New Jersey, indeed the nation, is at a retirement savings crisis, as it is now clear that the lack of worker savings presets an immediate and long-term drag on the economy.
More than half of New Jersey private sector workers have no employer-sponsored retirement savings. According to the Pew Trust, New Jersey ranks 42nd out of 50 in access and 40th in participation. We share this dubious distinction with states like South Carolina and Mississippi. In the Northeast, New Jersey ranks dead last.
As most private sector workers are employed by a small business in the state, 1.7 million workers have no employer-sponsored retirement savings. The facts can only be described as alarming:
- The average working family has $3,000 in retirement savings;
- 40% of households headed by a 45 to 54-year-old have no savings at all; and
- Social Security pays New Jersey residents around $1,377 a month.
Major legislative initiatives on both the national and state level are moving quickly and could have a significant impact on employer-sponsored retirement savings plans.
Association Retirement Savings Plans
Nationally, The U.S. Department of Labor will be publishing a final rule that would make it easier for small businesses to offer retirement savings plans to their workers through Association Retirement Plans, which would allow small businesses to band together to offer 401(k) plans to their employees.
Under the proposed rule, Association Retirement Plans could be offered by associations of employers in a city, county, state, or a multi-state metropolitan area, or in a particular industry nationwide.
The Employers Association of New Jersey formed such a plan in 2015 under existing rules.
Participating employers choose their own funds and design their own plan, which enjoy the same favorable tax treatment as any employer-sponsored plan. Most of the administrative functions are handled by an administrator, relieving participating employers of administrative burdens.
New Jersey Secure Choice Savings Program
At the state level, legislation has passed the Senate which would require New Jersey employers companies in with more than 25 employees to set up an automatic payroll deduction into a state-sponsored retirement plan that would be established for employees whose companies don’t already offer some form of a retirement-savings program.
Employers would not be required to contribute any matching funds, but they would have to allow employees to automatically have 3 percent of their income deducted for retirement savings unless an employee chose not to participate or to contribute less.
Employers with fewer than 25 employees that do not offer a retirement plan would be encouraged to offer the payroll deduction but would not be required to do so.
The bill has moved to the Assembly, where it is scheduled for a vote soon. Governor Murphy has said he will sign it into law.
Federal Legislation
There is bipartisan action on putting together a comprehensive bill help small businesses offer retirement plans to their employees. Like the USDOL rule, the bill would permit employers to join together and create what are known as multiple employer plans, same as the EANJ plan, which is a single plan in which a pooled provider will assume the primary fiduciary duties.
The Bottom Line
But the bottom is, while every employer is a business, not every business is an employer. Why should a business, particularly a small business, care that workers will struggle after retirement? Indeed, many small-business owners believe that workers do not value or want retirement savings accounts – in other words, workers are satisfied just to have a job.
And the reality is that small businesses do not compete for talent (although they report that they have trouble finding “skilled” people to work for them.). They compete on price; and sponsoring a retirement plan is an unnecessary cost, even when tax deductions offset the expense.
However, for employers that compete on talent to drive business growth, innovation and customer satisfaction, a viable retirement savings plan is a win-win.
More on the EANJ Association Retirement Savings Plan.