Synopsis of Seyfarth: New York City has joined the growing list of jurisdictions to establish a mandatory automatic retirement savings IRA program for private sector employers who do not provide employees with access to a retirement plan. In doing so, it is part of the trend to offer employees who do not have access to an employer-sponsored plan to save for their retirement during their working years through a payroll deduction process.
Three states – California, Oregon and Illinois – have established and operate such state-level programs, under which covered employers are required to automatically enroll employees in savings accounts. -IRA retirement. California’s program, CalSavers, recently prevailed in the U.S. Court of Appeals for the Ninth Circuit against a challenge that the program was pre-empted by ERISA. The main basis for this decision is that the program is not administered by a private employer and that employers who maintain ERISA retirement plans are exempt from coverage by the program (therefore no interference with an ERISA plan).
Several other states have started implementing similar programs, in some cases mandatory and in others (such as New York State) voluntary. All programs seem to have in common that they create a board of directors to manage the program and then let that board work out the details of the implementation.
New York City legislation follows the same pattern: one statute establishes the program and another establishes a “retirement savings board” to implement and oversee the program. The program applies to private sector employers located in the City who employ at least five employees and who do not currently offer a pension plan such as a 401 (k) or pension plan. The default employee contribution rate, which will apply to employees 21 years of age or older and working at least 20 hours per week, is set at 5%, although an employee may choose a higher rate (up to maximum annual IRA) or a lower rate (including none).
Although City legislation comes into force 90 days after promulgation (i.e. August 2021), the program will only come into effect once implemented by the Retirement Savings Commission. , which should take up to two years. In addition, the program will not come into effect if counsel for the City’s corporation determines that there is a substantial likelihood that the program will conflict with, or be preempted by, ERISA. This decision should take into account the decision of the Ninth Circuit, given the strong resemblance between the city program and the CalSavers program.
Like several other states, New York State has authorized an auto-IRA program (the New York State Secure Choice Savings Program), but the New York State program differs from the Most other programs of this type use Roth IRAs (after tax), which have a limit on the contributor’s income, although this limit is unlikely to be exceeded by employees targeted by the program. Additionally, the New York State program is voluntary – no employer is required to make it available to employees.
No conflict should arise between the city’s program and New York State’s Secure Choice savings program, as the current state program is voluntary. However, there are currently proposals to make the New York State curriculum mandatory, in which case a conflict could arise. Even under New York State’s current program, it is unclear whether the city would accept Roth IRA contributions as meeting the city’s mandate, leaving aside questions about the contribution rate and which employers and employees are covered.
A more formidable operational difficulty for employers in the city is that Connecticut and New Jersey have authorized, but not yet implemented, mandatory self-IRA programs for employers located in those states, although Connecticut would launch a pilot program in July 2021. While all of these programs exempt employers who maintain an ERISA pension plan, there may be employers located in the New York metropolitan area whose employees will be subject to different terms of reference depending on whether they are are employed in New Jersey, Connecticut or the city itself, all of which will require compliance from that employer, but with possibly different rules.
At the moment, a New York City employer has nothing to do. We are monitoring developments related to this new program, including the determination of the company’s legal counsel as to whether or not there is a substantial likelihood that the New York City program will be preempted by ERISA, and we will report.