Gov. Phil Murphy on Thursday will sign a bill into law creating an entirely new retirement savings plan for private-sector workers in New Jersey who aren’t able to save through an employer-sponsored 401(k).
The Secure Choice Retirement Plan aims at boosting New Jerseyans’ retirement nest eggs by automatically enrolling workers in an IRA that is managed by the state. The state has at least two years to get the program up and running.
The goal of the savings plan is to promote “greater retirement savings for private-sector employees in a convenient-low cost, and portable manner,” according to the bill (A4134), which is modeled after the Illinois Secure Choice Program.
It targets some 1.7 million workers in the Garden State whose employers don’t provide access to a retirement plan. Bill sponsors have said that of employees who don’t have a payroll deduction, only 5 percent save for retirement “on a consistent basis.”
Here’s what you need to know:
How do you enroll in the Secure Choice Savings Plan? Will they really take money from your paycheck?
The savings program creates an automatic enrollment payroll deduction IRA, which means many workers will automatically contribute 3 percent of their wages to an Individual Retirement Account, or IRA.
That’s many workers, but not all. The bill requires employers with 25 or more employees that don’t already offer a qualified retirement plan, such as a 401(k), to arrange an automatic payroll deduction. Employers will fewer than 25 workers have the option of creating the payroll deduction but are not legally required to.
You can opt out if you don’t want to be in the retirement plan.
How much can you contribute?
Workers will be automatically enrolled at a 3 percent contribution but can adjust that rate to a different percentage of your wages or to a set dollar amount. You can change your contribution rate one time per quarter.
What if you opt out and then change your mind — or join the program and change your mind?
Under the bill, employers will hold an open enrollment period at least once a year, during which workers who previously chose not to participate can opt back in.
You can also pull out of the plan at any time.
The board that oversees the fund will have to disseminate information on how to contribute, how to opt out, how to change your contribution level and how to withdraw your savings.
Who controls the money?
The law will create a New Jersey Secure Choice Savings Board that includes the state treasurer, the state comptroller, the director of the Office of Management and Budget, two public members appointed by the governor at the recommendation of Legislative leaders, a business trade representative appointed by the governor, and a representative of people enrolled in the plan appointed by the governor.
Members appointed by the governor require the consent of the state Senate.
Board members are not compensated.
They are charged with implementing and overseeing the savings program and will establish various investment options and create all the processes for enrollment and withdrawal.
Do you have a say in how your money is invested?
To an extent. The board may offer workers a “capital preservation fund” that’s conservatively invested to protect the assets, a life-cycle fund that adjusts risk based on the enrollee’s proximity to retirement, a default investment fund for people to don’t make an election, and any other investment options.
What are the administrative fees associated with the plan?
By law, administrative costs and expenses for the management of the plan cannot exceed 0.75 percent in the first three years and 0.6 percent thereafter. This cap includes any investment fees.
The state is expected to front the cost of getting the plan up and running, and then the plan will take over those costs and reimburse the state.
The plan will be audited annually and that report, which will include fees and expenses, will be available to the public.
Will my employer kick in money? Will the state?
No. And no.
The employer’s role is really limited and its obligations are administrative only. They’re not meant to bear any financial risk or liability.
It’s worth noting that this plan is completely separate and apart from the New Jersey public pension fund. That is a defined-benefit plan that promises state and local government workers a certain benefit after they retire. The government employers bear the risk of investment losses.
Under the Secure Choice program, you have an individual retirement account and the investment gains or losses are your own.
“The state shall have no liability for the payment of any benefit to any participant in the program,” the bill says.
If the state runs it, can the state raid it?
Here’s how the bill puts it: “The amounts deposited in the fund shall not constitute property of the state and the fund shall not be construed to be a department, institution, or agency of the state. Amounts on deposit in the fund shall not be commingled with state funds and the state shall have no claim to or against, or interest in, such funds.”
