How to best help your workers’ retirement

That annoying question, “If you were a color, what would you be?” has a more common answer for New Yorkers these days: Gray

That’s because New York State has the fourth largest population of older adults in the nation. More than 4.6 million New Yorkers are 60 years or older, and another 4.2 million are between 45 and 59. How these folks are going to pay for a secure, happy retirement is very much on the mind of the state government. Because of that, it’s now something you might have to address as an employer.

Who is affected? 

The New York State Secure Choice Savings Program was established to help private-sector workers with no access to a workplace retirement savings plan, such as a 401(k) or 403(b). If you’re an employer in New York, the state now requires you to offer this program if you: 

1. Had 10 or more employees during the entire prior calendar year. 

2. Have been in business for at least two years. 

3. Have not offered a qualified retirement plan during the prior two years. 

Under the plan, 3% of each employee’s paycheck is taken out and put in a state-run Roth IRA. Employees can change the percentage taken out of each check or opt out of the plan altogether. 

Is it the best option?

Employers helping provide for their workers’ retirement is a good thing, most would agree. But is the Secure Choice Savings Program the best option? 

In many ways, the answer is “no.” To determine what’s best for your business, talk with an expert human resources consultant. But in general, here are some reasons you might want to pursue a different option.

1. Income limits. The state’s plan is a Roth IRA, which means that employees making more than a certain amount can’t contribute. In 2022, that cap was $144,000 for single filers. 

2. Contribution limits. Employees could save up to only $6,000 in an IRA in 2022 ($7,000 if they were 50 or older). That’s far less than other options. More on that in a second. 

3. Limited options: The program has a narrow selection of investment options for participants. This reduces employees’ ability to diversify their portfolio.

A better alternative

For many employers, even small employers, a better option is a 401(k). By avoiding the red tape of a state-run program, you retain more control over how you mold a plan and the benefits it provides your team. 

There are two main benefits of a 401(k) for you as a business:

1. Tax credits! The Secure Act provides up to $15,000 in tax credits to help you defray the start-up costs of your 401(k) plan. 

2. Tax deductions! If you pay for plan expenses of a 401(k), such as administrative fees, you may be able to claim them as a business tax deduction. 

Then there are the benefits a 401(k) plan can provide to your team compared to the state program.

1. Eligibility. There is no income cap to be eligible for a 401(k) plan. High earners can contribute, as well. 

2. Savings power. The higher contribution limits empower employees to solve the problem the state is trying to solve better than the state’s solution. In 2022, employees could contribute up to $20,500 into a 401(k) vs. $6,000 in the state-run Roth IRA. That jumps to $27,000 vs $7,000 for those 50 and older. Compounded growth means that money has a better chance of becoming a reliable retirement nest egg. 

3. Choice. Most 401(k) plans will offer more investment options than the state plan. This helps promote diversification, which is a better safeguard for each employee’s contributions. 

Again, the best way to figure out which option is right for you – and there are others besides the two discussed here – is to talk with an expert human resources consultant. But don’t delay. The penalty for failure to comply with this mandate could be costly.