Retirement Program Soon Mandatory for NY Small Business OwnersBy Lee Korn | September 22, 2022
If you run a small business in New York, your company’s retirement savings program could be changing in the near future. The New York State Secure Choice Savings Program (SCSP) has been available to employers on a voluntary basis since 2018. It’s a state-sponsored retirement program designed to help New York workers who don’t have access to a retirement savings program through work. Last fall, Governor Kathy Hochul signed a bill that will require many small businesses to enroll.
The timeline is still being ironed out, but getting familiar with the SCSP now can help make for a smooth transition when the time comes. Here’s what it means for New York-based small business owners.
How the New York State Secure Choice Savings Program Works
The SCSP is geared toward helping nonprofit and private sector employees who don’t have an employer-sponsored retirement plan. The program uses automatic payroll deductions to funnel after-tax dollars into a Roth IRA. It’s open to both part-time and full-time workers who are 18 and over, though employees retain the right to opt out at any time if they choose. Participation in the program has always been voluntary for employers.
The automatic contribution amount defaults to 3% of the employee’s wages, though workers can select a different percentage or dollar amount. The only stipulation is that it cannot exceed annual IRA contribution limits. For 2022, that’s $6,000 across all IRAs ($7,000 if you’re 50 or older).
The SCSP board manages the employee IRAs. This includes making investment decisions on their behalf. It’s the board, not the employer, that acts as the fiduciary. This protects employers in terms of liability. The state also covers the administrative fees of getting the program up and running—but eventually, these expenses will be paid using funds deposited into the program.
Which Businesses Will be Required to Participate?
Again, employer participation has always been optional since the SCSP’s inception. In October 2021, new legislation communicated that it will soon be mandatory for New York businesses that meet all of the below criteria. Those that do will be expected to automatically enroll their employees.
- The business has been operating for at least two years.
- The business has always had 10+ New York-based employees during the last calendar year.
- The business has not offered a qualified retirement plan within the last two years.
When the new rules take effect, employers must provide workers with necessary information about the program and automatically enroll them. This includes facilitating payroll deposits into the program and managing employee contributions.
When Will It Go into Effect?
The timeframe hasn’t been clarified just yet. As of late January, Governor Hochul’s office indicated that the board is positioned to begin implementing the program. They also directed the Department of Taxation and Finance to take the appropriate steps to do so. However, the board has not announced when mandatory participation will officially be open for enrollment. Insiders speculate that it will be sometime in late 2022.
What Does It Mean for New York Small Business Owners?
The state is expected to communicate with employers regarding important dates and next steps. When mandatory participation does begin, employers will have to establish their payroll deposit system within nine months. With that said, the Secure Choice Savings Program could be a great opportunity to help your employees save for their future. As the employer, you won’t be required to kick in funds or match any portion of employee contributions. The fees associated with getting established will be covered by the state, and employers aren’t expected to act in a fiduciary role.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act, which passed in 2019, provides some extra benefits. It provides eligible businesses with a $5,000 tax credit for three years to use toward 401(k) administrative fees. That basically makes starting a 401(k) hurdle-free, at least in terms of fees. Beyond that, the Securing a Strong Retirement Act of 2022 (also known as SECURE 2.0) could provide other perks for employers.
The proposed bill, which has been approved by Congress and is now awaiting review by the Senate, would incorporate several key overhauls. Most employers would have to auto-enroll workers into retirement plans at a beginning rate of 3%. From there, the rate would increase by 1% every year (maxing out at 10%).
Running a small business means staying on top of developing news that directly relates to your livelihood and employees. At Opal Wealth Advisors, we understand how these things could potentially affect your overarching financial plan. Give us a shout today to schedule a personalized financial review.
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