New Jersey may soon become the latest state to provide private-sector workers with a way to save money for retirement when their employers don’t offer such benefits.
A bill that lawmakers sent to Gov. Phil Murphy earlier this week would set up a state-sanctioned retirement-savings fund that would work like an IRA for most private-sector workers.
The state — which has a dubious record when it comes to managing its public-employee retirement funds — wouldn’t be responsible for providing matching dollars or directly handling investments on behalf of the workers. Instead, the bill would establish the parameters for a private firm to manage the savings accounts. It would also mandate an automatic payroll deduction that companies with at least 25 employees would have to furnish to their workers if they don’t already offer a retirement-savings benefit.
The cost of living longer
Sponsors say the legislation is necessary as studies show more and more people are failing to put aside enough funds to cover their retirements, especially as medical breakthroughs and general public-health improvements have extended life expectancy. In fact, they note in high-cost New Jersey there are an estimated 1.7 million people who work for companies that don’t currently offer a retirement-savings benefit.
But critics have said they’re concerned that despite the state’s limited role in managing the accounts, there could still be a legal liability for taxpayers if things end up going bad for enrollees.
According to AARP, which backed the retirement-savings measure as it moved through the Legislature in recent months, roughly half the state’s working population does not have access to an employer-provided retirement account that lets them put aside a portion of their income directly from their paychecks. The group also estimates that federal Social Security benefits generally fall short of what the typical older family in New Jersey needs to cover basic expenses like food, utilities, and healthcare, which can cost at least $23,000 annually.
To help fill the gap, the legislation would establish the “New Jersey Secure Choice Savings Program.” A seven-person board with members appointed by the governor and top legislative leaders would be created to oversee the retirement-savings system. It would be managed by an outside investment firm hired by the board.
Who has to offer payroll plan?
Companies in New Jersey with more than 25 employees would have to provide an automatic payroll deduction for the retirement plan if they don’t already offer some form of a retirement-savings program, according to the bill. They would not be required to contribute any matching funds, but would have to allow employees to automatically have 3 percent of their income deducted for retirement savings, unless an employee chooses not to participate or to contribute less. They would also be hit with fines for not offering the deduction or for failing to remit contributions to the savings plan.
Businesses 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.
Several other states have already created similar retirement-savings systems, including California, Connecticut, Illinois, Maryland, and Oregon, according to AARP. Workers at all income levels generally have access to private-sector savings options even when their employers don’t provide such benefits, but advocates say the key feature is the bill’s automatic-deduction scheme.
“People are 15 times more likely to save if they can do so out of their regular paycheck,” said the AARP’s Sarah Mysiewicz Gill during a recent legislative hearing.
Hoping to match Oregon’s success
She also said New Jersey’s savings program would be set up much like the one that has already been established in Oregon, where more than $12.5 million was put aside by new enrollees last year.
“I’m looking forward to the day where we can say that is going on in New Jersey as well,” Gill said.
Sponsors have also touted the flexibility that the new account could offer as it would not be tied to a specific employer’s retirement-savings benefit.
“A savings plan of this kind is transferable and can follow an employee throughout their career, which is very appealing,” said Assemblyman Raj Mukherji (D-Hudson) after the bill cleared the full Assembly earlier this week in a 54-20-1 vote.
Responsible, but not liable
The legislation says that members of the board that will be appointed to oversee the retirement system will have a fiduciary responsibility to act in the best interest of those enrolled in the savings program. But there is also language in the bill that prevents the state from being liable for investment decisions in the event something goes wrong. In fact, one section of the bill says, “no State entity, board, commission, or agency, or any officer, employee, or member thereof is liable for any loss or deficiency resulting from particular investments selected under this act.”
During legislative hearings, experts in the retirement-savings field cautioned lawmakers that federal law applying to the new retirement system would supersede any state regulations in court. A similar concern was also raised earlier this month when the bill cleared the Senate in a 29-6 vote.
“New Jersey has enough liabilities. To take one on voluntarily I don’t think is a good thing,” said Sen. Steve Oroho (R-Sussex). “The idea behind the bill is good, (but) for New Jersey to take on a fiduciary responsibility that is inherent in the bill is a mistake.”
For his part, Murphy has yet to say anything publicly about the legislation. Press secretary Dan Bryan declined comment yesterday, citing his office’s general policy of not weighing in on pending legislation.
A similar proposal won widespread bipartisan support in 2016 before it was rejected at the finish line by then-Gov. Chris Christie, a Republican who cited concerns about creating a new mandate on businesses and interfering with the private sector.