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No 401(k), No Problem: Maryland Saves Initiative Makes Retirement Savings Accessible

By The Human Interest Team

For many, being able to retire is one of the most significant financial goals to aim for throughout a lifetime of working. Although some lean heavily on the promise of Social Security income, the majority of the working public are beginning to realize the importance of building up adequate savings and investment portfolio before leaving the workforce. However, a recent study conducted by the Center for Financial Services Innovation highlights the state of retirement savings – 42% of adults aren’t setting aside anything for retirement. One of the driving forces behind this trend revolves around the accessibility of employer-sponsored retirement plans.

Several private and public sector employers offer an easy way to save for retirement through tax-deferred and tax-advantaged savings plans offered to eligible employees. Unfortunately, small businesses do not always provide this option as a benefit to workers, either due to a lack of understanding of the process, the administrative headache, or limited resources. Without the possibility of contributing paycheck deferrals into an employer-sponsored plan, millions of employees feel as though they have no way to begin or build retirement savings.

Fortunately, a handful of states have enacted laws in recent years to help solve this retirement savings conundrum for both employees and employers. Maryland is one such state. Here’s a bit of history of the bill, what’s offered under the program, how it is run, and the current state of implementation.

The history of Maryland Saves

In February 2016, the Maryland Small Business Retirement Savings Program and Trust was introduced in the House. The bill, known as Maryland $aves, intended to create a mandate for certain private-sector employers in the state to establish a retirement savings plan for eligible employees. Maryland’s Governor, Larry Hogan, described the bill as an initiative to help boost retirement savings for small business employees, without putting an excessive cost burden on employers. After several readings and amendments, the Maryland $aves bill was passed in May 2016 and took effect July 1, 2016.

What’s offered under Maryland Saves

The new law provides access to retirement savings through Individual Retirement Accounts, or IRAs, to eligible employees of specific, private-sector small businesses. Although individuals with earned income have always had the option to establish an IRA on their own, with no help from an employer, no option to contribute through paycheck deferrals existed before the Maryland $aves initiative. Under the law, employers with an automatic payroll system are required to establish a payroll deposit retirement savings arrangement for employees through a state-run trust. Maryland $aves is run by a board of selected individuals who are tasked with meeting the following program rules:
  • Establishing a range of investment options for the plan, including a default option for participants, focused on minimizing significant investment losses over time;
  • Setting a minimum and maximum contribution level for employees in line with federal laws about IRA contributions; and
  • Partnering with a third-party administrator to assist with managing the plan over time.

Requirements and provisions

In addition to the specifics of what is offered through Maryland $aves, the bill also laid out specific requirements and provisions of which employers and employees should be aware. The most notable revolves around the small businesses required to participate in the plan.

“Covered” Employers

Any private sector for-profit or nonprofit business operating in the state that meets the following criteria must participate in the plan:
  • Those that pay employees through a payroll system or service
  • Small businesses in operation at least two years
  • Companies that do not currently offer an employer-sponsored retirement savings arrangement to employees
  • Businesses that have not provided a retirement savings plan in the last two years

It is important to note that small businesses that meet these criteria may opt to establish their own retirement savings program for employees as an alternative to Maryland $aves.

Employee Guidelines

The bill also dictates eligibility for employees of covered small businesses. Workers must be at least 18 years old to participate, and they cannot have access to an employer-sponsored retirement plan.

Maryland $aves also requires automatic enrollment for employees. However, employees have the option to opt out of the plan at any time. The percentage or fixed dollar amount for automatic enrollment has yet to be determined by the board. However, once the program is in place, employees have the opportunity to select the amount they would like to save through paycheck deferrals, up to the annual contribution maximum. Currently, the IRS has annual limits on IRA contributions: no more than $6,000 per year for individuals under the age of 50 or $7,000 for those over age 50.

Plan Provisions

Above and beyond employer and employee guidelines, Maryland $aves also puts into place several regulations for how the program is run over time. The board of the trust and its staff are charged with creating a retirement savings plan that works in the interest of plan participants – not the state or small business employers. Additionally, a written investment policy is required, including details surrounding risk management and ongoing oversight of the program. The program is not funded by employer contributions but instead, paid for through administrative fees and investment expenses. The total for all charges on the account, including costs passed down to employees, cannot exceed 0.5 percent of the total assets in the plan.

Timeline to implementation

Although Maryland $aves was in effect July 2016, the program has yet to go live for small businesses and their employees. The board members are still working through the creation of the plan, adopting regulations and specific provisions as it relates to contributions and opting out. Additionally, the board is conducting due diligence on default investment options within the plan, third-party administration, and creating a compliant program as it relates to federal retirement savings laws. A significant portion of this work has to do with developing the required disclosures that must be provided to both employers and employees eligible for the program. According to the Maryland $aves website, the plan is set to be available as early as the fall of 2019.