New Jersey Retirement Plan: State-Mandated or In-House?

Update as of June 30, 2024

As of June 30, 2024, the New Jersey Secure Choice Retirement Savings Program will be accepting registration for private employers with 25 or more employees. The state will notify employers with instructions and deadlines to register for or certify exemption from the program.

The implementation deadlines are: September 15, 2024, for covered employers with 40 or more employees; and November 15, 2024, for covered employers with 25 to 39 employees.

For more information, contact your Abacus Payroll advisor.

The state of New Jersey recently implemented a mandatory retirement fund for small business employees, becoming the ninth state to do so.

While the plan is employer-friendly insofar as employers don’t have to contribute to it out-of-pocket, there are still some considerations and incentives for using your own in-house 401(k) plan to help your employees plan for retirement and a brighter financial future.

Following are the basic details of the new state plan along with a few reasons to open and maintain your own retirement plan, even if your New Jersey business is eligible for the state coverage.

NJ State-Mandated Retirement: The Logistics

Wait, is New Jersey really mandating retirement savings? How does this affect employers? And at what cost?

In 2019, Governor Murphy established the Secure Choice Savings Program, a state-sponsored plan for workers who do not have a work-place retirement savings plan to enroll in. However, the global pandemic has indefinitely postponed the implementation and enrollment start date. Until a new date is announced, employers should still evaluate whether they want to participate in the default state plan or host their own employer retirement plan.

If an employer has 25 or more employees, employees will automatically have a percent of their paychecks deducted and placed into the state-protected IRA. While it is mandated, an employee can opt out of the automatic contribution if they do not wish to partake. Employers with fewer than 25 employees are not required to participate, but do have the option of opting into the fund if they do not have their own.

There is no cost to employers as the Savings Program is funded through a payroll deduction. Failure to comply, enroll your eligible employees, or remit the contributions to the plan can result in various penalties and fines.

The State office estimates that 1.7 million private workers did not previously have access to a retirement savings option and can now benefit from a consistent pre-tax paycheck contribution. The other benefit touted by the state is that if the employee transitions to another New Jersey employer, their funds can seamlessly stay within the state-backed plan.

At first glance, the plan is attractive to employees and employers alike; your workers will see their money invested in a retirement fund with no hassle for them, and you won’t have to kick in a single cent of the money you’ve earned. However, it’s pertinent to remember that there are still a few reasons to provide your own plan.

1. Plan Customization

No two small businesses are alike, so why should your retirement plans be? A financial advisor can help you identify plan goals, navigate options specific to your workforce, implement custom retirement solutions, and regularly check in on your plan’s progress.

Even though three-percent is the base deduction amount for the Secure Choice Savings Program, employees can opt to raise or lower the amount they invest based on their own needs. While this is certainly better than not having a retirement fund at all, three-percent is still a fairly low number, especially when an employer isn’t matching your contributions—a perk of traditional workplace retirement funds.

A custom plan  can take into account your individual company needs and goals to create a plan from scratch that works best for you and your employees. A 401(k) plan is a crucial benefit for employee recruiting and retention, so you might as well make it your own. Plus, if you have questions or concerns, you have a financial advisor familiar with the plan that you can turn to.

2. Attract Candidates

Offering a more comprehensive retirement plan with contribution-matching is a welcome alternative to the proposed state-managed “Auto IRA,” as doing so would allow you to create a competitive employment atmosphere in a sea of other companies simply going along with the bare minimum. This could facilitate a more selective employee pool, leading to a more productive team overall.

3. Employee Loyalty

Providing more than the bare minimum isn’t just about being competitive, of course; it’s also a good way to demonstrate to your employees that you care about their long-term financial health. Even if you only match a small percentage of their investment or set a fixed dollar amount on your contribution, you are ensuring that your employees rightfully feel supported.

It’s also worth noting that, as far as benefits go, offering a 401(k) program is on the cost-effective end of the spectrum. You can’t buy employee loyalty outright, but an in-house retirement fund is definitely a healthy incentive to stick around—especially if it goes above and beyond the state’s current program.

4. Employee Longevity

Supporting your employees’ financial futures may not help you sleep at night, but your employees themselves will benefit in the short-term from your long-term scaffolding. Rather than jumping to different jobs with better benefits or burning out due to stress, you’ll find that your workers are more relaxed when they have clearly defined retirement plans that outweigh the lowest common denominator.

Employees who aren’t stressing about the future to the same degree as those who reap the minimum available benefits will also be able to work more efficiently in the present, thus increasing your overall productivity and preventing workplace unhappiness.

5. Reduced Administrative Burden

Employers in a state-run program may have more manual duties when it comes to registering and enrolling employees, managing deferrals and opt-outs, synchronizing with payroll, and more. Rely on financial and payroll professionals who will help keep you compliant with the state requirements.

Determining what’s best for your employees is always a challenge, especially when you’re considering investments that can enhance their futures. For more insight into how you can competitively support your employees without breaking the bank, call Abacus Payroll at (856) 667-6225 today.

Easier, Friendlier Payroll Is In Your Reach

Small businesses are a big deal to us. Eliminate the hassle of over complicated payroll and HR processes by partnering with a local and responsive provider.

Focus on your business and leave the payroll and tax to us. Count on Abacus Payroll.