MERIT or a 401(k)? A Guide for Maine Small Businesses

Nate Moody, CPFA – RETIREMENT ADVISOR, PARTNER

September 2025

If you own or run a small business in Maine, you have probably heard about the new state retirement plan mandate.  It requires employers of a certain size (5 or more ‘Covered Employees’) who do not already sponsor a retirement plan to either join MERIT (the Maine Retirement Investment Trust) or set up a plan of their own, most commonly a 401(k).  With a new crop of Maine businesses subject to this mandate in 2025, we thought it would be helpful to revisit this complex topic.

For many small businesses, this is uncharted territory. The mandate is clear: you need to offer employees a way to save for retirement, but how you meet that requirement is up to you. The choice comes down to whether MERIT is the right fit or if a traditional 401(k) plan would better serve your business and employees.

As some of you may know, I was selected by Governor Mills and confirmed by the Maine Senate to serve on the Maine Retirement Savings Board starting in 2024.  It was important to me that someone who works with Maine businesses all day, everyday had representation so their voice could be heard.  It’s important to note that MERIT is not designed to replace 401(k) or 403(b) Plans, it’s really designed to provide an additional solution for those Employers who are not in a position to start their own employer-sponsored retirement plan.

Below is a breakdown of the key differences, pros and cons, and a practical checklist to help you evaluate which path makes the most sense.

What is MERIT?

MERIT is Maine’s state-facilitated retirement savings program. It is structured as a Roth IRA, funded by employee payroll deductions. Employers simply facilitate contributions. There are no direct costs or fiduciary responsibilities beyond sending payroll deductions to the program.

Who is subject to MERIT?

• Size of business: Employers with five or more ‘covered employees’ in Maine.
• Years in business: Employers that have been in business for at least two years.
• Existing plan: Employers that do not already sponsor a qualified retirement plan, such as a 401(k), 403(b), or SIMPLE IRA.
• Covered employee: Is 18 years of age or older, has earned wages in Maine, and has or  is expected to work 120 days or more.

Employers who fall under these criteria must register for MERIT or adopt their own qualified plan to meet the state mandate. Smaller businesses with fewer than five employees, or those that are newer than two years old, are not required to participate at this time, though they may choose to do so voluntarily.

Key Considerations for MERIT

• Advantages of MERIT
  • Easy to implement with no plan design or administrative burden
  • No employer cost besides facilitating payroll contributions
  • Provides employees access to a retirement savings vehicle, many for the first time
  • Low compliance burden with no IRS Form 5500 filings or annual nondiscrimination testing
• Limitations of MERIT
  • Employee contribution limits are much lower than a 401(k) ($7,000 in 2024, plus $1,000 catch-up for those 50 and older)
  • No employer match or profit sharing option, which can limit its usefulness as a recruiting and retention tool
  • Limited investment options compared to a 401(k)
  • Roth IRA rules on income eligibility may disqualify some higher-earning employees

What is a 401(k) or a 403(b) Plan?

A 401(k) Plan is a common employer-sponsored retirement plan in the U.S. It can be customized to fit the size and goals of your business. A 401(k) allows both employee contributions and optional employer contributions. A 403(b) Plan is very similar to a 401(k) Plan with a few key differences and are only able to be offered by 501(c)(3) tax-exempt organizations.

Key Considerations for a 401(k) or 403(b) Plan

• Advantages of a 401(k) or 403(b) Plan
  • Much higher contribution limits ($23,500 in 2025, plus $7,500 catch-up for those 50 and older)
  • Employer contributions, either as a match or profit sharing, can enhance recruiting, retention, and employee satisfaction
  • Wide range of investment options
  • Ability to tailor plan features such as automatic enrollment, employee eligibility, loans, and vesting schedules
  • Potential tax deductions for employer contributions and plan start-up tax credits for small businesses
• Potential Disadvantages of a 401(k) or 403(b)
  • Greater administrative responsibility such as recordkeeping, compliance testing, and filings
  • Employer costs for plan administration and contributions if offered
  • Fiduciary responsibility, meaning the employer is responsible for ensuring the plan is run in participants’ best interest
  • Requires ongoing oversight to make sure fees and investments remain reasonable

