Why Does Maine Need a State-Mandated Retirement Program?
The Maine legislation, designed to help address the growing retirement crisis in the United States where near-retirement households have a median retirement account balance of $14,5001, went a step further than most states. The Maine program would allow individual contractors and the self-employed to participate.
This is particularly important in Maine where unincorporated self-employment (as a percent of total employment) is above the national rate, according to the Maine Department of Labor. At one point less than a decade ago, the self-employment rate in Maine was 3 percent higher than the national rate. Nearly 70,000 individuals describe themselves as self-employed in Maine.
The Maine program, which will be phased in starting in April 2023, also will offer employers a key recruitment and retention tool, a major plus in a tight labor market.
Definitions in the Maine State-Mandated Retirement Program
The Maine Retirement Savings Board will oversee the program which is a payroll deduction Roth IRA that must be offered by a covered employer.
A covered employer is defined as an individual or entity engaged in business or trade in the state of Maine, whether for profit or not for profit, who has been in business for at least two years and has not offered a retirement plan within the current calendar year or two preceding calendar years. A covered employer with less than five (5) employees is not mandated to participate in the Maine Retirement Savings Program. Government entities (federal, state or municipal) are not covered employers and are not eligible to participate.
A covered employee is 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, although there are exceptions.
What Covered Employers Should Know About the Maine Retirement Program
There will be three implementation phases to the mandated program based on the size of the business. Employers with:
- 25 or more employees must offer a program by April 1, 2023
- 15 to 24 employees must offer the program by Oct. 1, 2023
- 5 to 14 employees must offer a program by April 1, 2024
Covered employers will be required to automatically enroll employees in the workplace plan and at regular intervals reenroll them if they have opted out. Employers also cannot match contributions in the plan.
Employers can opt out of offering the Maine program if they offer their own employer-sponsored retirement plan.
What Covered Employees Should Know About the Maine Retirement Program
Covered employees who wish to participate will have 5% of their salary or wages per paycheck automatically contributed. They can choose to give a higher or lower rate with the rate increasing by no more than 1% annually up to a maximum of 8% by law.
Employees in the Maine program also can opt out of participating, and will be reenrolled at future determined intervals, but will have the opportunity to opt out again.
The board in charge of launching Maine’s program is working on implementing policies and regulations for how the program will run.
Maine businesses do not have to wait for the state’s Roth IRA program to launch and can open an employer-sponsored retirement plan such as a 401(k) or even a Pooled Employer Plan to satisfy the mandate.
1National Institute of Retirement Savings, “The Continuing Retirement Savings Crisis”