The New York City Council voted Thursday to approve a measure to create a city-facilitated retirement savings program for private sector employees.
The legislative action would create a mandatory automatic enrollment individual retirement account (IRA) program for employers that do not offer a retirement plan and employ at least five people. It awaits the mayor’s signature or veto.
According to a summary published on the City Council website, the default employee contribution rate would be 5%, which employees could adjust up or down, or opt out of at any time, up to the annual IRA maximum of $6,000 (or $7,000 if age 50 or above). The plan would be portable, so that when employees switch jobs they can continue to contribute or roll over their accounts into other retirement savings plans.
Employers would not contribute on behalf of employees.
The council also voted to establish a retirement savings board to facilitate the implementation the retirement security program. The board would consist of three members, who would be appointed by the New York City mayor.
The powers of the board would include 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 those not employed by a covered employer to participate, and conducting education and outreach to employers and employees.
According to the council’s summary, the board would work with the New York City comptroller—who is responsible for managing trust funds held by the city, such as the pension funds—to select the investment strategies and policies. The board would be required to report annually on its activities and actions. The bill technically takes effect in 90 days, but the board has been granted up to two years to implement the program.
The council summary cites the fact that, out of roughly 3.5 million private sector workers in New York City, only about 41% have access to an employer-sponsored retirement plan. This is lower than the national average, which the council estimates at 53%, and down from 49% a decade ago. Even more troubling, according to the council’s data, 40% of New Yorkers near retirement age have less than $10,000 saved for retirement.
“Even in our beloved but expensive city where the cost of living is high, every New Yorker should be able to save for retirement, says Council Member Ben Kallos, who is an ERISA [Employee Retirement Income Security Act] attorney. “This legislation is a huge first step in helping generations of New Yorkers working for small businesses to save and be that much more ready to be self-sufficient when it is time to retire. With this legislation, New York City is leading the way by providing residents something in addition to their Social Security.”
Sources view state-run retirement savings plans as useful for improving retirement readiness, as well as a potential business opportunity for advisers. At a high level, experts say, the states and cities that are offering these plans realize that they will face strains on their social insurance, food assistance and Medicaid resources if they do not help their residents who are not saving for retirement do something. Because the federal government has not acted in this area, they are stepping into the void.