Side-by-Side Comparison

Feature	MERIT (Roth IRA)	401(k) Plan
Employee Contribution Limit (2025)	$7,000 ($8,000 if age 50+)	$23,500 ($31,000 if age 50+)
Employer Contributions	Not permitted	Optional (match, profit sharing, discretionary)
Tax Treatment	Roth only (after-tax)	Pre-tax and/or Roth
Eligibility	IRA income limits apply.  Full-Time and Part-Time.	Employer sets eligibility rules (e.g. 21 years old, 1 year of service)
Administration	Minimal, handled by the state	Employer responsible or outsourced
Costs to Employer	None	Administrative fees, plus contributions if offered
Fiduciary Responsibility	None	Employer (may be shared or delegated with a fiduciary advisor)
Investment Options	State-selected menu	Broad, customizable menu

Which Path Fits Your Business?

MERIT may be the right fit if:

• You want a simple, no-cost way to comply with the mandate
• You are not ready to make employer contributions
• Most of your employees are lower-to-moderate earners who will benefit from Roth IRA eligibility
• You prefer minimal ongoing responsibility

A 401(k) or 403(b) may be the right fit if:

• You want to offer higher contribution limits for employees, especially key staff and owners
• You want the flexibility to contribute as an employer with a match or profit sharing
• Recruiting and retaining talent is a top priority
• You are comfortable with some administrative responsibility or willing to outsource it
• You want potential tax advantages through deductions and start-up credits

The Bottom Line

Both MERIT and a 401(k) can help your business comply with Maine’s retirement plan mandate. MERIT is designed to be a simple, low-cost entry point, while a 401(k) offers more flexibility, higher limits, and greater potential as a workplace benefit.

The best choice depends on your business goals, budget, and workforce. If you are primarily concerned with meeting the mandate at no cost, MERIT may be the answer. If you are looking to compete for talent, help employees save more, or create tax advantages for your business, a 401(k) may be worth the investment.

How Lebel & Harriman can Help

At Lebel & Harriman, our Small Business Team works with Maine employers every day to navigate these questions. Whether you are leaning toward MERIT or a 401(k), we can help you evaluate the trade-offs, run the numbers, and make sure the path you choose aligns with your business goals and your employees’ needs.

If you are unsure where to start, we are glad to sit down with you, walk through your options, and make the process as straightforward as possible.

Securities Disclosure: Securities offered through Valmark Securities, Inc. Member FINRA, SIPC. Investment Advisory Services offered through Valmark Advisers, Inc. a SEC Registered Investment Advisor. | 130 Springside Drive, Suite 300, Akron, OH 44333–2431 | Telephone: (800) 765‑5201 | Lebel & Harriman, LLP and Lebel & Harriman Retirement Advisors are separate entities from Valmark Securities, Inc. and Valmark Advisers, Inc.

Sources

• https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits
• https://www.irs.gov/newsroom/401k-limit-increases-to-23500-for-2025-ira-limit-remains-7000
• https://meritsaves.com/employers/program-details

This material is for informational purposes only and is not intended to provide, and should not be relied on for tax, legal, or investment advice. You should consult your own tax, legal, and accounting advisors before making any decision.

Securities offered through Valmark Securities, Inc. Member FINRA, SIPC. Investment Advisory Services offered through Valmark Advisers, Inc. a SEC Registered Investment Advisor. | 130 Springside Drive, Suite 300, Akron, OH 44333–2431 | Telephone: (800) 765‑5201 | Lebel & Harriman, LLP and Lebel & Harriman Retirement Advisors are separate entities from Valmark Securities, Inc. and Valmark Advisers, Inc.