Maryland $aves Requires Certain Employers to Provide Employees a Retirement Plan Option
The Maryland Small Business Retirement Savings Program (Maryland $aves) will create benefits for employers and employees. Originally set to start in mid-2020, the program has most likely been delayed by the COVID-19 pandemic.
Similar to nearly a dozen other states that enacted state-sponsored programs, the Maryland legislature adopted the Maryland $aves program – signed into law by the governor in 2016 – to address the growing retirement crisis in the United States.
Why does Maryland need a state-sponsored retirement program?
Nationally, near-retirement households have a median retirement account balance of $14,500, while 62 percent of households with working individuals between the ages of 55-64 have less than one times their annual income saved for retirement1. Also, less than 25 percent of those working for a company that employs less than 10 people have access to a payroll-based retirement plan, whether that is due to limited resources or lack of time to administer by the employer. These statistics, from a National Institute of Retirement Savings report, are particularly relevant to Maryland, where small businesses make up nearly 70% of employers and employ 17 percent of the state’s non-governmental workers2.
The Maryland $aves program can help start to reverse the trend for employees, while offering employers a recruiting and retention tool.
What employers should know about the Maryland $aves program
Maryland requires all employers with automatic payroll processing to participate in the Maryland $aves plan that enables employees to contribute through payroll deferral. There are exemptions for several businesses:
- Startups that have operated for fewer than two years
- Businesses that offer or have offered within the past two years a voluntary payroll-based retirement savings plan such as a 401(k)
- All government entities (federal, state, and local)
Employers who offer the IRA-based retirement savings plan or another qualified plan will have the $300 annual report filing fee waived. Employers can opt out of offering Maryland $aves if they offer their own employer-sponsored retirement plan.
Employers are not required to make contributions toward the plan – for matching or administration. Maryland $aves is intended to be self-financing from fees collected on funds invested in the IRAs.
What employees should know about the Maryland $aves program
The Maryland $aves program does stipulate requirements for employees, as well, including:
- Participants must be 18 years old
- Employees don’t have access to an employer-sponsored retirement savings plan
Employees will be enrolled automatically but can opt out of participating in the program at any time. The board has proposed an initial default contribution amount of 5% of employee compensation per paycheck. Employees will have the ability at any time to change the amount they want to defer through payroll.
The board in charge of launching Maryland $aves currently is working toward finalizing policies and regulations for how the program will run. Paychex will continue to monitor the legislation and provide updates when information is available.
Maryland businesses do not have to wait for the program to launch and can open a retirement plan such as a 401(k) through a provider such as Paychex to satisfy the mandate.
1National Institute of Retirement Savings, “The Continuing Retirement Savings Crisis”
2U.S. Census Bureau, “Data by Enterprise Employment Size: U.S. & States.”