It was a rainy Tuesday when Jason called.
“David,” he said, “we just got a letter from the State of New Jersey about our retirement plan. They’re asking for proof that we either have one, joined the state plan, or qualify for an exemption. Is this real or just more junk mail?”
“It’s real,” I said. “And it’s only the beginning.”
Jason sighed. “I’m trying to do the right thing, but this feels like a trap. What’s going on?”
“Over 25 states have already proposed or passed legislation requiring employers to provide retirement benefits for their employees. In about ten of those states, the programs are active. If your company doesn’t offer a retirement plan, the state will expect you to enroll in theirs—or show you’re exempt.”
“So what’s the state plan?” he asked. “I’ve never heard of this before.”
“Most state programs are IRAs funded through payroll deductions—no employer contributions, no bells and whistles. It’s a bare minimum plan—and it’s mandatory unless you qualify for an exemption or already offer your employees a plan like a 401(k).”
Jason paused. “We’ve only got 25 employees. Are we exempt?”
“In New Jersey?” I asked. “No. You’re only exempt if you have fewer than 25 employees. Connecticut’s cutoff is five, and New York’s is ten, but those numbers vary. It’s always best to check your headcount and your state’s rules to know for sure.”
“So what’s the better move? Join the state plan or build our own?”
“That depends on what you want,” I said. “The state plan meets the letter of the law, but not much else. A private 401(k) offers more flexibility, stronger benefits, and—thanks to some generous federal tax credits—it may cost you little or nothing to run for the first 3 to 5 years.”
Jason grunted. “So we can spend a little more, offer a better plan, and avoid getting nagged by the state?”
“Exactly,” I said. “Either way, ignoring those letters won’t make them go away. Let’s get together, do a little research and put a plan together that’s right for you. Do you really want the government managing your retirement plan?”