Employee benefits remain a critical factor in attracting and retaining top talent. A recent New Jersey mandate is poised to have a significant impact, and employers are working to understand its implications.
Governor Phil Murphy signed a New Jersey Secure Choice Savings Program Act, also known as the NJ 401k Mandate, on March 28, 2019. Due to the COVID-19 pandemic, the implementation date was postponed to March 28, 2022.
The Act requires private-sector employers in New Jersey to offer a retirement savings plan to their employees. While many companies already provide 401k plans, this state-mandated program ensures that more employees have access to retirement savings in a low-cost, portable, and convenient way. Employers must comply with the requirements or face penalties.
Who Must Comply with the NJ 401k Mandate?
The mandate applies to private-sector employers (profit and nonprofit) that meet all of the following criteria:
- 25 or more full-time employees in the preceding year
- Operating in whole or in part within New Jersey for the past two years
- Do not currently offer a qualified retirement plan to employees
Employers that fall into this category are required to offer a retirement savings plan.
The following are exempt from the mandate:
- Federal, state, county, or local government employers
- Employers who already offer a qualified retirement plan
- Employers with unionized workers who have a retirement benefit negotiated in their collective bargaining agreement
How the NJ 401k Mandate Works
Participating employers must automatically deduct 3% of each employee’s pay (pre-tax) and deposit it into a retirement savings account. Employees may opt out of the plan or adjust their contribution rate.
The deducted funds are deposited into an IRA account managed by the state-run program. All contributions are 100% vested and remain the employee’s property, even if they leave the organization.
As an employer, your responsibilities include:
- Deducting the required amount from employee paychecks
- Depositing contributions into the state-run program
- Paying any administrative fees associated with the program
You are not responsible for:
- The investment performance of the retirement accounts
- Employee decisions to opt out or change contribution rates
Consequences of Non-Compliance
Failing to comply with the NJ 401k Mandate can result in significant fines:
- Year 1: Written warning from the state
- Year 2: Up to $100 per employee not enrolled
- Years 3-4: Up to $250 per employee
- Year 5 and beyond: Up to $500 per employee
For example, if 50 employees are not enrolled in Year 2, the fine is $5,000. By Year 5, it could reach $25,000.
Additionally, failing to remit collected deductions to the state-run program incurs a $2,500 fine for the first offense, increasing to $5,000 for subsequent violations.
Stay Compliant with the NJ Retirement Plan
Understanding your obligations under the NJ 401k Mandate is crucial. Non-compliance can strain your finances and affect your organization’s operations.
The Cg Team is here to help employers navigate this mandate, ensuring compliance while implementing a strategy that works for your organization.
Contact us today to learn more about how we can assist with the NJ state-mandated retirement plan and employee benefits compliance.
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