If you are an employer in Maryland, you may be impacted by a new law which requires most employers to offer some sort of retirement savings plan. This can be a pension, a 401(k) plan, a 403(b) plan, a SEP IRA, and SIMPLE IRA, or a deferred compensation plan. If you don’t already offer one of these plans, MarylandSaves is the newly established way to meet the State’s requirement at no cost to the employer.
Defining the MarylandSaves program
The MarylandSaves program was designed to create a way for certain private-sector employers to establish a retirement savings plan for eligible employees at no cost to the employer. As the current law states, businesses that use an automated payroll system, have at least one W-2 employee, and have been in operation for at least two calendar years are required to offer some form of a retirement savings program to their employees. For employees to be eligible for the program, they must be at least 18 years old and cannot have access to another employer-sponsored retirement plan.
After enrolling in the MarylandSaves program, a Roth IRA will be opened for each participant and employee funds will be deposited into an emergency savings fund (the Lincoln Stable Value Fund) until the balance reaches $1,000. At this point, the subsequent contributions will be invested in the age-appropriate BlackRock Target Date Fund. Additional investment options include an Income Fund (State Street Aggregate Bond Index Fund) and a Global Growth Fund (T. Rowe Price Global Growth Stock Fund).
Any business who enrolls in this program (or offers another qualified plan) will receive a $300 waiver per year for the Maryland business annual filing fee.
Employee participation is optional
If an employer chooses to use the MarylandSaves program, employees will be automatically enrolled at 5%, but can opt out of the plan at any point. They can choose investment options and change their savings amount at any time, up to the IRA contribution limits. The accounts will be portable between job changes and will have competitive fees compared to commercial alternatives.
Limitations of MarylandSaves
While MarylandSaves does provide a retirement plan option for employers who don’t feel that they can’t manage the additional cost of another type of retirement plan, there are many limitations of this program. IRAs do not benefit high-earning employees due to the $6,000 ($7,000 if you’re age 50 or older) limits placed on these accounts, coupled with the lack of tax advantages. There are also very limited investment options available in the plan.
If your company is required to set up a retirement plan as a result of this legislation, consider alternative plan types to help realize the maximum benefit for the employees and employer.
The target date is the approximate date when investors plan to retire or start withdrawing their money. The principal value is not guaranteed at any time, including at the target date.