401k, IRA: How to choose a retirement plan that’s best for you
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Three years after New Jersey promised to expand retirement benefits to thousands of Garden State workers, the program remains in limbo, with no set timeline to start nor a firm idea of how many will opt in.
Enacted by state legislators and Gov. Phil Murphy in 2019, the New Jersey Secure Choice Savings Program was supposed to make IRA-type retirement funds available to state residents who work at private businesses with 25 or more workers.
AARP, the advocacy group for older Americans, estimated that year that more than 1.7 million people in the Garden State are employed by businesses that don’t offer such benefits.
Limitations built into the program mean it wouldn’t cover nearly that many. But based on similar efforts in other states, the Secure Choice program could provide retirement savings to at least 53,000 more New Jerseyans – if it ever gets up and running.
The state missed the law’s original starting date of March 28, 2021, citing the pandemic for the delay. Another March deadline came and went this year, and it’s unclear when benefits will be available, said Luis De La Hoz, a member of the state board charged with overseeing the program.
His hope is for Secure Choice to be available by January, though even that could be an ambitious timeline.
“The good thing is that this was signed into law, and now we are active,” he said.
A spokesperson for Gov. Murphy said there is no timeline for when the program would start.
“Am I disappointed that it’s going to take this long to launch an important program? Yeah,” said one of the main sponsors of the 2019 law, state Assemblyman Roy Freiman, D-Somerset. “But there is also a recognition that some of it was unavoidable.”
“In hindsight,” he said, “there was a year before the pandemic where work could have taken place.”
Under Secure Choice Savings, the state would set up its own retirement fund and automatically enroll employees at businesses that are more than two years old, have at least 25 staff and don’t offer their own benefits.
Deductions would be set at 3% of employee pay. No contributions would come from employers – a restriction put in place to keep the program in line with federal regulations.
Coordinating with numero employers ‘a Herculean task’
The stalled rollout has triggered confusion, said Eli Fried, a financial advisor who has spoken at several of the board’s meetings.
Some businesses have heard from lawyers pressuring them to “join this plan that doesn’t [exist],” said Fried, CEO of Leatherback Investments, based in Lakewood. “It created a bit of a panic in certain circles. The website only went up a couple weeks ago.”
California, Illinois and Oregon have similar programs on which New Jersey’s was modeled, while New York enacted its own version in 2021.
For Secure Choice to get going in New Jersey, the state will need to select an executive director and a fund manager to oversee employee contributions and invest them in the market. Employers will need to set up the payroll deductions, which would be automatically taken out of paychecks of workers who don’t opt out.
“Once they have an executive director, he’s going to piggyback off [other state programs], so it may go faster,” continued Fried.
At a March 11 meeting of Secure Choice’s board this year, New Jersey Assistant Treasurer Andrea Spalla said the goal was to “implement the program as close to March of 2022 as possible,” but “the board should not and does not intend to cut corners,” according to board documents.
With such a lengthy to-do list, Freiman, the Assembly sponsor, said he does not expect the program to roll out for at least another year. Estimating the number of companies or workers who will join has been difficult, he added, given the constant churn in the business world, with employers opening and folding regularly.
“It’s a Herculean task,” Freiman said. But, he insisted, the program will eventually help “hundreds of thousands of people.”
As of February, California’s retirement plan had 234,000 individual accounts, representing 1.2% of the state’s total workforce, according to Georgetown University’s Center for Retirement Initiatives. Oregon’s new fund has enrolled an additional 5.1% of employees.
If New Jersey sees similar rates of participation among its 4.3 million workers, anywhere from 53,000 to 223,000 people would gain benefits.
New York’s recently enacted fund is more ambitious, enrolling eligible employees at any business with 10 or more workers. Matching that could cover an additional 729,000 people in New Jersey, the Georgetown Center estimated.
Freiman said he was open to the idea of broadening the scope of New Jersey’s plan, but the first order of business is to make the program operational.
Burden on business debated
Courtney Eccles, a former director of Illinois’ Secure Choice Savings program, and now vice president of state and client relationship management at retirement planning firm Vestwell, said that wouldn’t be a hard lift. “Many states that started with lower employee thresholds … have found that facilitating the process is not at all difficult for small employers,” Eccles said.
Yet some companies have been wary, seeing the program as yet another mandate in what they decry as an already expensive state.
While employers won’t have to contribute to the retirement accounts, they will still have to enroll staff, set up and track automatic payroll deductions and opt-outs and provide the state with any relevant data, noted Pete Isberg, vice president of government affairs with human-resources firm ADP.
Bob Considine, a spokesperson for the New Jersey Business and Industry Association, said in a statement the new program “will take back-office support and money at a time when resources are scarce, and employers are struggling.”
Eccles said many administrative responsibilities under the program fall on the state, with the employer essentially acting as an intermediary between the Secure Choice fund and workers and the employee.
“In all cases, there are no program fees/costs for the employer, they are not fiduciaries, and they do not have the same administration obligations that an employer traditionally would have with an employer-sponsored plan,” she said.
De La Hoz, the Secure Choice board member, said the state is well aware of the concerns.
“It’s very important that that doesn’t cost the employer,” De La Hoz, who also chairs the board of the Statewide Hispanic Chamber of Commerce of New Jersey, said during a November panel on retirement security hosted by NJ Spotlight News.
Employers have little appetite to take on more costs and have “enough things to be concerned about right now,” he added.