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NYC Moves to Establish Auto-IRA Program

Legislation

Legislation establishing a retirement savings program for private sector entities in New York City that includes recommendations from the ARA has been sent to the mayor’s desk for his signature. 

The New York City Council approved an amended bill (Int. No. 888-A) on April 29 to create a mandatory auto-enrollment payroll deduction IRA program for employees of private sector employers that do not offer a retirement plan and employ five or more employees. 

According to a summary of the legislation sponsored by Council member Ben Kallos, the default employee contribution rate would be 5%, which employees could opt-out of at any time or adjust up or down to the annual IRA maximum of $6,000 (or $7,000 if age 50 or above) for 2021. The plan would be portable, allowing employees to continue to contribute or roll over their accounts into other retirement savings plans when they switch jobs. 

In addition, covered employers would not be required to contribute on behalf of employees. However, they would be required to enroll each covered employee in the program, remit funds deducted from the earnings of each participant for deposit in the program, and distribute program information to employees. Additionally, the legislation would provide a complaint procedure for violations.

Since its introduction, the legislation has been amended to clarify, among other things, that the eligible employee age was raised from 18 to 21 and only those employees who work at least 20 hours a week are now considered eligible under the new definition. This change is consistent with recommendations made by the American Retirement Association at a September 2019 City Council hearing. 

Oversight Board

The Council also approved a separate bill (Int. No. 901-A) to establish a retirement savings board to facilitate implementation and oversee the city’s retirement savings program for private sector employees.  

The board would consist of three members appointed by the mayor. Its powers would include determining the start date of the program, entering into contracts with financial institutions and administrators, creating a process for participation, and conducting education and outreach to employers and employees. The board also would work with the city’s Comptroller to select the investment strategies and policies. 

Also consistent with the ARA’s recommendations, the legislation includes language specifying that a “covered employer” would not include employers that have offered or maintained a retirement plan in the preceding two years. The legislation further stipulates that the program is to be designed and operated in a manner that will cause it not to constitute an employee benefit plan under ERISA, and the program will not be implemented if the city’s corporation counsel certifies that there is a substantial likelihood that it conflicts with or is preempted by ERISA.

In pushing forward with the legislation, the summary further suggests that out of approximately 3.5 million private sector workers in the city, only 41% have access to an employer-sponsored retirement plan, lower than the national average (53%), and down from 49% a decade ago. In addition, it notes that 40% of New Yorkers near retirement age have less than $10,000 saved for retirement.

“Even in our beloved but expensive city where the cost of living is high, every New Yorker should be able to save for retirement. This legislation is a huge first step in helping generations of New Yorkers working for small businesses to save and be that much more ready to be self-sufficient when it is time to retire,” Kallos said in a statement, which also notes that he is an ERISA attorney.

In April 2018, the New York state legislature approved the New York State Secure Choice Savings Program, a payroll deduction IRA retirement savings program, for employees who are not offered a plan through their employer. That program is voluntary, however, which appears to be one of the main reasons why the Big Apple continued to push forward with its own plan.

If the bill is signed by Mayor Bill de Blasio—which seems likely based on his past support for such legislation—it would take effect after 90 days; however, the retirement security board would have up to two years to implement the program.