Nate Moody, CPFA®, Retirement Advisor
What is it?
To address the growing retirement savings crisis, especially amongst those individuals without access to a retirement plan through their employer, Maine joins twelve other states to pass a mandated auto-IRA retirement savings program1. Four other states have created a state-sponsored voluntary program.
Passed June 2021, “An Act To Promote Individual Savings Accounts through a Public-Private Partnership” requires that “covered employers” automatically enroll “covered employees” into the newly formed Maine Retirement Investment Trust (MERIT)2. MERIT is a payroll-deduction Roth IRA program overseen by the Maine Retirement Savings Board.
When does it take effect?
Originally written to be phased in over time starting in April 2023, the deadline for organizations to comply has been tentatively delayed until December 31st, 2024. It is not currently clear whether they will keep the phase-in period after the delay.
Who does it apply to?
The law states that the mandate will apply to all ‘covered employers.’ ‘Covered employers’ are defined as any Maine-based organization (for-profit and not-for-profit) with 5 or more ‘covered employees.’ Governmental organizations, organizations created in the last two years, or organizations that offer their own qualifying retirement plan are exempt. The law does apply to cannabis-related businesses.
‘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, pending a final decision by the Maine Retirement Savings Board.
What if my organization already offers a retirement plan?
If your organization already offers a qualifying employer-sponsored retirement plan then you are exempt from the ‘covered employer’ definition and thus exempt from this program.
Qualifying employer-sponsored retirement plans include 401(a), 401(k), 403(b), 457(b), SIMPLE IRAs, and SEP IRAs.
What if my organization offers a plan but not everyone is eligible for it?
As long as you have a qualifying employer-sponsored plan and you define eligibility within what is allowable for that particular plan, then your entire organization is exempted from the program.
However, your employees (eligible for your plan or not) may still voluntarily elect to sign-up for MERIT. You will be responsible for remitting their payroll deductions to the program.
What if my organization does not offer a retirement plan?
You have three options:
- You can start your own retirement program prior to the deadline.
- More information on the benefits for sponsoring your own plan is listed at the end.
- You can use Maine’s program (MERIT).
- Using Maine’s program means automatically enrolling your employees into the program.
- You can do nothing and fall out of compliance.
- Employers that fail to enroll without reasonable cause will be subject to penalties assessed annually, ranging from $10-$100 per covered employee, increasing every year.
What does Maine’s program look like? Do I need to provide a match?
As mentioned before, MERIT is a payroll-deduction Roth Individual Retirement Account (IRA) program. This is not an employer-sponsored plan. As such, not only are you not required to provide a match, but as an employer, you could not contribute to this program even if you wanted to. Overall, your role as employer is fairly limited, consisting of mostly just enrolling employees into the program and remitting their deductions.
Employees must be automatically enrolled at 5% of their pay and then automatically increased 1% annually up to 10%. Employees would always have the option to opt out at any point. However, the Maine Retirement Savings Board reserves the right to require you to re-enroll previously opted out employees.
The exact details of MERIT are still being sorted out. Maine will likely have to partner with one of the other states that already has a program in place. This means the Program Administrator will likely end up being either Vestwell or Ascensus (the only two providers currently in this space). Employees will have access to their account through one of those two platforms. The Program Administrator will take care of any required notices. The investment lineup will be limited, mostly consistently of target date funds and a few core investment options.
What are the benefits of starting your own plan?
Offering a retirement plan can provide several benefits for a company, including attracting and retaining talented employees, improving employee morale and loyalty, and potentially reducing turnover and recruitment costs. 77% of workers report that retirement benefits are a major factor in their decision to stay with their current employer3.
How does MERIT compare to an employer-sponsored plan you might offer?
How can Lebel & Harriman help?
Lebel & Harriman Retirement Advisors is an independent advisory firm based in Falmouth, Maine and has been specializing in Retirement Plan Consulting since 1978. L&H has a deep level of expertise in helping employers design and implement retirement plans. If you have questions about how this new legislation could affect your business or would like information about implementing an alternative qualified retirement plan that better aligns with your business and employees’ needs, please do not hesitate to reach out to your local experts.
For more information, contact Nate Moody, CPFA® at (207) 773-5390 or firstname.lastname@example.org.
This document is for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, or other advice. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness.