LAST REVIEWED Feb 11 2022 10 MIN READ
By The Human Interest Team
MarylandSaves will require eligible employers to establish a retirement savings plan for their employees
The state-provided IRA plan is the first to include retirement income and emergency savings components
June 6, 2022 will mark the pilot launch of the program, while September 6, 2022 will mark the full launch of MarylandSaves
A 2018 study conducted from the Center for Financial Services Innovation found that 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. While some employers offer tax-deferred and tax-advantaged savings plans, unfortunately, many small businesses do not always provide this option as a benefit to workers. This may be due to a lack of understanding of the process, the administrative headache, or limited resources.
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. It was confirmed that MarylandSaves will launch in September 2022. Here’s a quick history of the bill, what’s offered under the program, and the current state of implementation.
MarylandSaves: Deadlines & program background
In February 2016, the Maryland Small Business Retirement Savings Program and Trust was introduced in the House. The bill, known as MarylandSaves (or Maryland$aves), was designed 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. The MarylandSaves bill was passed in May 2016 and took effect July 1, 2016.
In November 2021, Josh Gotbaum, chair of the Maryland Small Business Retirement Savings Program, announced that MarylandSaves would offer the automatic workplace retirement and emergency savings program by the summer of 2022. And in its February 2022 board meeting, the Maryland Small Business Retirement Savings Program confirmed that June 6, 2022 will mark the pilot launch of the program, while September 6, 2022 will mark the full launch of MarylandSaves.
What’s offered under MarylandSaves
MarylandSaves provides access to retirement savings through automatic IRAs to eligible employees of specific, private-sector small businesses. 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. The program requires employers that use an automated payroll system to:
Offer a retirement plan
Or sign their employees up for MarylandSaves.
Businesses have no payment obligations, no federal reporting requirements, and will pay nothing to MarylandSaves for the service. Businesses will also receive a $300 waiver of the Maryland business annual filing fee.
Does your Maryland business qualify for 401(k) tax credits?
Learn if starting a plan comes with tax incentives.
MarylandSaves: Requirements and provisions
In addition to the specifics of what’s offered through MarylandSaves, the bill outlines 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.
Employers that must enroll in MarylandSaves or 401(k) alternative
Any private sector, for-profit, or nonprofit business operating in the state of Maryland 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’s 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 MarylandSaves.
How employees will be impacted by the plan
The bill dictates eligibility for employees of covered small businesses. Workers must be at least 18 years old to participate, and cannot have access to an employer-sponsored retirement plan. MarylandSaves requires automatic enrollment for employees. However, employees may opt-out of the plan at any time. Employees can withdraw funds, choose investment options, and change their savings amount. Plus, accounts are portable, meaning that savers may keep them when they change jobs.
When enrolled in MarylandSaves, participant funds are deposited into an emergency savings account until it reaches a balance of $1,000 (in the Lincoln Financial Stable Value Fund, which currently has an interest rate of 1.4% and no separate investment fees). After the emergency savings account is funded, participant contributions will be invested in an age-appropriate target date fund (other investment options include an income fund and growth fund).
A unique feature of the program, the MarylandSaves Social Security Bridge option will allow participants to increase their Social Security benefits by deferring their Social Security enrollment and receiving MarylandSaves funds instead. According to the program, many Americans claim Social Security benefits before the full retirement age of 67, which prohibits them from receiving full benefits. MarylandSaves claims that the program could help increase Social Security benefits 8% each year participants choose to defer their payments.
The program has targeted an initial default contribution rate of 5% of an employee’s pay, with automatic 1% annual increases (up to a maximum of 10%). Once the program is in place, employees may select the amount they wish to save through paycheck deferrals, up to the annual contribution maximum. For 2022, 2021, 2020 and 2019, the IRS contribution limits to traditional IRAs and Roth IRAs is $6,000 ($7,000 if a participant is age 50 or older).
MarylandSaves plan provisions
Above and beyond employer and employee guidelines, MarylandSaves 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% of the total assets in the plan.
Will MarylandSaves be effective?
Offering a state-provided retirement plan is a step in the right direction for the state of Maryland. However, time will tell if MarylandSaves is effective. That said, we can turn to other state’s programs as a model for success. After launching OregonSaves in November 2017, Oregon became the first state-mandated IRA program in the country. While OregonSaves provided savings for more than 67,000 participants through April 2020, average account balances were at $754, according to a National Bureau of Economic Research study from February 2021.
As this average account balance suggests, auto-enrollment IRA plans may not be successfully setting up every individual for long-term retirement security. However, it’s important to note that employers do have options when it comes to offering a qualified retirement plan in the state of Maryland—including offering a 401(k) plan to employees.
When analyzing how to save for retirement, it’s important to compare MarylandSaves to your other options and check for any investment fees and available services. To help you evaluate your options, here’s a list of additional resources:
Looking to offer an affordable, accessible 401(k) in Maryland? Click here for more information about Human Interest.
The Human Interest Team
We believe that everyone deserves access to a secure financial future, which is why we make it easy to provide a 401(k) to your employees. Human Interest offers a low-cost 401(k) with automated administration, built-in investment advising, and integration with leading payroll providers.