What You Need to Know about the Maine Retirement Savings Program

Maine has joined a growing number of jurisdictions in addressing the retirement savings crisis by implementing a mandatory auto-IRA program - Maine Retirement Investment Trust (MERIT). In June 2021, the state of Maine enacted legislation establishing the Maine Retirement Savings Program. This program requires private-sector employers without retirement plans to offer their employees the opportunity to contribute to a Roth IRA or show proof of another qualifying retirement plan being offered. 

Who is impacted?

As per the legislation, a covered employer refers to an individual or entity involved in any business, industry, profession, trade, or similar venture that has not provided employees with a designated tax-favored retirement plan. This classification encompasses both for-profit and not-for-profit enterprises. To qualify, businesses must have operated for a minimum of two consecutive calendar years.

A covered employee is defined as an individual aged 18 or above who is employed by a covered employer and receives wages or other compensation attributable to the state of Maine. Presently, this category encompasses part-time, seasonal, or temporary workers. However, the legislation stipulates that the board reserves the authority to establish additional criteria for part-time, seasonal, and temporary employee eligibility in the future.

There are penalties for not complying with this legislation in the state of Maine:

• From July 1, 2025-June 30, 2026: Maximum penalty per covered employee is $20
• From July 1, 2026 - June 30, 2027: Maximum penalty per covered employee is $50
• On or after July 1, 2027: Maximum penalty per covered employee is $100

How does it work?

Similar to other state-mandated programs, the Maine Retirement Savings program requires private-sector employees to contribute directly from their paychecks to a Roth IRA managed by the Maine Retirement Investment Trust (MERIT).

Key features of the Maine Retirement Savings Program include:

• Employers will deduct 5% of an employee’s salary or wages for contribution to a Roth IRA.
• Employees have the flexibility to adjust this deduction rate.
• The annual contribution rate will incrementally increase by a maximum of 1% of wages or salary per year, up to a cap of 10%.
• Employee contributions will be directly deposited into default investment options, such as target date funds, along with a limited selection of other investment choices determined by the board, including a principal preservation option.
• Companies are not permitted to match employee contributions.

Deadlines

Maine has two deadlines scheduled in 2024.

• April 30, 2024: Businesses with 15 or more employees
• June 30, 2024: Businesses with 5-14 employees

Businesses of these sizes must either join the state-run plan or certify they already offer a qualifying plan before that date to avoid the penalties previously discussed. Businesses with fewer than five employees are not yet required to offer retirement benefits, although they may still utilize the state-run program.

State-run plan vs 401(k)

There are no costs associated with administering the state-run plan in Maine. Even with that in mind, there are many reasons to consider another retirement plan option instead.

What are the biggest differences between RetirePath and other offerings?

• Maine offers a Roth IRA account, which allows employees to contribute a maximum of $7,000 (or $8,000 for those who are 50+) in 2024. A 401(k) or 403(b) plan has a higher contribution limit of $23,000 (or $30,500 for those who are 50+) for the same year.
• State-mandated retirement plans may offer a limited number of investments for users to choose from, while non-state plans may offer a wider range of investment options.
• For many state-run plans, the employer has administrative responsibilities. These include manually sending employees’ contributions to the plan with each payroll round. Many qualified plan recordkeepers offer automated payroll integrations and may handle other administrative and compliance-related tasks.

The retirement landscape

Maine is not the only state to launch this type of program. As of early 2024, ten states have active programs and more have passed legislation. It is important to know what is required of your clients who have employees in each of these states to ensure they are compliant.

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