NYC Adopts Employer Pension Plan Necessities

On May 11, the New York City Council passed local law to set up a retirement program for certain private company employees.

What are the details?

The new law provides a mandatory Automatic Registration Payroll Deduction Individual Retirement Account (IRA) program for employees of private sector employers in New York City who do not offer a retirement plan and employ five or more employees.

The program provides a standard contribution rate for employees of 5 percent (employees can, however, adjust this rate up, down or unsubscribe at any time).

Since contributions are made to IRAs, contributions are limited to the federal annual IRA maximum (currently USD 6,000; USD 7,000 for ages 50 and over).

Similar to the requirements of the Employee Retirement Income Security Act (ERISA), employers must transfer funds deducted from each participant’s income for deposit in IRAs at the earliest opportunity (in accordance with applicable regulations).

The IRAs are portable and therefore employees keep the accounts when they move jobs. If necessary, employees can transfer the accounts to employer plans.

There is no employer or New York City contribution under the law.

How is the program administered?

A pension fund will be set up to monitor the program. The board consists of three members appointed by the mayor.

The board will have the power:

  • How to determine the start date of the program.
  • Contract with financial institutions and administrators.
  • Minimizing the fees and costs associated with managing the program.
  • Creation of a procedure for the participation of persons who are not employed by an insured employer.
  • Education and contact with employers and employees.

The Board of Directors will work with the Comptroller to select investment strategies and policies and will be required to report annually on its activities and actions.

When do employers have to comply?

The new law goes into effect 90 days after it comes into force, but the board has up to two years to implement the program.

Affected employers do not need to take immediate action, but should continue to monitor developments in this area to ensure they are ready to adhere to the final implementation of the program.

Are there penalties for non-compliance?

Yes. The legislation provides for penalties per employee that escalate with multiple violations. Penalties for non-compliance with record keeping requirements may also apply. And lawsuits can be brought against employers who do not enroll employees or who fail to transfer employee contributions in a timely manner in accordance with the program rules.

Is the program covered by ERISA?

The law that passes the program specifically states that the program is not intended to be an ERISA-covered retirement program.

Conveniently, the program follows only a decision by a three-judge panel of the U.S. Ninth Circuit Court of Appeals that upheld a district court disapproval of a California CalSavers program. The panel was of the opinion that ERISA did not anticipate California’s law creating CalSavers, a state-administered IRA mandate program for eligible employees of certain private employers who do not provide their employees with a tax-qualified retirement plan.

This decision confirms the position of New York City (and the many other state and local jurisdictions that have enacted these mandatory IRA-based retirement plans in recent years) that such plans and programs will not be covered by ERISA.

Melissa Ostrower, Robert R. Perry, and Richard I. Greenberg are the directors of the New York law firm Jackson Lewis. © 2021 Jackson Lewis. All rights reserved. Republished with permission.

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