings of each participant for deposit in the program and to distribute program information to employees. Additionally, the legislation provides a complaint procedure for violations.
Eligible employees are defined as those who are age 21 or over and work at least 20 hours a week. This change is consistent with recommendations made by the American Retirement Association at a September 2019 hearing before the NY City Council.
Int. No. 901-A signed by the mayor establishes a retirement savings board to facilitate implementation and oversee the city’s retirement savings program for private sector employees. Its powers will include determining the start date of the program, entering contracts with financial institutions and administrators, creating a process for participation, and conducting education and outreach to employers and employees. In addition, the board will work with the Comptroller to select the investment strategies and policies.
The legislation will now take effect in 90 days, but the board will have up to two years to implement the program.
Consistent with the ARA’s recommendations, the legislation also includes language specifying that a “covered employer” will not include those employers that have offered or maintained a retirement plan in the preceding two years. The legislation further stipulates that the program shall be designed and operated in a manner that will cause it not to constitute an employee benefit plan under ERISA, and the program shall not be implemented if the corporation counsel certifies that there is a substantial likelihood that such program conflicts with or is preempted by ERISA.
City and State Efforts
In April 2018, the New York State legislature approved the New York State Secure Choice Savings Program, a payroll deduction IRA retirement savings program, for employees who are not offered a plan through their employer. That program is voluntary, however.
According to data by the Georgetown University Center for Retirement Initiatives, there are now 13 states and two cities that have adopted some form of a retirement savings programs for private sector workers, and nearly 20 more that are considering legislation or are studying the issue.
Additionally, in the case of California’s CalSavers program, the U.S. Court of Appeals for the Ninth Circuit recently upheld a lower court’s decision that ERISA preemption did not apply because the plan was established and maintained by the State, not employers; that it does not require employers to operate their own ERISA plans; and that it does not have an impermissible reference to or connection with ERISA.