New York City Establishes Auto-Deduction Retirement Security Program for Certain Private Sector Employees

On May 11, 2021, New York City Mayor Bill de Blasio signed into law Int. 888-A and 901-A, New York City Local Law 51 and 52, respectively.  Collectively known as the New York City “Retirement Security for All” legislation, these laws impose a mandatory auto-enrollment payroll deduction individual retirement account (IRA) program requirement (Program) for employees of private sector employers, which do not currently offer a retirement plan, and employ five or more employees “whose regular duties occur in” New York City.  Employers are not required to contribute to these accounts.  This legislation also establishes a retirement savings board (Board) to facilitate the implementation of the Program and tasks the New York City Comptroller with establishing an investment strategy and policy and directing the underlying investments and investment funds.  The new law takes effect on Monday, August 9, 2021, but the Board has up to two years to implement the Program.

Who is Covered?  Private sector employers in New York City are covered by the “Retirement Security for All” legislation if they (1) employ five or more employees whose regular duties occur in New York City; (2) have employed no fewer than five such employees without interruption for the previous calendar year; (3) have been in continuous operation for at least two years and (4) have not offered or maintained in the preceding two years a retirement plan as defined by the legislation.  Employees are covered if (1) they are 21 years of age or older; (2) they are regularly scheduled to work at least 20 hours per week, and (3) their “regular duties occur in” New York City.

Program Details.  Employees may adjust the default auto-enrollment deduction rate of 5 percent, up or down, or opt out at any time.  Contributions are capped at the annual IRA maximum, currently $6,000, or $7,000 for individuals who are 50 or more years old.  The plan is portable, enabling employees to continue contributing or to roll funds over into other retirement savings plans.  Similar to the requirements under the Employee Retirement Income Security Act of 1974 (ERISA), employers must remit funds deducted from the earnings of each eligible employee for deposit into the Program on the earliest practicable date, consistent with applicable rules, and distribute information about the Program to their employees.

Administration and Oversight of the Program.  The Board, consisting of three members appointed by the Mayor, is responsible for determining the start date of the Program, entering into contracts with financial institutions and administrators, minimizing fees and costs associated with the administration of the Program, creating a process for employers not otherwise covered to participate on a voluntary basis, and conducting education and outreach to employers and employees.  The Board will work with the Comptroller--who is responsible for managing trust funds held by New York City, such as pension funds--to select the investment strategies and policies.  The Board is required to undergo an annual financial audit and to report annually on its activities and actions.

Enforcement and Penalties.  The law empowers the Mayor to designate a government agency or office (Enforcement Agency) to enforce the Program.  Eligible employees alleging violations of the Program may file a complaint with the Enforcement Agency within one year of the date such employee “learned or should have learned” of the alleged violation.  Employers who habitually fail to enroll eligible employees and/or timely remit employee contributions will be subject to an escalation in fines with respect to each covered employee  or other eligible individual.  Employers will be subject to a $250 fine for an initial violation.  Employers who violate the Program rules again within two years of the initial violation are subject to a $500 fine.  Subsequent violations within that two-year window subject employers to a $1,000 fine.  Employers who fail to comply with record retention requirements will also be subject to a $100 fine for each such violation.

ERISA Preemption?  The language of the law enacting the Program provides specifically that the Program is not intended to constitute an employee benefit plan covered by ERISA.  Furthermore, the Program will automatically terminate if the New York City Corporation Counsel certifies that there is a substantial likelihood that the law conflicts with, or is preempted by, state or federal law, including ERISA, or constitutes an employee benefit.

The “Retirement Security for All” legislation has been enacted following the recent decision of the U.S. Court of Appeals for the Ninth Circuit in Howard Jarvis Taxpayers Ass’n v. California Secure Choice Retirement Savings Program, __ F.3d __ (9^th Cir. May 6, 2021), affirming a district court’s dismissal of a challenge to California’s CalSavers program.  The unanimous three-judge panel held that California’s state-run individual retirement account program for workers is not governed or preempted by ERISA, even if its mandatory contributions are “irritating or even burdensome” to some employers.  According to the panel, the CalSavers program, created in 2017, does not constitute an “employee benefit plan” under ERISA, because it is State-run and does not require private employers to establish or operate their own retirement plans.