In 2019, the New Jersey Secure Choice Savings Program was enacted, requiring employers with 25 or more employees to offer access to a state-administered Individual Retirement Account. Further, employees of businesses of any size would be able to participate in the retirement savings program. The program is set to launch in March 2022.
NJ Spotlight News hosted a virtual roundtable on Nov. 17 to discuss with financial experts, social justice advocates and state leaders the impact of retirement savings programs, their importance in addressing wealth inequality and how the New Jersey Secure Choice Savings Program will work.
Watch the full discussion on the above video.
Panelists:
Luis O. De La Hoz, Chairman, Statewide Hispanic Chamber of Commerce of New Jersey; FVP Regional Director Community Lending NJ & NY, Valley Bank
Assemblyman Roy Freiman, State and Local Government Committee Vice Chair; Financial Institutions and Insurance Committee Member; Transportation and Independent Authorities Committee Member, New Jersey State General Assembly
David John, Senior Strategic Policy Advisor, AARP Public Policy Institute; Deputy Director, Retirement Security Project, Brookings Institution
Sharif Muhammad, MBA, CPA, MST, CFP, Chief Executive Officer, Unlimited Financial Group Inc.
Moderator:
Rhonda Schaffler, Business Correspondent, NJ Spotlight News
The following are edited excerpts from the conversation:
The retirement crunch
David John: The people who don’t have retirement savings — and this is the real problem here — fall into five groups. They’re basically people who work for smaller businesses, people who are young, their lower income, moderate income, women and members of minority groups. And they don’t have retirement savings for the simple reason that many of their employers don’t offer that type of a benefit. What you need is a simple, low cost, easy to understand system that cost the employer virtually nothing to set up and operate.
Secure Choice concept
Roy Freiman: The concept [behind the Secure Choice program] was how to how to bring about an easy, convenient way for employers to offer a retirement plan to their employees. There are 1.7 million people that are going to be impacted by this particular legislation. And what that means is that this group of individuals will have the ability to start doing retirement savings that you might typically see associated with larger organizations, something that is part of a benefits package in a larger organization. We have very, very clear evidence to show that successful retirement happens when it’s done over systemic long term contribution. The only way that occurs in most situations is via your workplace via payroll deduction.
Small business help
Luis O. De La Hoz: Small businesses with fewer than 25 employees, even micro business with fewer than five full-time employees, they have been dreaming about having a vehicle where they can save money for their retirement. And I think that this is a step in the right direction, and this is a game changer for a lot of communities, minorities in general, in the state of New Jersey. That’s why we have supported this from the beginning.
Other states’ success stories
David John: There are three operating state programs in Oregon, California and Illinois that are working the same way, and they have been phenomenally successful. Small business employees have been able to save a significant amount. They’ve been able to save in a Roth IRA, which meant that during the COVID crisis, if they absolutely had to have emergency savings, they could take some of their own money out without having any sort of a penalty. And just as important, the studies in Oregon, which is the oldest of these systems, several years old now, 80% of the employers said they had no startup costs. And the others that did said that it was mostly the cost of changing their payroll process and office supplies.
Long-term costs for retirees
Sharif Muhammad: We work with clients to really help them to get a realistic view of where their finances are. We try to help them to maximize the amount of guaranteed income, whether that’s Social Security or combining a combination of the Social Security with a conservative portfolio that earns a certain amount of supplemental income to help them meet their fundamental household needs. But we also have to deal with the very real challenge of long-term care costs. With many retirees, the reality is that one in four of them are going to need some form of long-term care. So then at that point, we are having conversations about potentially positioning them to take advantage of Medicaid should they have the need to require any type of services that there are long term care nature.
How Secure Choice works
David John: What the plan would use is something called automatic enrollment. One of the biggest frustrations with trying to save her retirement is trying to figure out. “I have no idea how much to save. I have no idea how you know what to save it in or anything like this.” So with automatic enrollment, the individual saver is in total control of the process, but they’re given some guidance. The guidance is if you decide, we’re going to help you into this plan and we’re going to put you in at a recommended level of savings. You can save more or less if you decide, or you can decide not to save it all.
Three factors to successful retirement
Roy Freiman: I would say if one of the purposes of this is to make it easier for both the employer and the employee, successful retirement is based upon really three factors. One is based on consistently putting money into a retirement account. And it’s obviously the net rate of return making sure you’re getting a good, consistent rate of return — and it’s not being gobbled up by fees. The other part is compounding time for your advantage and starting early and making sure that you’re not thinking about retirement a year before retirement but you’re actually preparing for it years in advance. That’s the easiest and most successful way for everyone to prepare.
Preparing for emergencies, planning for the future
Sharif Muhammad: One of the things that COVID and emergencies or shocks in the market has shown me was that, when emergencies did occur with COVID or where there were people laid off or on furlough, a lot of people did raid their retirement accounts. And we really want to help people get emergency funds in place and help them to start to develop strong, smart financial habits that will help them be able to stay consistent in being able to meet those long term goals.
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