The National Institute on Retirement Security estimates that about 45% of private-sector workers are not offered a retirement savings plan by their employer. Moreover, 57% of American workers currently have less than $25,000 in savings. And in Maryland, a bipartisan task force found that one million working residents of the state have virtually no retirement savings. But as a retirement crisis looms for larger numbers of baby boomers, there is some good news. Statistics show that employees are 18 times more likely to save for retirement if the contributions are automatically deducted from their paychecks.
Based on these facts, the Maryland General Assembly this year passed the Maryland Small Business Retirement Savings Program and Trust. The law incents private-sector employers, both in the for-profit and the not-for-profit sectors, to make the Program available to employees who are currently without a retirement savings plan. The law requires private employers to participate in the Program if they have employees who don’t have an employer-sponsored retirement plan, and are paid compensation through a payroll system or service. The law also establishes a nine-month phase-in period for eligible employers to make the program available to their employees. In return, employers who participate or otherwise offer a retirement savings arrangement to their employees as specified in the law will be exempt from the state’s $300 personal property tax return annual filing fee for business entities once the program becomes operational.
Under the new law, eligible Maryland employers are required to remit employee contributions deducted from payroll into an IRA. Employees of a participating employer are automatically enrolled to contribute a fixed percentage or dollar amount of their compensation which amount has yet to be determined; however, employers are not required to (and in fact may not) contribute additional amounts. Notably, the new law provides an opt-out for employees who choose not to participate.
Certain employers are exempted if they currently offer an employer-sponsored retirement plan, have terminated an employer-sponsored plan within the last two years, or have not been in business at all times during the current and preceding calendar years.
Likewise, certain employees are exempted if they are eligible to participate in an employer-sponsored plan, if they are collectively-bargained employees covered by a multi-employer plan, or if they are under the age of 18 years.
What this means to you as an employer.
The law provides that participating employers are not fiduciaries, and may not be considered to be fiduciaries, of the trust or the Program. As a result, the new law encourages employers to participate by insulating them from liability for an employee’s decision to participate in or opt out of the Program. Neither will employers be liable for the investment decisions of employees whose assets are deposited in the Program, or for the administration, investment, or investment performance of the Program.
It is unclear what the penalties will be for non-compliant employers; however, at the very least, a nonparticipating employer would not be entitled to a waiver of the annual $300 filing fee. Otherwise, the new law has no specific penalty.
The law will take effect on July 1, 2016, assuming the Program qualifies for favorable federal income tax treatment, and is deemed exempt from the federal Employee Retirement Income Security Act of 1974 (ERISA).
Ultimately, complying with the new law should be fairly straightforward and inexpensive. Anticipating the trend toward the establishment of auto-enrollment retirement plans, payroll companies have begun to incorporate the requirements of schemes such as the Program into their services. In a majority of cases, the Program can be easily integrated into existing payroll systems for a relatively small incremental cost. You should discuss such integration with your payroll service provider.
If you have any questions regarding the Program, its effect on your business, or any other legal questions, feel free to contact Julian Haffneror any of the attorneys at McMillan Metro. We are always happy to assist.