It comes as no surprise that New Jersey has taken a low key approach to The New Jersey Secure Choice Act, which provides the state of NJ with another opportunity to "look under the hood" at company employee benefits. All New Jersey companies with 25 or more employees will need to facilitate RetireReadyNJ during the 4th quarter of 2024 if a 401k plan is not currently offered.
RetireReadyNJ Program summary
• Program Eligibility- Employee is at least 18 years old, and has earned wages in NJ.
• Employer provides a census to the state adding employees to RetireReadyNJ
• NJ will auto enroll the employees with a 3% payroll deduction
• NJ will communicate directly with the employees to explain their options during the 30 day opt-out period.
• At the end of the opt-out period, employers must record the employees' choices, begin payroll deductions, and submit the contribution information and funding for the employees who choose to stay in RetireReadyNJ.
• RetireReadyNJ defaults employees into an individual Roth IRA
• Maximum IRA contribution in 2024 is $7,000
For companies to stay in compliance, they must continue to send payroll contributions in a timely manner, maintain employee records, including updating contribution rate changes as needed, adding new hire employees, and marking former employees as terminated.
What can an employer do to avoid the administrative burden and NJ oversight?
The Federal Secure Choice Act of 2019, introduced two new qualified retirement plans MEPs and PEPs in addition to the single company 401K. Any company participating in one of these plans is exempt from RetireReadyNJ.
A major difference between qualified retirement plans and RetireReadyNJ is program eligibility. For a qualified plan the employee must be 21 years of age with at least 1,000 hrs. of service versus RetireReadyNJ 18 years of age and offered at time of hire.
Recap of the three major qualified plans
1) 401(k) Plans
• A 401(k) plan is a tax advantaged retirement account offered by employers to help their employees save for retirement.
• Employees can contribute part of their paycheck pre-tax to be invested in that account
• Many employers match a percentage of employee contributions
• The money grows tax deferred until retirement
• Benefits may include employer match, tax advantaged savings, high contribution limits, a loan option, earlier penalty free access, assets protected from creditors, and exemption from IRA aggregation ruled.
2) MEP (Multiple Employer Plans)
• MEP's are retirement savings plans that allow multiple employers in the same nexus to pool their resources to offer their employees a 401(k) plan
• They are managed by a third-party administrator, reducing the administrative burden for each employer
• Benefits include reduced costs, less administrative work, and potentially better investment options
3) PEP (Pooled Employer Plans)
• PEPs are a type of MEP introduced by the SECURE Act of 2019
• They allow unrelated employers to join a pooled plan, with a pooled plan provider taking on most of the fiduciary responsibilities.
• Benefits include reduced costs, less administrative work, and potentially better investment options similar to MEPs.
• However, PEPs offer more flexibility than MEPs, as employers can customize their portion of the plan
Differences
1) While all 3 of these plans offer tax-advantaged retirement savings, they differ in who can offer them and how they are managed
2) A 401(k) is offered by a single employer, while MEPs allow similar companies (Associations) and PEP's permit unrelated companies to join together
3) MEP's require all companies to use the same plan, while PEPs allow more customization
4) PEPs also shift more the fiduciary responsibility to the pooled plan provider, potentially reducing the financial liability for employers.
5) The maximum yearly contribution to a 401(k) in 2024 is $23,000 vs $7,000 for an IRA
Want to learn more about how your company can avoid the Administrative Burden and Oversight of RetireReadyNJ?
Give Two River Benefits a call to learn which 401(k) alternative fits your company!