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New York Governor Kathy Hochul enacted an auto-IRA law, effective October 21, which requires certain New York employers to either offer their employees a qualified retirement plan or join the state-run IRA program. The new law amends the New York’s Secure Choice Savings Program, a voluntary IRA program that has been in place since 2018 and is run by the New York State Secure Choice Savings Program Board.

In its updated form, this program seeks to promote greater retirement savings for employees of smaller businesses that may not have access to employer-sponsored retirement plans by requiring employees to opt out of participation. Earlier this year, New York City enacted a similar auto-IRA law applicable to city employers with five or more employees. The city’s law, however, may not move forward if the city determines it conflicts with the new state law.

The new law applies to employers with at least 10 employees in the state at all times during the previous calendar year. The employer must have been in business for at least two years and have not offered a qualified retirement plan in the preceding two years. However, employers that already have a qualified retirement plan in place—such as a 401(k) or 403(b) plan—cannot terminate their existing plan in order to participate in the program.

Unless an employee opts out, the New York State law requires participating employers to automatically enroll employees into the program and contribute 3% of their after-tax compensation. Participating employees may elect to contribute more or less than 3%, but the program is restricted to the contribution limits for IRAs. For 2022, the limit is $6,000.

Participating employees may elect their investment options, change their contribution level and terminate their participation at any time. For employees that have opted out of the program, employers may designate an open enrollment period to enroll, or an earlier time if permitted by the program. Participating employers do not have any liability for an employee’s decision as to whether to participate, an employee’s investment decisions, or the investment decisions of the program’s board.

An employer that meets the program criteria must distribute informational materials at least one month before enrolling employees that include the program rules, how to access financial literacy programs, and a statement that the program fund is not guaranteed by the state. Employers have up to nine months after the state opens the program for enrollment to set up payroll deposits for its employees.

New York State joins a growing number of states with auto-IRA programs: California, Colorado, Connecticut, Illinois, Maine, Maryland, New Jersey, Oregon, and Virginia. Several other states offer voluntary state-run IRA programs: Massachusetts, Vermont, Washington, and New Mexico. (Seattle is the only other city in the country besides New York City that has enacted an auto IRA law.)

The New York Department of Taxation and Finance will oversee the development and implementation of the program, although it has yet to promulgate regulations. Morgan Lewis is closely monitoring state developments.