On May 11, 2021, the City Council of New York enacted a local law to establish a retirement savings program for certain employees of private entities.

What are the Details?

The new law creates a mandatory auto-enrollment payroll deduction individual retirement account (“IRA”) program for employees of private sector employers in New York City which (i) do not offer a retirement plan and (ii) employ five or more employees.

The program provides for a default employee contribution rate of 5% (but employees may adjust this rate up or down or opt-out of at any time).

As contributions are made to IRAs, contributions are capped at the annual federal IRA maximum (currently $6,000; $7,000 if age 50 or above).

Much like requirements under the Employee Retirement Income Security Act of 1974 (“ERISA”), employers must remit funds deducted from the earnings of each participant for deposit in IRAs on the earliest practicable date (consistent with applicable rules).

The IRAs are portable and thus employees retain the accounts when they move jobs.  Employees may roll the accounts over into employer plans where eligible.

The law does not provide for any employer contribution and does not provide for contributions by New York City.

How will the Program be Administered?

A retirement savings board will be established to oversee the program.  The board will consist of three members appointed by the Mayor.

The board will have the power:

  • To determine the start date of the program;
  • To contract with financial institutions and administrators;
  • To minimize fees and costs associated with the administration of the program;
  • To create a process for those not employed by a covered employer to participate; and
  • To conduct education and outreach to employers and employees.

The board will work with the Comptroller to select the investment strategies and policies and must report annually on its activities and actions.

When do Employers Need to Comply?

The new law takes effect 90 days after enactment, but the board has up to two years to implement the program.

Affected employers need not take any immediate action, but they should continue to monitor developments in this area to ensure that they are prepared to comply when the program is ultimately implemented.

Are there any Penalties for Failing to Comply?

Yes.  The legislation provides for per employee penalties that escalate with multiple violations.  Penalties for failure to comply with recordkeeping requirements may also apply.  And actions may be brought against employers who fail to enroll employees or who fail to timely remit employee contributions under the program rules.

Is the Program covered by ERISA?

The law enacting the program provides specifically that the program is not intended to be a retirement program covered by ERISA.

Conveniently, the program comes just following a decision by a three-judge panel in the U.S. Court of Appeals for the Ninth Circuit that affirmed a district court’s dismissal of a challenge to California’s CalSavers program.  The panel held that ERISA does not preempt the California law that creates CalSavers, a state-managed mandated IRA program for eligible employees of certain private employers which do not provide their employees with a tax-qualified retirement plan.

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

Jackson Lewis continues to monitor developments in the changing employee benefits landscape.  Please contact a team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

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Photo of Melissa Ostrower Melissa Ostrower

Melissa Ostrower is a principal in the New York City, New York, office of Jackson Lewis P.C. and co-leader of the firm’s Employee Benefits practice group. She counsels clients in a broad range of employee benefit matters, including general compliance and administration of…

Melissa Ostrower is a principal in the New York City, New York, office of Jackson Lewis P.C. and co-leader of the firm’s Employee Benefits practice group. She counsels clients in a broad range of employee benefit matters, including general compliance and administration of qualified retirement plans and nonqualified retirement plans.

Melissa assists clients with welfare plan issues involving cafeteria plans, health plans, flexible spending accounts, COBRA and the Affordable Care Act. She regularly speaks on all benefits issues including federal health care reform, fiduciary compliance and executive compensation.

Melissa regularly advises on executive compensation matters, including issues related to compliance with Section 409A, 162(m) and 280G of the Internal Revenue Code.

Melissa represents clients in connection with Internal Revenue Service and the Department of Labor audits and information requests. She also regularly assists clients in fixing plan operational and document errors. Melissa negotiates with benefits providers, volume submitter and prototype vendors, TPAs, insurers and auditors.

Melissa also advises clients in connection with phantom and equity based compensation arrangements.

Photo of Robert R. Perry Robert R. Perry

Robert R. Perry is a principal in the New York City, New York, office of Jackson Lewis P.C. He has more than 20 years of experience in the area of employee benefits law.

Rob’s practice includes counseling clients on all aspects of employee…

Robert R. Perry is a principal in the New York City, New York, office of Jackson Lewis P.C. He has more than 20 years of experience in the area of employee benefits law.

Rob’s practice includes counseling clients on all aspects of employee benefits and executive compensation. Rob also advocates on behalf of clients in benefits-related disputes, as well as in administrative proceedings before the Internal Revenue Service, the United States Department of Labor and the Pension Benefit Guaranty Corporation.

Photo of Richard I. Greenberg Richard I. Greenberg

Richard Greenberg is a principal in the New York City, New York, office of Jackson Lewis P.C. and co-leader of the firm’s National Compliance and Multi-State Solutions practice group. He advises both unionized and union-free clients on a full-range of labor and employee…

Richard Greenberg is a principal in the New York City, New York, office of Jackson Lewis P.C. and co-leader of the firm’s National Compliance and Multi-State Solutions practice group. He advises both unionized and union-free clients on a full-range of labor and employee relations matters.

With respect to traditional labor matters, Rich represents clients in collective bargaining negotiations, labor disputes, grievances and arbitrations, proceedings before the National Labor Relations Board, and in state and federal court. He also advises clients on the legal aspects of remaining union-free. With respect to employee relations matters, Rich has extensive experience assisting clients in numerous industries with the development and maintenance of personnel policies and personnel infrastructures. In this regard, he often works on these issues with clients as business needs and culture change as a result of business transactions, such as mergers and acquisitions.