New Jersey is the latest state to pass legislation to create a state retirement savings program for employees who do not have access to a savings plan through their employers.
New Jersey Governor Phil Murphy on Thursday signed legislation establishing the Secure Choice Savings Program, which is a state-sponsored IRA plan. Employers with 25 or more employees and no work-place retirement savings plan are required to participate in the program through the use of automatic payroll deductions. Employers with fewer employees are allowed to also participate if they wish.
The legislation enables employees of many “small businesses to save for retirement and take control of their financial futures,” the governor’s office said. The legislation also allows employees of businesses of any size to participate in the retirement savings program if they choose.
New Jersey is the ninth state to enact retirement savings legislation, although programs vary by state. Seattle has passed similar legislation and New York City and Philadelphia are considering it, as are many other states, according to the AARP, which is an advocate for state and city sponsored retirement programs. States that are enacting similar programs include California, where 7.5 million employees are affected.
“Saving for retirement is paramount for all employees, but too often, those who work for small businesses don’t have a simple way to set aside these savings,” Murphy said in a prepared statement. “By creating the Secure Choice Savings Program, we are ensuring that every worker in New Jersey will have the opportunity to save for the future. We are creating more opportunities for future retirees and generations of workers to follow.”
The Secure Choice Savings Program gives employees in New Jersey the option to invest in a state-administered IRA. While workers at employers with 25 or more employees will be automatically enrolled in the program, which is funded through a payroll deduction, they will be able to opt out if they want. The legislation allows employees to save pre-tax income for retirement. The program is portable if the employee’s place of employment changes.
New Jersey Assemblyman Roy Freiman, a sponsor of the bill, said, “When companies do not offer automatic savings deductions, employees are less likely to save. In fact, only 5 percent of employees save for retirement on a consistent basis without a payroll deduction.”
The legislation comes at a time when 48 percent of households headed by someone 55 or older do not have any savings or pension benefits, according to the U.S. Government Accountability Office in a 2016 report, the latest numbers available. The number is a slight improvement over the 52 percent estimate for such households in 2013.