LAST REVIEWED Jun 30 2021 9 MIN READ
By The Human Interest Team
In June 2021, Maine state legislature signed An Act To Promote Individual Retirement Savings through a Public-Private Partnership (LD 1622) into law
The bill requires qualifying employers to provide a Roth IRA by automatically enrolling employees with an opportunity to opt out
The mandatory program has deadlines rolling out in intervals; starting on April 1, 2023, employers with 25+ employees in Maine must comply
In June 2021, Maine signed a bill into law to create the Maine Retirement Savings Program. Under the program, private-sector employers that don’t offer a retirement plan must provide their employees the option to contribute to a Roth IRA from their paychecks. The Pine Tree State is the latest state to address the retirement savings crisis and joins a growing list of jurisdictions that have introduced a mandatory auto-IRA program.
Nearly half of all private-sector workers in Maine—about 235,000 people—do not currently have access to an employer-sponsored retirement savings program, according to AARP data from 2015. Currently, more than one-third of Maine residents age 65 and older depend on Social Security Benefits without any retirement savings. While an auto-IRA program may be a step forward for the state, is it ideal for your Maine business? Read more to find out.
Overview of Maine Retirement Savings Program legislation
On June 17, 2021, both the Maine House of Representatives and Senate passed An Act To Promote Individual Retirement Savings through a Public-Private Partnership (LD 1622) with overwhelming support. One week later, on June 24, Maine Governor Janet Mills signed the bill into law. The bill created the Maine Retirement Savings Board to develop, establish, and maintain the program. Under LD 1622, employers with more than 25 covered employees that don’t already offer a retirement option would have to comply by April 1, 2023 (more on deadlines below).
What are the Maine Retirement Savings Program plan details?
Under the bill, private-sector workers would contribute to a Roth IRA from their paychecks. The bill will require employers to provide employees the choice to contribute to a payroll deduction Roth IRA by automatically enrolling them with an opportunity to opt out. Covered employees that do choose to opt out will be automatically re-enrolled with the opportunity to opt out again at regular or ad hoc intervals. While re-enrollment intervals are yet to be determined, according to the most current version of the bill, the amount will not be more frequently than annually.
Below are some important features of the Maine Retirement Savings Program:
Employers will automatically deduct 5% of an employee’s salary or wages to a Roth IRA
Employees may choose to increase or decrease this rate
The annual contribution rate will increase no more than 1% of wages or salary per year (to a maximum of 8%)
As currently written, LD 1622 will provide employee direct deposit into a default investment such as a series of target date funds and limited investment alternatives, including a principal preservation option determined by the board. Companies will not be required to match employee contributions. The Maine Retirement Savings Board could potentially expand the program to include a traditional IRA option. The Roth IRA would follow workers between jobs. Finally, the program currently will allow individuals who are not employees—including self-employed and independent contractors—to participate.
Who does the Maine Retirement Savings Program include?
According to the bill, a covered employer is a person or entity engaged in a business, industry, profession, trade, or other enterprise that has not offered employees a specified tax-favored retirement plan. This includes for profit and not for profit businesses. Finally, qualifying businesses must have been in operation for at least two calendar years.
A covered employee is an individual aged 18 or older employed by a covered employer and who has wages or other compensation that are allocable to the state of Maine. Currently, this includes part-time, seasonal, or temporary workers; however, the legislation claims that the board may establish future requirements for part-time, seasonal, and temporary employee eligibility.
What are the deadlines?
The program will be implemented in phases, with deadlines as followed:
April 1, 2023: Employers with 25 or more employees in Maine must offer the program
October 1, 2023: Employers with 15 to 24 employees in Maine must offer the program
April 1, 2024: Employers with 5 to 14 employees in Maine must offer the program
Regardless of qualifications, employers may voluntarily offer the program to its employees on or after April 1, 2023. Additionally, employers with five or fewer employees are not required to offer the program, they may choose to do so.
Are there penalties for not participating in the Maine Retirement Savings Program?
Yes. According to the bill, the board will enforce penalties on qualifying employers each calendar year (or portion of a calendar year) for failing to enroll an employee without reasonable cause. The amount of a penalty is as followed:
Prior to April 1, 2024: Maximum penalty per employee is $10
April 1, 2024 - March 31, 2025: Maximum penalty per employee is $20
April 1, 2025 - to September 30, 2026: Maximum penalty per employee is $50
On or after October 1, 2026: Maximum penalty per employee is $100
Do Maine small businesses have other options?
Yes! According to the bill, a "specified tax-favored retirement plan" means a plan, program or arrangement that is tax-qualified. This may include a 401(k) or other plans qualified under sections 401(a), 403(a), 403(b), 408(k), 408(p), or 457(b) of the IRS.
What this means is that employers should consider the options. While the lack of an employer match might sound attractive for employers, many employers may be better off providing a match to employer contributions in the form of a 401(k) plan. For example, employer contributions to 401(k) plans are tax deductible as long as they don’t exceed limits set by the IRS. What’s more, some 401(k) plan administrative fees are also tax-deductible.
If you’re a small business establishing a 401(k) plan for the first time, you may be eligible for even more incentives. The SECURE Act may offer your small business additional tax credits and is currently undergoing some big changes—many of which will positively impact small businesses. We’ll be sure to keep you updated.
Consider the benefits of a 401(k) for your employees
For example, Roth IRA holders can only contribute up to $6,000 ($7,000 if age 50 and over) per year in 2020 and 2021 (the same limits apply to traditional IRA). Many employees—including high-earning individuals and those close to retirement age—may be better served by a 401(k), which allows much higher contribution rates. In 2021, contribution limits for employees in a 401(k) plan is $19,500. Employees aged 50 or older can take advantage of catch-up contributions, meaning they can contribute an additional $6,500, for a total of $26,000.
It’s important to weigh your retirement plan options. Not only does a 401(k) potentially provide tax incentives, it can also help your employees save more for their futures. How can a low-cost 401(k) retirement savings plan match the needs of your small and medium-sized business? Human Interest is here to help.
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.