A bill establishing an automatic retirement savings option for New Jersey workers without a retirement plan passed the state Assembly this week and needs only Gov. Phil Murphy's signature for final approval.

The “New Jersey Secure Choice Savings Program Act,” approved 55-18-1 by the Assembly, would establish individual retirement accounts (IRAs) for employees in the private sector who do not have access to a workplace retirement plan. The measure passed the state Senate earlier last month.

"When companies do not offer automatic savings deductions, employees are less likely to save," said Democratic Assemblyman Roy Freiman, one of the measure’s sponsors, in released comments. "In fact, only 5 percent of employees save for retirement on a consistent basis without a payroll deduction. The purpose of this bill is to encourage more employees to make a bigger investment into their future by saving."

Under the program, employers with at least 25 workers that do not offer retirement plans would be required to establish a payroll deduction for workers that would be deposited into an IRA and provide an information packet to educate employees about investment choices in the program. Businesses with fewer than 25 workers would be permitted, but not required, to enroll their workers in the plan.

Employers that fail to enroll in the program, as well as those who fail to remit an employee’s contributions to the Secure Choice IRAs, would face financial sanctions.

Workers would be defaulted into a set saving and investing strategy, but would have the option to change savings rates and investment strategies or opt out at any time. The plan establishes a default contribution rate of 3 percent of a worker’s salary if they do not choose a different savings rate. It also uses a lifecycle or target-date fund as a default investment. Employers would not be required to contribute to the plans.

The plan would offer no more than five different investment options to workers.

Since workers are enrolled in IRAs instead of defined contribution plans, they might not be protected by the Employee Retirement Income Security Act, commonly known as ERISA. The New Jersey plan explicitly says that employers participating in the Secure Choice program would not be considered to be plan fiduciaries.

Similar plans are being rolled out in Oregon, California and Illinois.