New Jersey employers who are looking for an affordable way to provide retirement benefits to their employees may want to consider RetireReady NJ. Not only do savings plans like this help attract and retain talent, but they’re also a requirement for some businesses in the Garden State.
What is the RetireReady NJ savings program?
RetireReady NJ is a state-sponsored retirement plan that’s designed to help more private-sector employees save for the future. Participation in this program or another qualified retirement plan is mandatory for businesses that meet certain criteria.
Why is RetireReady NJ being implemented?
Legislators in NJ passed RetireReady NJ to close the retirement savings gap that exists between employees of large business and those of small businesses. In fact, studies show that only 28% of businesses with fewer than 10 employees offer retirement plans1.
How does the RetireReady NJ savings program work?
RetireReady NJ allows employees to contribute a portion of their pretax earnings to an individual retirement account (IRA) via payroll deductions. They are automatically enrolled at a 3% contribution rate, unless they opt out or change their rate, and may contribute $6,000 maximum to the plan per year in accordance with IRS guidelines.
What are some additional features of the RetireReady NJ plan?
- Employers cannot match employee contributions
- Participants may not borrow from their savings
- The maximum contribution limit for employees 50 and older is $7,000
- Plans are portable if employees change jobs
How are investments for RetireReady NJ chosen and managed?
The funds and investment firm have not yet been announced. The following are summarized points from section 11 of the approved bill:
- The board shall establish as an investment option a life-cycle fund with a target date based upon the age of the enrollee. This fund shall be the default investment option for enrollees who do not elect another investment.
- The board may establish any or all of the following investment options:
- Conservative principal protection fund
- A growth fund
- A secure fund whose primary objective is the preservation of the safety of principal and the provision of a stable and low-risk rate of return
- An annuity fund
- A capital preservation* fund that prioritizes the security of the deposit over the rate of return
- A life-cycle fund or any other investment option deemed appropriate by the board
- The board shall not offer more than five investment options in any given calendar year.
* If the board elects to establish a capital preservation fund, it may stipulate that the first $1,000 in contributions shall be deposited into this fund.
What do employers need to know about the RetireReady NJ savings program?
Businesses that meet the criteria for RetireReady NJ must enroll all employees who are at least 18 years of age, work full or part time and receive an annual Form W-2, Wage and Tax Statement – those who receive Form 1099-NEC, Nonemployee Compensation – are excluded.
Which employers does this affect?
RetireReady NJ applies to for-profit and non-profit employers in the public sector who have:
- 25 or more employees
- Been in business for at least two years
- Not offered a qualified retirement savings program in the past two years
Businesses with fewer than 25 employees may also participate in RetireReady NJ, but are not required to do so.
When does it take effect?
New Jersey set deadlines of 9/15/24 for employers with 40 or more employees and 11/15/24 for employers with 25 to 39 employees.
How can employers comply with RetireReady NJ?
Employers have to either implement RetireReady NJ by the appointed deadline or offer their employees a qualified retirement plan through the private market.
Are there penalties if an employer does not comply?
NJ businesses that don’t adhere to state-mandated retirement legislation within one year will receive a written warning from the government. Each subsequent year of non-compliance will result in these penalties:
- 2nd year: $100 per employee
- 3rd and 4th years: $250 per employee
- 5th year and beyond: $500 per employee
How do employers administer the plan?
Administering the RetireReady NJ plan can be burdensome. Employers must:
- Track eligibility status for all employees
- Provide program information to all current and new employees
- Enroll new employees within three months of their date of hire
- Track and honor opt out requests
- Automatically withhold three percent of pretax earnings for those who don’t opt out
- Deposit retirement benefit deductions with the state
- Offer an annual open enrollment period
- Submit an employee census to RetireReady NJ annually
Do SMBs need to participate in NJ state program or can they offer a different retirement plan?
Small and medium-sized businesses that are eligible for RetireReady NJ but elect not to join may sponsor any other qualified retirement plan, such as:
- 401(k)
- 403(b)
- Simplified employee pension (SEP) IRA
- SIMPLE IRA
Employers should weigh all their options and choose the plan that’s best for both them and their employees.
What are the pros and cons of RetireReady NJ?
RetireReady NJ makes it possible for more NJ employees working in the private sector to save for retirement. However, the state-run option doesn’t maximize their saving opportunities because employers cannot match contributions and the annual contribution limits are less compared to other types of plans.
As far as employers are concerned, RetireReady NJ has minimal financial impact on their business. The downside is that they will have more administrative responsibilities taking up their time.
How does the RetireReady NJ savings program compare to alternatives?
See how RetireReady NJ measures up against retirement plans available through ADP:
ADP designs retirement plans that work better
| Features | RetireReady NJ IRA2 | ADP 401(k) | ADP SIMPLE | ADP SEP |
|---|---|---|---|---|
| Auto Enroll | Mandatory 3% | Available | Available | N/A |
| Auto Escalation | N/A | Available | N/A | N/A |
| Payroll Integration | Manual via website or FTP | Full integration | Full integration | N/A |
| Investment Option | Limited | Broad range of funds | 65+ options | 65+ options |
| Investment Advice | N/A | Available | Available | Available |
| Taxability | Pretax contributions | Pretax & Roth contributions | Pretax contributions | Pretax contributions |
| Annual Contribution Limit | $6,500 employee contributions + $1K catchup (over 50) | $23,000 employee contributions + $7,500 catchup (over 50) + optional employer contributions | $16,000 employee contributions + $3,500 catchup (over 50) + employer contributions | 25% of total compensation up to $66,000 (all employer contributions) |
Frequently asked questions about RetireReady NJ
Is the RetireReady NJ program voluntary or mandatory?
Employers in New Jersey who have been in business for at least two years and have 25 or more employees must either enroll in RetireReady NJ or sponsor another qualified retirement plan. Businesses that don’t meet these criteria are not required to offer their employees retirement benefits, but can participate in the state-run option if they so choose.
How much does RetireReady NJ cost employers?
New Jersey offers RetireReady NJ at no cost to businesses, making it an ideal option for those that can’t afford to provide retirement benefits to their employees. Employers also don’t have to design the plan or manage the investments, but they do have some administrative responsibilities.
What should employees know about RetireReady NJ?
Employees who are enrolled in RetireReady NJ will be charged an annual maintenance fee of 0.75%. For instance, if an individual’s total assets for the year are $50,000, the state will deduct $375 from the account balance.
1 Planadviser: Small Business Owners Need a Nudge to Offer Retirement Plans, April 2019.
2 Bill A4134: https://legiscan.com/NJ/text/A4134/id/1988246/New_Jersey-2018-A4134-Chaptered.html
3 Annual limits for tax year 2021.
This information is intended to be used as a starting point in analyzing retirement plans and is not a comprehensive resource of all requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.
Unless otherwise agreed in writing with a client, ADP, Inc. and its affiliates (ADP) do not endorse or recommend specific investment companies or products, financial advisors or service providers; engage or compensate any financial advisor or firm for the provision of advice; offer financial, investment, tax or legal advice or management services; or serve in a fiduciary capacity with respect to retirement plans. All ADP companies identified are affiliated companies.
