Josh Gotbaum, chair of the Maryland Small Business Retirement Savings Program, and a former director of the Pension Benefit Guaranty Corporation (PBGC), announced that MarylandSaves will begin offering its new automatic workplace retirement and emergency savings program next summer.
Building on the experiences of programs in other states, MarylandSaves will be the first such state-run program that helps people have reliable income after they retire, according to the announcement. Savers in the program will automatically have their assets converted into a monthly paycheck at retirement age unless they choose otherwise. They will also have an option to increase their Social Security payments by deferring Social Security enrollment and receiving their MarylandSaves funds first instead.
The program also differs from other state programs in that it focuses on helping employees build emergency savings first. Initially, funds will go into an emergency savings account using the Lincoln Financial Stable Value Fund. This fund currently has a guaranteed interest rate of 1.4% and there are no separate investment fees. After the emergency savings account has been funded, the participant’s contributions will be invested in the age-appropriate BlackRock target-date fund (TDF). Optional investment choices include an income fund (State Street Aggregate Bond Index Fund, Class K) and a growth fund (T. Rowe Price Global Growth Stock Fund).
MarylandSaves is a state-sponsored program designed to make it easy for businesses to offer their employees a voluntary, automatic, low-cost, portable retirement and emergency savings plan. Under Maryland law, established businesses that use an automatic payroll system are required either to offer a retirement plan or to sign their employees up for the MarylandSaves program. Businesses that do so will receive $300 per year via a waiver of the Maryland business annual filing fee. Employers will have no payment obligations, have no federal reporting requirements and will pay nothing to MarylandSaves for the service.
Employee participation is completely voluntary. Employees are automatically enrolled, but they can withdraw funds, choose investment options, change their savings amount or opt out entirely at any time. The announcement says account fees will be lower than commercial alternatives, and savers keep their accounts when they change jobs.
The program will be administered by a team composed of Vestwell, Sumday and BNYMellon, which the announcement says were selected after a rigorous competitive process. All savings will be professionally managed at negotiated rates by BlackRock, State Street Global Advisors, Lincoln Financial Group and T. Rowe Price.
Maryland joins other U.S. states (California, Connecticut, Illinois, Massachusetts New Jersey, New York, Oregon, Vermont and Washington) and two cities (Seattle and New York City) that have enacted legislation or set up the retirement programs to help close the retirement plan coverage gap. The states’ efforts are in addition to efforts from a new generation of providers—i.e., nontraditional recordkeepers—that are using technology to make offering a retirement plan cheaper for businesses and to bring employers more flexibility, as well as legislative efforts to ease administration through pooled employer plans (PEPs).
A survey from the National Institute on Retirement Security (NIRS) finds strong support for new state-facilitated retirement programs aimed at helping workers without employer-provided plans save for retirement. Seventy-two percent of Americans agree that state-facilitated retirement savings programs are a good idea, with high support across party and generational lines. Three-quarters of survey respondents say they would participate in these retirement programs if they were offered in their state, and most express favorable views of features such as portability and low fees.
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