New York City employers that do not offer their own retirement savings plans to employees will soon be required to do so. Two recently enacted New York City laws (Bill Nos. 888-A and 901-A, collectively the “Retirement Security for All” acts), will require private-sector employers with five or more employees to enroll eligible New York City employees in either their own plan or in a city-managed retirement savings plan.

Who is Covered?

A covered employer is any person or entity that employs five or more employees in New York City, has been in continuous operation for at least two years, and does not offer an employee retirement plan to its employees.

Covered employees are those at least 21 years of age who work 20 or more hours per week in New York City.

What is Required?

Under the new laws, employers must: (1) automatically enroll eligible employees in individual retirement savings accounts (IRAs); (2) deposit employee funds into the IRA accounts; and (3) retain records confirming compliance with the laws’ requirements for at least three years.

Employees may opt out of the program, adjust their contribution rates up or down, or do nothing at all. Each IRA is portable. Thus, employees who change jobs may continue contributing to their IRAs or roll over their IRAs into other retirement savings plans.

When do These Requirements Take Effect?

We do not yet know when employee savings will commence. The laws became effective on August 9, 2021, but the Retirement Savings Board (the agency created by the laws to implement the program) has up to two years to formalize program details and set a commencement date. Thus, covered employers do not need to take any immediate action.

How will the IRAs be Funded?

The laws do not mandate employer contributions. Employee IRAs will be funded with deductions from employees’ wages. The default employee contribution rate is 5%, capped at $6,000 for employees under age 50, and $7,000 for employees over age 50 (the annual IRA maximums).

What is the Penalty for Noncompliance?

Employers that fail to enroll their eligible employees or to deposit employee funds into IRAs may be penalized as follows:

• First violation: $250 per employee;
• Second violation within two years of the prior violation: $500 per employee;
• Third and subsequent violations within two years of the prior violation: $1,000 per employee.

In addition, employers that fail to maintain proper records of compliance with these laws may be subject to an additional $100 fine per violation.

Employees alleging a violation of the laws may file a complaint within one year of the date the employee learned or should have learned of the violation with an enforcement agency to be designated by the mayor. Employees may thereafter commence an action in court. An aggrieved employee may be entitled to damages, equitable relief, attorneys’ fees and costs.

Is the Retirement Security for All Preempted by ERISA?

No. The laws specify that the program is not an employee benefit plan under the Employee Retirement Income Security Act of 1974 (ERISA) and direct that employers are not to contribute to employee IRAs in any way that would cause the program to become an ERISA benefit plan. Further, if the City of New York determines that the laws likely conflict with or are preempted by state or federal law (including ERISA), the program will be discontinued.

What About New York Employers that Operate Outside NYC?

The retirement-for-all mandate may soon be extended to employers statewide. On June 7, 2021, the New York State Senate approved NY A03213-A, (which previously passed the State Assembly). The bill converts the state’s existing voluntary IRA program into a mandatory program for private-sector employers with 10 or more employees that do not currently offer a retirement program. The proposed legislation is similar to the city’s, but would require that employees be auto-enrolled in an IRA with a 3% minimum contribution rate. The legislation also prohibits employers that currently offer retirement plans from terminating such plans in order to participate in the state program. The bill will soon be sent to the governor for signature.