Nate Moody
November 2, 2022
How to navigate Maine’s new retirement savings mandate
By Nate Moody
According to a recent study by the Bureau of Labor Statistics, only 49% of workers in the Northeast have access to a defined contribution plan, and 43% of workers without access to a plan report not being confident that they will have enough saved to cover their living expenses after they retire.
To address the growing retirement savings crisis, especially among those individuals without access to a retirement plan through their employer, Maine has become the seventh state to pass a mandated retirement savings program.
Passed June 2021, “An Act To Promote Individual Savings Accounts through a Public-Private Partnership” will require that covered employers automatically enroll covered employees into the newly formed Maine Retirement Savings Program. Individuals would have the option to opt out but may be automatically re-enrolled at regular intervals in the future. Covered employers who offer a qualified retirement — such as a 401(k), 403(b) or SIMPLE IRA (Savings Incentive Match Plan for Employees) — will be exempt from the program. Failure for a covered employer to comply will result in escalating fines.
Here's what you need to know:
- The bill establishes a new Maine Retirement Savings Board to develop, implement and run the program. Certain aspects of the program, such as recordkeeping platforms and investment options, have yet to be established.
- The program is structured to be a payroll deduction Roth Individual Retirement Account (IRA), subject to the same income and contribution limits as any other Roth IRA.
- Covered employer is defined as a Maine organization, whether for-profit or not-for-profit, that has been in business for at least two years and has not offered a retirement plan within the current calendar year or the two preceding calendar years. Government entities are not covered employers and are not eligible to participate.
- Covered employee is defined as anyone 18 years of age or older who is employed by a covered employer and who has taxable wages in Maine. This may include part-time and seasonal employees, although there are exceptions.
- Covered employees must be automatically enrolled at a 5% initial contribution rate and then increased by 1% annually up to an 8% cap, with the ability to opt out at any time. Employer contributions are not required nor allowed.
The legislation will be phased in over a 12-month period beginning in April 2023:
- April 1, 2023: a covered employer with 25 or more covered employees
- Oct. 1, 2023: a covered employer with 15 to 24 covered employees
- April 1, 2024: a covered employer with 5 to 14 covered employees
What are the options for my company?
If you are a covered employer and you do not currently offer an employer-sponsored retirement program, you have several options. You can utilize the Maine Retirement Savings Program as a low-cost (to the employer) and automated retirement plan option for your employees. However, ensure that your payroll provider and processes are equipped to handle remitting the contributions and tracking the eligibility, contribution limits and income limits. To avoid potential employee disruption, make sure to provide advance notice with ample time to opt out.
Alternatively, consider starting your own retirement plan. The most obvious benefit for doing so is that you have complete control over all aspects of the plan, such as whether to automatically enroll employees or what type of investment options to offer. Beyond having more control over the plan and its provisions, the potential benefits for sponsoring your own plan include tax credits, tax-deductible employee and employer contributions, higher contribution limits, and an additional way to differentiate yourself in this tight labor market.
The retirement savings crisis is not going to be solved overnight, but increasing access to retirement plans for Maine workers and increasing awareness around the importance of saving for retirement is a step in the right direction.
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