New Mexico Saves Act: What small employers need to know

When New Mexico Governor Michelle Lujan Grisham signed House Bill 44, the New Mexico Work and Save Act in February 2020, New Mexico joined other states rolling out legislation to help address the nationwide retirement crisis. The bill initially required the marketplace to open by July 1, 2021, and the state-run IRA to become available by January 1, 2022. However, both deadlines have been pushed back to July 1, 2024 with the enactment of Senate Bill 129.

In November 2021, New Mexico and Colorado announced the first-ever auto-enroll IRA multi-state program in the country. The partnership between the two states could help preserve retirement savings for those who move between the Colorado and New Mexico border. Together, the partnership could offer a retirement savings option to nearly one million Coloradans (more than 40% of the state’s workforce) and nearly 430,000 New Mexicans who currently do not have access to a retirement savings plan through their employer.

The legislation is designed to encourage more private-sector businesses to offer retirement plans through a state-facilitated marketplace, particularly because nearly two-thirds of New Mexico workers between the ages of 18 and 64 are employed by businesses that don’t offer a plan. For those workers whose employers don’t offer a plan, the bill also calls for the establishment of a Roth IRA savings plan overseen by a state-appointed board.

Highlights of the New Mexico Work and Save Act:

The New Mexico State Treasurer’s Office estimates that 67% of private-sector workers in New Mexico have nothing saved for retirement, a larger percentage than the national average of folks without any retirement savings. Without significant change, the situation isn’t projected to improve. By 2040, the number of New Mexicans 60 and older who’ve saved less than $10,000 will more than quadruple, to 469,000 people.

Participation in the work and save program is voluntary for both employers and employees.

For employers

• The law applies to all private-sector and nonprofit employers with a primary place of business physically located in New Mexico, regardless of size. Federal, state, or local governments and any governmental agency, department, commission, or other related entity will be exempt.

• Employers will be able to use auto-enrollment and auto-escalation features.

• Employer contributions to the fund will not be allowed.

• A cap will limit fees and expenses to less than 1% of the total invested funds.

• Employer plans offered through the newly established marketplace will generally be subject to ERISA, according to a summary of the legislation by members of Mercer’s Law & Policy Group.

• Plans that may be offered in the marketplace include individual plans, multiple employer plans (MEPs), 401(k)s, and 403(b)s.

• Plans in the marketplace may but will not be required to offer distribution options beyond lump-sums, such as systematic withdrawals, guaranteed lifetime withdrawal benefits, and annuities.

For employees

• The legislation covers all full- and part-time employees of eligible employers who are at least 18 years old, as well as self-employed workers. Employees covered under a multi-employer pension plan or by the Federal Railway Labor Act are excluded.

• Employees may be auto-enrolled in an employer’s plan but can opt out of any plan their employer joins.

• Beginning in July 2024, workers whose employers are not offering a retirement savings plan can enroll in the state-run Roth IRA plan.

One of the state’s concerns is that Social Security benefits do not provide enough of a safety net for the many New Mexicans who haven’t built sufficient retirement savings. The state treasurer’s office notes that:

• More than 50% of all older New Mexicans rely on Social Security income for more than 50% of their family income.

• Approximately 33% of New Mexicans aged 65 or older rely on Social Security income for more than 90% of their family income.

• Social Security benefits average only about $1,160 per month in New Mexico, so many workers rely on employer-sponsored retirement plans to supplement their income as they age.

For those who have saved for their golden years, cashout leakage, in which funds are drained when participants have to cash out of one account and transfer to another, poses a threat to comfortable retirement. This can happen when a person changes jobs, but for state-facilitated IRA participants, it can happen when they move states. To help combat this problem, New Mexico has joined forces with Colorado to automatically transfer accounts between the Work and Save program and Colorado’s state-facilitated IRA, the Secure Savings Program. Once both programs launch (Secure Savings Program estimated October 2022), the partnership will be the first auto-enroll IRA multi-state program in the country, and more states may join.

Learn more about New Mexico Saves Act alternatives:

• Use our calculator to see how much a 401(k) would cost with SECURE Act tax credits applied.

• Read more about the fees associated with launching and maintaining a 401(k) plan for your business.

• Read our guide on setting up a small business 401(k).

New Mexico small businesses: Get ready

Now is the time for employers to start thinking about whether they want to offer their own program. New Mexico businesses that will be adding retirement planning options and services for workers should be ready to communicate with employees and to launch the savings program sometime in 2024. Determine what makes sense for your workforce, based on the flexibility, features, and tax benefits you’re looking for.

Considering a retirement plan for your employees but not sure where to start? We can help. Signup for a demo today.

For further reading, here are some other articles on…

• What is a state-sponsored retirement plan?

• The power of automatically enrolling employees in a retirement plan

• Are small business owners required to offer retirement plans?